A10 Networks Reports Organic Growth, Expansion of Recurring Revenue and Security Solutions, Driven by 5G and Cybersecurity, for Q1 2021

Rhea-AI Summary

A10 Networks (NYSE: ATEN) reported its first-quarter financial results for 2021, revealing a revenue increase of 2.0% year-over-year to $54.8 million. Deferred revenue grew 11.8% to $113.2 million, with security solutions comprising 60% of revenue, a 15.5% increase year-over-year. The company posted a net income of $2.7 million ($0.03 per share), compared to a net loss of $(297,000) in Q1 2020. Non-GAAP net income rose to $9.4 million ($0.12 per share). Cash and equivalents stand at $161 million with no debt, supporting future growth initiatives.

Positive

• Revenue increased by 2.0% year-over-year to $54.8 million.
• Deferred revenue rose 11.8% year-over-year to $113.2 million.
• Security solutions accounted for 60% of revenue, up 15.5% year-over-year.
• GAAP net income improved to $2.7 million from a loss in Q1 2020.
• Non-GAAP net income grew to $9.4 million from $4.0 million in Q1 2020.
• Cash and equivalents increased to $161 million with no debt.

Negative

• Japan revenue experienced a decline due to the timing of the Olympics.

A10 Networks (NYSE: ATEN), a leading provider of secure application services and solutions, today announced financial results for its first quarter ended March 31, 2021.

First Quarter 2021 Financial Summary

• Revenue of $54.8 million, up 2.0% year-over-year.
• Deferred revenue of $113.2 million, up 11.8% year-over-year.
• Security solutions grew to 60% of revenue and increased 15.5% on TTM basis.
• GAAP gross margin of 77.2%; non-GAAP gross margin of 78.9%.
• GAAP net income of $2.7 million, or $0.03 per share, compared with a net loss of $(297,000), or $(0.00) per share in the first quarter of 2020.
• Non-GAAP net income of $9.4 million, or $0.12 per share compared with non-GAAP net income of $4.0 million, or $0.05 per share in the first quarter of 2020.
• Adjusted EBITDA of $13.0 million, an improvement of $5.8 million compared with $7.2 million in the first quarter of 2020.

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

“We made significant progress in the first quarter against our stated goal of growing recurring revenue, and continued increasing security solutions revenue as a percent of total revenue,” said Dhrupad Trivedi, President and Chief Executive Officer of A10 Networks. “Our best-in-class security solutions are increasingly well-received by the market, and demand for network security solutions is growing. Software now represents more than 10% of our total revenue in the first quarter, compared to 6% for the full-year of 2020 and just 4% in 2019. Our stated goal was to grow recurring revenue faster than our consolidated revenue, giving us greater predictability into our quarterly revenues and enhancing the financial leverage we have built into our business model. As expected, we saw a decline in our Japan revenue related to the timing of the Olympics, but our strong book-to-bill performance in the quarter of 1.2:1 supports our full-year growth outlook for Japan. We were able to offset this temporary weakness with strong, improving performance in the Americas.”

“Over the past two years, we have maintained discipline in our cost structure while continuing to invest in growth initiatives,” continued Trivedi. “This enabled us to deliver more than $10.8 million in non-GAAP operating income versus $4.1 million in the first quarter last year and a loss of $5.9 million just two years ago, strengthening our balance sheet by growing cash and cash equivalents to $161 million, or approximately $2.02 per diluted share, and no debt. We now have an efficient, focused organization and we are positioned to increase investment in sales, marketing and R&D to facilitate growth in line with our business model. Security solutions grew 15.5% year-over-year on a trailing-12-month basis, and these solutions are creating strong momentum to expand our business going forward in addition to driving recurring revenue. With compelling offerings and powerful catalysts driving demand for our solution, we are well-positioned for a solid 2021.”

Conference Call Information

A10 Networks will host a conference call today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time for analysts and investors to discuss its first quarter 2021 financial results. Open to the public, interested parties may access the conference call by dialing (844) 792-3728 or (412) 317-5105. 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 seven business days and may be accessed by dialing (877) 344-7529 or (412) 317-0088 and entering the passcode 10155102.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our strategic focus, demand for our solutions, revenue predictability, financial leverage, growth outlook for Japan, investment in growth initiatives and sales, marketing and R&D, revenue growth, including recurring revenue, and our positioning. 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 the impact of the COVID-19 pandemic, and its impact on the timing of customer orders and product shipments; members of our management team or a significant number of our global employee base becoming ill with COVID-19; changes in government regulations and mandates to address COVID-19 that may adversely impact our ability to continue to operate without disruption; a significant decline in global macroeconomic conditions that have an adverse impact on our business and financial results; challenges to our infrastructure because of the number of employees working from remote locations; 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 March 10, 2020. 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), this press release and the accompanying tables contain certain non-GAAP financial measures, including non-GAAP net income (loss), non-GAAP net income (loss) per basic and diluted share, non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses, and Adjusted EBITDA. 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 (loss) excluding: (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define non-GAAP net income per basic and diluted share as our non-GAAP net income (loss) 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, and (ii) global distribution center transition expense. We define non-GAAP gross margin as our non-GAAP gross profit divided by our GAAP revenue. We define non-GAAP operating income (loss) as our GAAP income (loss) from operations excluding (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define non-GAAP operating margin as our non-GAAP operating income (loss) 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) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define Adjusted EBITDA as our GAAP net income (loss) excluding (i) interest expense (if any), (ii) interest income and other (income) expense, net, (iii) depreciation and amortization expense, (iv) provision for income taxes, (v) stock-based compensation and related payroll tax, (vi) litigation settlement and internal investigation expense, (vii) global distribution center transition expense, and (viii) non-recurring facilities expense.

