The Zacks Communication-Network Software industry players like A10 Networks (ATEN) and Ondas (ONDS) are gaining from the ongoing digitalization efforts, including a shift to cloud computing and the rapid deployment of 5G-based networks. The strong demand for network security benefits industry participants, as a secure environment is required to run cloud-based applications. Industry players are leveraging artificial intelligence (AI) and machine learning to develop security solutions, thereby providing bett ...

An updated edition of the April 25, 2025 article.The digital economy has changed how companies view cybersecurity. It’s no longer just an IT concern tucked away in the background, but it is now a top priority in every boardroom. Businesses are constantly under threat, facing a flood of cyberattacks that are getting more frequent and more sophisticated. Ransomware, data breaches and phishing attacks can lead to serious financial losses and damage to brand reputation.With threats mounting, it’s no surprise th ...

Revenue Performance - Total net revenue for the three months ended March 31, 2025, was $66.1 million, representing a 9% increase from $60.7 million in the same period of 2024[146]. - Products revenue increased by $5.9 million, or 19.7%, to $36.0 million, while services revenue decreased by $0.4 million, or 1.5%, to $30.2 million[142]. - Revenue from the Americas region accounted for 51% of total revenue, with the United States contributing 46% and showing a 30% increase from the previous year[136][146]. - The EMEA region saw a significant revenue increase of 71%, rising to $14.0 million, while the APJ region experienced a decrease of 26% to $18.6 million[146][147]. - Total revenue from the Americas region was $33.5 million, or 51% of total revenue, representing a 22% increase compared to the same period in 2024[149]. - Revenue from the APJ region was $18.6 million, or 28% of total revenue, reflecting a 26% decrease compared to the same period in 2024[150]. - Revenue from the EMEA region was $14.0 million, or 21% of total revenue, showing a 71% increase compared to the same period in 2024[151]. Financial Position - The company had $243.8 million in cash and cash equivalents and $112.0 million in marketable securities as of March 31, 2025[138]. - As of March 31, 2025, the company had cash and cash equivalents of $243.8 million and total stockholders' equity of $195.9 million[176]. - The company’s investment portfolio included marketable securities with an aggregate amortized cost basis of $111.7 million and a fair value of $112.0 million[200]. Operating Performance - Operating income for the three months ended March 31, 2025, was $8.8 million, a 21.7% increase from $7.2 million in the same period of 2024[142]. - Total cost of net revenue increased by $1.998 million, or 17.5%, during the three months ended March 31, 2025, compared to the same period in 2024[154]. - Gross profit for products was $28.716 million with a gross margin of 79.8%, an increase of 2.4% compared to the same period in 2024[160]. - Total operating expenses increased by $1.899 million, or 4.5%, during the three months ended March 31, 2025, compared to the same period in 2024[163]. Cash Flow - Cash provided by operating activities was $17.2 million for the three months ended March 31, 2025, compared to $32.4 million in the same period of 2024[138]. - Cash provided by operating activities for the three months ended March 31, 2025, was $17.2 million, consisting of net income of $9.5 million and non-cash charges of $10.7 million[185]. - Cash used in investing activities during the same period was $34.7 million, primarily due to purchases of marketable securities totaling $41.9 million and cash paid for the acquisition of ThreatX Protect amounting to $19.1 million[189]. - Cash provided by financing activities for the three months ended March 31, 2025, was $166.3 million, mainly from net proceeds of $217.7 million from the issuance of the 2030 Notes[191]. Strategic Initiatives - The company acquired ThreatX Protect in February 2025, enhancing its cybersecurity portfolio with WAAP protection[132]. - The company plans to continue investing in product development and expanding its global sales and marketing efforts, which may impact short-term profitability[139]. Customer Concentration - The ten largest end-customers accounted for 44% of total revenue for both the three months ended March 31, 2025, and 2024[137]. Other Financial Metrics - The company recorded a net foreign exchange gain of $0.2 million during the three months ended March 31, 2025[199]. - The company experienced a favorable change in accounts receivable of $10.5 million due to the timing of billing and cash collections for the three months ended March 31, 2025[185]. - The unfavorable change in accrued liabilities was primarily due to a decrease in accrued variable compensation[186]. - Total contractual obligations as of March 31, 2025, amounted to $10.7 million, related to non-cancellable operating lease arrangements[193]. - The company’s non-cash charges for the three months ended March 31, 2025, included depreciation and amortization expenses of $3.4 million and stock-based compensation expense of $6.0 million[185]. - The effect of a hypothetical 10% change in interest rates would not have a material impact on the company's interest expense[200].

