Financial Data and Key Metrics Changes - A10 Networks reported record revenue of $72.1 million for Q3 2022, representing a 10.2% year-over-year increase [16] - Product revenue was $45.1 million, accounting for 62.6% of total revenue, up 13.3% year-over-year [16] - Non-GAAP operating income reached $19.5 million, up 34.2% compared to $14.5 million in the same quarter last year [18] - Non-GAAP net income for the quarter was $15.9 million, or $0.20 per share, an 18% increase from $0.17 per share in Q3 2021 [18][19] - Non-GAAP operating gross margin was over 80%, with adjusted EBITDA at 29.5% of revenue [14][18] Business Line Data and Key Metrics Changes - Revenue from Enterprise customers was the fastest-growing segment, indicating a balanced strategy between Enterprise and Service Provider segments [10] - Proprietary security-led product revenue increased by 21% on a trailing 12-month basis [12] - Overall product revenue increased by 13% compared to Q3 2021, driven by the combination of networking expertise and security needs [13] Market Data and Key Metrics Changes - Revenue from the Americas was $36 million, up 11.6% year-over-year; EMEA revenue was $11.2 million, up 2%; and Asia-Pacific revenue was $24.9 million, up 12.4% [16] - On a constant currency basis, revenue in Japan increased by 15% year-over-year [17] Company Strategy and Development Direction - A10 is focused on integrating cybersecurity into its offerings while leveraging its networking expertise [8] - The company maintains a diversified customer base, not reliant on any single customer or region [12] - A10's capital allocation strategy includes a 20% increase in quarterly dividends and a new $50 million share repurchase authorization [15][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year revenue growth of 10% to 12% and EBITDA margins of 26% to 28% despite foreign currency headwinds [15][20] - The company is optimistic about continued demand for security-led solutions across various customer segments and geographies [24] Other Important Information - A10 ended the quarter with nearly $128 million in cash, maintaining a strong balance sheet with no debt [14][20] - The company is investing in R&D and sales and marketing to support organic growth [29] Q&A Session Summary Question: Will security-led solutions drive strong double-digit growth in the enterprise next year? - Management does not view it that way but sees continued traction in the large enterprise segment, expecting to achieve the 10% to 12% growth range [24] Question: Are there any positive spending patterns in the service provider area? - Management noted that service providers are increasingly concerned about cybersecurity, which impacts their network performance and revenue generation [26] Question: Is A10 exploring potential M&A opportunities? - Management indicated that while they are open to M&A, their primary focus remains on organic growth and expanding their product portfolio [29] Question: Are there inflationary pressures affecting A10? - Management acknowledged inflationary pressures in shipping, logistics, and labor but aims to offset these with productivity measures [39] Question: How will A10 fare in a potential recession? - Management believes their products are critical for customers, which should help maintain demand even in a recession [40] Question: What areas is A10 investing in for organic growth? - Investments are focused on enhancing cybersecurity capabilities and integrating security with network infrastructure [42][44] Question: How is A10 managing the strong USD appreciation in Japan? - Management stated that the strong USD has impacted revenue, but diversification across geographies helped mitigate some of the effects [46][47] Question: What is the recurring revenue percentage by the end of Q3? - Recurring revenue, including support and subscription contracts, makes up a little less than half of total revenue [48]

[Note Regarding Forward-Looking Statements](index=4&type=section&id=Note%20Regarding%20Forward-Looking%20Statements) This section outlines forward-looking statements, emphasizing their inherent risks and the company's policy against future updates, directing investors to public disclosures [Forward-Looking Statements Disclosure](index=4&type=section&id=Forward-Looking%20Statements%20Disclosure) This section identifies forward-looking statements within the report, highlighting that they are subject to risks, uncertainties, and assumptions, including those detailed in the "Risk Factors" section, and explicitly states that actual results may differ materially from these statements and that the company does not intend to update them, except as required by law, directing investors to the company's investor relations website, blog, and Twitter for important information - Forward-looking statements are identified by words like "believe," "may," "will," "estimate," "anticipate," "intend," "expect," and similar expressions[11](index=11&type=chunk) - These statements are subject to a number of risks, uncertainties, and assumptions, including those related to the **COVID-19** pandemic, global semiconductor shortages, market adoption of products, ability to manage growth, competition, and macroeconomic climate[12](index=12&type=chunk)[13](index=13&type=chunk) - The company does not guarantee future results and **does not intend to update forward-looking statements** after filing, except as required by law[15](index=15&type=chunk) - Investors are directed to the company's investor relations website, blog, and Twitter for important information, including news releases, analyst presentations, and SEC