We have included our non-GAAP net income (loss), non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses and Adjusted EBITDA in this press release. 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 secure application services and solutions for on-premises, multi-cloud and edge-cloud environments at hyperscale. Our mission is to enable service providers and enterprises to deliver business-critical applications that are secure, available and efficient for multi-cloud transformation and 5G readiness. We deliver better business outcomes that support investment protection, new business models and help future-proof infrastructures, empowering our customers to provide the most secure and available digital experience. Founded in 2004, A10 Networks is based in San Jose, Calif. and serves customers globally. For more information, visit https://www.a10networks.com/ and follow us @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.

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts, on a GAAP Basis)
	Three Months Ended March 31,
	2021					2020
Revenue:
Products	$	30,540				$	30,736
Services	24,303					23,028
Total revenue	54,843					53,764
Cost of revenue:
Products	7,086					6,941
Services	5,413					5,201
Total cost of revenue	12,499					12,142
Gross profit	42,344					41,622
Operating expenses:
Sales and marketing	19,092					20,621
Research and development	13,981					15,315
General and administrative	5,247					5,895
Total operating expenses	38,320					41,831
Income (loss) from operations	4,024					(209		)
Non-operating income (expense):
Interest and other income (expense), net	(1,183		)			231
Total non-operating income (expense), net	(1,183		)			231
Income (loss) before provision for income taxes	2,841					22
Provision for income taxes	184					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:
Basic	76,704					78,061
Diluted	79,636					78,061

A10 NETWORKS, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (LOSS)
(unaudited, in thousands, except per share amounts)
	Three Months Ended March 31,
	2021				2020
GAAP net income (loss)	$	2,657			$	(297	)
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		4,620				3,241
Amortization expense related to acquisition		253				253
Litigation and investigation expense		—				30
Non-recurring facilities expense		—				795
Global distribution center transition expense		1,911				—
Non-GAAP net income	$	9,441			$	4,022
GAAP net income per share:
Basic	$	0.03			$	—
Diluted	$	0.03			$	—
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		0.06				0.04
Amortization expense related to acquisition		—				—
Litigation and investigation expense		—				—
Non-recurring facilities expense		—				0.01
Global distribution center transition expense		0.03				—
Non-GAAP net income (loss) per share:
Basic	$	0.12			$	0.05
Diluted	$	0.12			$	0.05
Weighted-average shares used in computing non-GAAP net income per share:
Basic		76,704				78,061
Diluted		79,636				79,747

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value, on a GAAP Basis)
	March 31, 2021					December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	75,696				$	83,281
Marketable securities	85,261					74,851
Accounts receivable, net of allowances of $4 and $41, respectively	51,449					51,051
Inventory	19,547					20,730
Prepaid expenses and other current assets	13,022					12,390
Total current assets	244,975					242,303
Property and equipment, net	8,223					7,888
Goodwill	1,307					1,307
Intangible assets, net	502					862
Other non-current assets	36,573					38,451
Total assets	$	291,580				$	290,811
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,521				$	4,851
Accrued liabilities	26,198					36,930
Deferred revenue	68,299					65,999
Total current liabilities	99,018					107,780
Deferred revenue, non-current	44,920					42,700
Other non-current liabilities	22,983					24,357
Total liabilities	166,921					174,837
Commitments and contingencies
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 77,102 and 76,346 shares issued and outstanding, respectively	1					1
Treasury stock, 5,587 and 5,578 shares, respectively	(37,498		)			(37,410		)
Additional paid-in-capital	431,738					425,534
Accumulated other comprehensive income	10					98
Accumulated deficit	(269,592		)			(272,249		)
Total stockholders' equity	124,659					115,974
Total liabilities and stockholders' equity	$	291,580				$	290,811

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands, on a GAAP Basis)
	Three Months Ended March 31,
	2021					2020
Cash flows from operating activities:
Net income (loss)	$	2,657				$	(297	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	2,413					3,311
Stock-based compensation	4,399					3,040
Other non-cash items	181					(13		)
Changes in operating assets and liabilities:
Accounts receivable	(315		)			10,767
Inventory	1,086					1,472
Prepaid expenses and other assets	(60		)			2,426
Accounts payable	(501		)			(3,718		)
Accrued and other liabilities	(12,106		)			(4,919		)
Deferred revenue	4,519					114
Net cash provided by operating activities	2,273					12,183
Cash flows from investing activities:
Proceeds from sales of marketable securities	1,300					1,914
Proceeds from maturities of marketable securities	24,140					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 plans	1,756					2,005
Repurchase of common stock	(88		)			—
Net cash provided by financing activities	1,668					2,005
Net increase (decrease) in cash and cash equivalents	(7,585		)			19,891
Cash and cash equivalents—beginning of period	$	83,281				$	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

A10 NETWORKS, INC.
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
(unaudited, in thousands, except percentages)
	Three Months Ended March 31,
	2021				2020
GAAP gross profit	$	42,344			$	41,622
GAAP gross margin

FAQ

What were A10 Networks' financial results for Q1 2021?

A10 Networks reported revenue of $54.8 million, a 2.0% increase year-over-year, and a net income of $2.7 million.

How did A10 Networks' security solutions perform in Q1 2021?

Security solutions represented 60% of revenue, showing a 15.5% increase year-over-year.

What is A10 Networks' deferred revenue as of Q1 2021?

A10 Networks reported deferred revenue of $113.2 million, an 11.8% year-over-year increase.

What was A10 Networks' cash position in Q1 2021?

A10 Networks had cash and cash equivalents of $161 million with no debt as of Q1 2021.

How did A10 Networks' net income change from Q1 2020 to Q1 2021?

The company reported a net income of $2.7 million in Q1 2021, compared to a net loss of $(297,000) in Q1 2020.