Company Performance - A10 Networks reported quarterly earnings of $0.20 per share, exceeding the Zacks Consensus Estimate of $0.19 per share, and up from $0.17 per share a year ago, representing an earnings surprise of 5.26% [1] - The company posted revenues of $66.14 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 5%, compared to $60.68 million in the same quarter last year [2] - Over the last four quarters, A10 Networks has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Outlook - A10 Networks shares have declined approximately 10.4% since the beginning of the year, while the S&P 500 has decreased by 5.3% [3] - The company's earnings outlook is mixed, with the current consensus EPS estimate for the coming quarter at $0.19 on revenues of $64.75 million, and $0.89 on revenues of $275.55 million for the current fiscal year [7] - The current Zacks Rank for A10 Networks is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Industry Context - The Communication - Network Software industry, to which A10 Networks belongs, is currently ranked in the bottom 12% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - The company reported first quarter revenue of $66.1 million, reflecting a 9% year-over-year increase [12] - Gross margin for the quarter was 80.9%, consistent with the target range of 80% to 82% [16] - Non-GAAP net income for the quarter was $15 million, or $0.20 per diluted share, compared to $12.7 million, or $0.17 per diluted share in the same quarter last year [16] - Cash from operations generated during the quarter was $15.2 million, normalizing in line with historical patterns [17] Business Line Data and Key Metrics Changes - Enterprise revenue grew by 18% year-over-year, while service provider revenue increased by 3% [5][12] - On a trailing twelve-month basis, enterprise revenue increased by 12%, indicating a solid foundation for future growth [6] - Product revenue constituted 54% of total revenue, while services revenue made up 46% [13] Market Data and Key Metrics Changes - North America showed relatively strong performance, while Asia Pacific results were impacted by a strong Q1 last year due to large infrastructure projects in Japan [13] - Overall market conditions have improved and stabilized, with service provider customer growth driven by demand for greater data center capacity [7][11] Company Strategy and Development Direction - The company is focusing on expanding its presence and capabilities with enterprise customers, particularly through the acquisition of ThreatX Protect to enhance its cybersecurity portfolio [8][9] - The rise of AI is driving demand in the enterprise segment, reinforcing the strategic position of the company [10] - The company aims to maintain a strong balance sheet while navigating market volatility and returning capital to shareholders [11][19] Management's Comments on Operating Environment and Future Outlook - Management noted that while there may be delays in order timing due to market conditions, these are expected to be temporary [6] - The company is comfortable with expectations of high single-digit revenue growth for the year, pending macroeconomic conditions [35] - Management emphasized the importance of aligning with AI trends and maintaining a competitive edge in the market [21] Other Important Information - Total deferred revenue increased by 8% to $152.7 million, indicating greater visibility into future revenues [14] - The company has authorized a new $75 million share repurchase program, following nearly exhausting the previous authorization [19] Q&A Session Summary Question: Impact of tariffs on customer conversations - Management indicated that there is caution among customers regarding macroeconomic conditions, but spending patterns are not completely frozen [27][29] Question: Visibility on large customer initiatives for AI data centers - Management noted reasonable visibility into large AI build-outs, with companies modulating their plans based on financials [30][31] Question: Anticipation of high single-digit revenue growth - Management expressed comfort with the expectation of high single-digit revenue growth, pending macroeconomic shifts [35] Question: Competitive landscape in data center capacity - Management stated that the competitive dynamic remains consistent, with partnerships evolving as service providers build AI data centers [36] Question: Growth dynamics in enterprise revenue - Management clarified that the growth in enterprise revenue is reflective of a soft Q1 last year, with multiple customers contributing to the increase [41] Question: Caution among service provider customers - Management indicated that caution is broad-based among service providers, although some are more aggressive in their spending [42][43] Question: Sales and marketing expenses - Management explained that the decrease in sales and marketing expenses is part of cost management to maintain EBITDA margins while investing in R&D [44] Question: Full year EBITDA target - Management remains confident in achieving the target EBITDA margin of 26% to 28% despite potential fluctuations in input costs [49][50] Question: Diversification of contract manufacturing partners - Management is actively working on building a more resilient and flexible global footprint for manufacturing [51][52] Question: Exchange rate impacts - Management acknowledged that exchange rate fluctuations could pose revenue risks, but project timelines are primarily driven by customer needs [55]

