Industry Overview - The digital economy has elevated cybersecurity from a background IT concern to a top priority for businesses, as they face increasing cyber threats such as ransomware, data breaches, and phishing attacks [1] - The global cybersecurity market is projected to grow from $193.73 billion in 2024 to $562.72 billion by 2032, reflecting a strong CAGR of 14.3%, driven by the complexity of IT systems, tighter regulations, and the need to protect sensitive data [2] Technological Advancements - Traditional security tools are becoming inadequate against smarter and faster cyberattacks, leading to a shift towards artificial intelligence (AI) for proactive threat detection and response [3] - AI is being integrated into cybersecurity solutions to analyze large volumes of data, enabling companies to automate detection and response processes [3] Company Highlights - **CyberArk Software (CYBR)**: Focuses on identity security solutions, leveraging AI to enhance its leadership in the identity security space with innovations like the Secure AI Agent solution [6][8] - **Qualys (QLYS)**: Specializes in vulnerability management and cloud security, enhancing its AI capabilities to improve threat detection and remediation [9][10] - **Okta (OKTA)**: Concentrates on identity and access management, ramping up AI capabilities to address the complexities of digital identities, with innovations like Identity Threat Protection with Okta AI [12][13] - **A10 Networks (ATEN)**: Advances its AI-driven cybersecurity strategy through acquisitions and scalable solutions, positioning itself for growth in AI data center deployments [15][16][17] Market Positioning - CyberArk's unified platform offers critical capabilities for identity security, enhancing its market relevance and customer value proposition [7][8] - Qualys' AI-powered platform is expected to drive customer adoption and long-term revenue growth [11] - Okta's growing customer base, particularly among Fortune 500 clients, positions it as a compelling long-term investment [14] - A10 Networks is well-placed to benefit from the intersection of AI and cybersecurity, supported by strong margins and disciplined capital allocation [17]

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]

Financial Performance - Q1 2025 revenue increased by 9% year-over-year[9] - Enterprise revenue was up 18%[9] - Service provider revenue increased by 3%[9] - Non-GAAP gross margins were 80.9% in Q1 2025[9] - Non-GAAP EPS was $0.20, compared to $0.17 in Q1 2024[9] - Q1 2025 revenue reached $66.1 million, compared to $60.7 million in Q1 2024[11, 13] - Adjusted EBITDA for Q1 2025 was $19.5 million, compared to $13.9 million in Q1 2024[13, 15] Balance Sheet - Cash and cash equivalents totaled $243.8 million as of March 31, 2025, compared to $95.1 million as of December 31, 2024[23] - Marketable securities were $112.0 million as of March 31, 2025, compared to $100.4 million as of December 31, 2024[23] - Long-term debt was $217.7 million[23] Revenue by Geography - Americas accounted for 51% of revenue in Q1 2025[18] - APJ (Asia Pacific and Japan) accounted for 28% of revenue in Q1 2025[18] - EMEA (Europe, Middle East, and Africa) accounted for 21% of revenue in Q1 2025[18]

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].

Company Overview - A10 Networks, Inc. (NYSE: ATEN) specializes in cybersecurity and infrastructure solutions, which are essential for ensuring smooth network operations across on-premises setups, hybrid cloud environments, and edge computing [1] Research Principles - Grassroots Trading emphasizes providing objective, unbiased, and balanced research, supported by solid data and free from emotional influences or company preferences [1] - The focus is primarily on small- to mid-cap companies, offering compelling investment insights on often overlooked opportunities [1] - The research also includes periodic identification of potential opportunities in large- and mega-cap companies, broadening the coverage of dynamic equity markets [1]