Financial Data and Key Metrics Changes - A10 Networks reported first quarter revenue of $66.1 million, reflecting a 9% year-over-year increase [12] - Non-GAAP net income for the quarter was $15 million, or $0.20 per diluted share, compared to $12.7 million, or $0.17 per diluted share in the same quarter last year [15] - Gross margin for the first quarter was 80.9%, consistent with the company's target range of 80% to 82% [15] - Adjusted EBITDA was $19.5 million, representing 29.5% of revenue [15] Business Line Data and Key Metrics Changes - Enterprise revenue grew by 18% year-over-year, while service provider revenue increased by 3% [6][12] - On a trailing twelve-month basis, enterprise revenue increased by 12%, indicating a solid foundation for future growth [6] - Product revenue accounted for 54% of total revenue, while services revenue made up 46% [13] Market Data and Key Metrics Changes - North America showed relatively strong performance, while Asia Pacific results were impacted by a strong Q1 last year due to large infrastructure projects in Japan [13] - Overall market conditions have improved and stabilized, with service provider customer growth driven by demand for greater data center capacity [6][11] Company Strategy and Development Direction - A10 Networks is focusing on expanding its presence and capabilities with enterprise customers, particularly through the acquisition of ThreatX Protect to enhance its cybersecurity portfolio [8][10] - The company aims to address non-discretionary security and capacity requirements, positioning itself to benefit from the rise of AI and its associated demands [6][10] - A10 Networks continues to target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28% for the full year [18] Management's Comments on Operating Environment and Future Outlook - Management noted that while there may be delays in order timing due to market conditions, these are expected to be temporary [6] - The company remains optimistic about its strategic position and believes it is well-positioned to outpace the market in terms of revenue growth and profitability as conditions stabilize [11][20] Other Important Information - Total deferred revenue increased by 8% to $152.7 million, reflecting confidence from customers in A10's solutions [14] - The company ended the quarter with $355.8 million in cash, cash equivalents, and marketable securities, significantly up from $195.6 million at the end of 2024 [16] Q&A Session Summary Question: Impact of tariffs on customer conversations - Management indicated that there is caution among customers regarding macroeconomic conditions, but spending patterns are not completely frozen [25][27] Question: Visibility on AI data center initiatives - Management noted that they have reasonable visibility into large AI build-outs, but companies are modulating their plans based on financials [28][29] Question: Anticipated revenue growth - Management expressed comfort with expectations of high single-digit revenue growth for the year, pending macroeconomic shifts [34] Question: Competitive landscape in AI-driven product portfolio - Management stated that competitive dynamics remain similar, with partnerships evolving as service providers build out AI data centers [35] Question: Growth in enterprise revenue - Management clarified that the growth in enterprise revenue was influenced by a soft Q1 last year, with multiple customers contributing to the increase [39] Question: Caution among service provider customers - Management acknowledged broad-based caution among service provider customers, although some are more aggressive in their spending [40][41] Question: Sales and marketing expenses - Management indicated that the decrease in sales and marketing expenses was a strategic decision to manage costs while investing in R&D [42] Question: Full year EBITDA target - Management remains confident in achieving an EBITDA margin of 26% to 28% despite potential fluctuations in input costs [46][47] Question: Diversification of contract manufacturing partners - Management is actively working on diversifying manufacturing partners to build a more resilient supply chain [49][50] Question: Exchange rate impacts - Management noted that while exchange rates can pose revenue risks, project timelines are typically not heavily influenced by short-term fluctuations [51][53] Question: Product refresh outlook - Management clarified that product refresh cycles are part of normal business operations and do not indicate a significant change in customer outlook [58][59] Question: Tariff impact on pricing negotiations - Management stated that any tariff impact would require discussions with customers to determine how to share the burden, but specifics are uncertain until more information is available [61][62]

Financial Performance - Revenue for Q1 2025 was $66.1 million, representing a 9% increase year-over-year from $60.7 million in Q1 2024[6] - GAAP net income for Q1 2025 was $9.5 million, or $0.13 per diluted share, compared to $9.7 million, or $0.13 per diluted share, in Q1 2024[6] - Non-GAAP net income for Q1 2025 was $15.0 million, or $0.20 per diluted share, compared to $12.7 million, or $0.17 per diluted share, in Q1 2024[6] - GAAP gross margin was 79.7%, while non-GAAP gross margin was 80.9%[6] - The company reported a total operating income of $8.8 million for Q1 2025, up from $7.2 million in Q1 2024[15] - Non-GAAP gross profit increased to $53.5 million in Q1 2025, up from $49.7 million in Q1 2024, indicating an 8% growth[21] - Non-GAAP operating income rose to $16.1 million, compared to $11.2 million in Q1 2024, showing a 44% increase[25] - Adjusted EBITDA for Q1 2025 was $19.5 million, up from $13.9 million in Q1 2024, representing a 40% increase[27] - The company reported a GAAP operating margin of 13.3% for Q1 2025, up from 11.9% in Q1 2024[25] Cash Flow and Assets - Cash and cash equivalents rose significantly to $243.8 million, compared to $95.1 million at the end of 2024, marking a 156% increase[20] - Total assets increased to $606.2 million as of March 31, 2025, up from $432.8 million at the end of 2024, representing a 40% growth[18] - Total liabilities increased to $410.3 million as of March 31, 2025, compared to $201.0 million at the end of 2024, a 103% rise[18] - Cash flows from operating activities decreased to $17.2 million in Q1 2025, down from $32.4 million in Q1 2024, a decline of 47%[20] Shareholder Returns - The company returned $51.4 million to investors, including $47.0 million from share repurchases and $4.4 million in cash dividends[6] - A new $75 million share repurchase program was authorized by the Board of Directors[6] Strategic Initiatives - The acquisition of ThreatX Protect, completed in February 2025, enhances the company's capabilities in protecting web applications and APIs[3] - The company completed an acquisition costing $19.1 million during the quarter, contributing to its strategic expansion efforts[20] Market Outlook - The company expects growth to outpace the broader industry despite potential near-term demand impacts from global trade dynamics[3] - Service provider spending patterns may remain uneven due to macroeconomic volatility and trade policy impacts[3]

Q1 2025 Financial Results & Commentary May 1, 2025 Cautionary Statements & Disclosures This presentation and the accompanying oral presentation contain "forward-looking" statements that are based on our management's beliefs and assumptions, including statements regarding our quarterly dividend payments and stock repurchase program, strategy, positioning, demand, U.S. trade policies and the impact thereof, growth rate, margin profile, profitability and return of capital. Forward-looking statements are subjec ...

Company Overview - A10 Networks, Inc. (NYSE: ATEN) is scheduled to report its Q1 '25 earnings on May 1 after market close [1] Investment Strategy - The company is positioned for long-term investment, focusing on a mix of growth, value, and dividend-paying stocks, with a particular emphasis on value [1]

Revenue Performance - Total revenue for 2024 was $261.7 million, representing a 4% increase from $251.7 million in 2023[264]. - Products revenue decreased by $1.3 million, or 1%, to $139.8 million in 2024, primarily due to lower demand from service provider and enterprise customers in the Americas and EMEA regions[270]. - Services revenue increased by $11.3 million, or 10%, to $121.9 million in 2024, driven by increased post contract support (PCS) sales in the APJ region[271]. - The Americas region generated $134.4 million, or 51% of total revenue, a 1% increase compared to 2023, mainly due to higher services revenue from enterprise customers[272]. - The APJ region contributed $87.2 million, or 33% of total revenue, reflecting a 12% increase compared to 2023, driven by higher demand from service provider customers[273]. - EMEA region revenue was $40.2 million, or 16% of total revenue, a 3% decrease from 2023, primarily due to lower products revenue from service provider customers[274]. Profitability - Income from operations increased by $5.3 million, or 13.8%, to $44.0 million in 2024[264]. - Net income for 2024 was $50.1 million, a 25.4% increase from $40.0 million in 2023[264]. - Gross profit for 2024 was $210,277 thousand, with a gross margin of 80.4%, down from 80.9% in 2023, primarily due to a 1.7% decrease in services gross margin[281][282]. - Operating expenses increased by 1% from $165,090 thousand in 2023 to $166,309 thousand in 2024, with research and development expenses rising by 5%[284]. Cash Flow and Liquidity - Cash provided by operating activities was $90,492 thousand in 2024, significantly up from $44,514 thousand in 2023, driven by net income of $50,100 thousand[304][306]. - As of December 31, 2024, the company had cash and cash equivalents of $95.1 million and marketable securities of $100.4 million, indicating strong liquidity[296]. - Cash used in investing activities for the year ended December 31, 2024, was $48.4 million, primarily due to purchases of marketable securities totaling $142.8 million and capital expenditures of $12.3 million, partially offset by proceeds from maturities and sales of marketable securities totaling $106.6 million[308]. - Cash used in financing activities for the year ended December 31, 2024, was $44.3 million, primarily for stock repurchases of $30.1 million and cash dividends of $17.8 million, partially offset by $3.6 million from common stock issuances[310]. Investments and Acquisitions - The company acquired ThreatX Protect in February 2025, enhancing its cybersecurity portfolio with WAAP protection[261]. - The company recorded $5.3 million in investment gains in 2024, compared to an immaterial loss in 2023, indicating improved investment performance[293]. - The investment portfolio as of December 31, 2024, had a fair market value of $100.4 million, with a hypothetical 10% change in interest rates expected to have no material impact on its fair value[320]. Research and Development - Research and development expenses increased by $2.5 million in 2024, focusing on cybersecurity and AI technologies[288]. Tax and Foreign Exchange - The provision for income tax increased to $8.0 million in 2024 from $3.8 million in 2023, reflecting higher taxable income[294]. - The company recorded net foreign exchange gains of $2.1 million in 2024 and $0.1 million in 2023, indicating fluctuations in foreign currency exchange rates[319]. - The company has a hedging program to mitigate foreign currency risk, particularly with revenue contracts primarily in U.S. Dollars and costs in local currencies[317]. Revenue Recognition - Revenue is derived from products and services, with significant contributions from hardware, software licenses, and post-contract support services[314]. - The company utilizes multiple performance obligations in contracts, requiring significant judgment to allocate revenue based on standalone selling prices[315].