filings[16](index=16&type=chunk) [Note Regarding COVID-19](index=5&type=section&id=Note%20Regarding%20COVID-19) This section details the ongoing **COVID-19** pandemic's potential impact on the company's **2022** financial performance and operational responses implemented to mitigate risks [COVID-19 Impact and Company Response](index=5&type=section&id=COVID-19%20Impact%20and%20Company%20Response) The company acknowledges the ongoing **COVID-19** pandemic and its potential negative impacts on revenue, operations, financial condition, liquidity, and capital investments in **2022** due to economic deterioration, supply chain disruptions, and modified business practices like work-from-home policies, having implemented measures such as work-from-home policies, ensuring remote work capability, maintaining focus on profitability, and closely monitoring its supply chain - **COVID-19** continues to exist in operating areas and may negatively affect revenue, results of operations, financial condition, liquidity, and capital investments in **2022**[18](index=18&type=chunk) - Measures taken include implementing work-from-home and social distancing policies, ensuring employee remote work capability, maintaining focus on improving profitability, and closely monitoring the supply chain[19](index=19&type=chunk)[20](index=20&type=chunk) - Disruptions may include supply shortages of products or the ability to import, export, or sell products to customers in both the U.S. and international markets[18](index=18&type=chunk) [PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes on accounting policies and financial performance [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=8&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for A10 Networks, Inc., including the balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, lease commitments, marketable securities, and other financial details for the periods ended **June 30, 2022**, and **December 31, 2021** (for balance sheet) or **June 30, 2021** (for income/cash flow statements) [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of **June 30, 2022**, and **December 31, 2021** Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :-------------- | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $84,242 | $78,925 | | Marketable securities | $82,551 | $106,117 | | Accounts receivable, net | $67,908 | $61,795 | | Inventory | $21,926 | $22,462 | | Prepaid expenses and other current assets | $15,038 | $14,720 | | Total current assets | $271,665 | $284,019 | | Property and equipment, net | $15,046 | $10,692 | | Goodwill | $1,307 | $1,307 | | Deferred tax assets, net | $65,557 | $65,773 | | Other non-current assets | $30,990 | $31,294 | | Total assets | $384,565 | $393,085 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable | $5,567 | $6,852 | | Accrued liabilities | $36,870 | $36,101 | | Deferred revenue (current) | $80,022 | $73,132 | | Total current liabilities | $122,459 | $116,085 | | Deferred revenue (non-current) | $47,848 | $48,499 | | Other non-current liabilities | $19,499 | $19,613 | | Total liabilities | $189,806 | $184,197 | | Total stockholders' equity | $194,759 | $208,888 | | Total liabilities and stockholders' equity | $384,565 | $393,085 | [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, cost of revenue, operating expenses, and net income for the three and six months ended **June 30, 2022** and **2021** Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue: | | | | | | Products | $41,475 | $34,363 | $78,520 | $64,903 | | Services | $26,498 | $24,805 | $52,125 | $49,108 | | Total revenue | $67,973 | $59,168 | $130,645 | $114,011 | | Cost of revenue: | | | | | | Products | $9,518 | $8,215 | $18,151 | $15,301 | | Services | $3,967 | $5,415 | $8,173 | $10,828 | | Total cost of revenue | $13,485 | $13,630 | $26,324 | $26,129 | | Gross profit | $54,488 | $45,538 | $104,321 | $87,882 | | Operating expenses: | | | | | | Sales and marketing | $21,773 | $19,749 | $44,555 | $38,841 | | Research and development | $14,235 | $13,491 | $27,122 | $27,472 | | General and administrative | $5,337 | $5,082 | $11,499 | $10,329 | | Total operating expenses | $41,345 | $38,322 | $83,176 | $76,642 | | Income from operations | $13,143 | $7,216 | $21,145 | $11,240 | | Income before provision for income taxes | $13,628 | $7,104 | $21,117 | $9,945 | | Provision for income taxes | $3,212 | $488 | $4,352 | $672 | | Net income | $10,416 | $6,616 | $16,765 | $9,273 | | Net income per share (Basic) | $0.14 | $0.09 | $0.22 | $0.12 | | Net income per share (Diluted) | $0.13 | $0.08 | $0.21 | $0.12 | [Condensed Consolidated Statements of Comprehensive Income](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income items, for the three and six months ended **June 30, 2022** and **2021** Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $10,416 | $6,616 | $16,765 | $9,273 | | Unrealized loss on marketable securities | $(201) | $(19) | $(977) | $(107) | | Comprehensive income | $10,215 | $6,597 | $15,788 | $9,166 | [Condensed Consolidated Statements of Stockholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's stockholders' equity, including stock repurchases, dividends, and net income, for the periods ended **June 30, 2022** and **2021** Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stockholders' equity (Beginning balance) | $185,977 | $124,659 | $208,888 | $115,974 | | Repurchase of common stock | $(3,436) | $(11,125) | $(31,758) | $(11,213) | | Payments for dividends | $(3,794) | $0 | $(7,663) | $0 | | Net income | $10,416 | $6,616 | $16,765 | $9,273 | | Total stockholders' equity (Ending balance) | $194,759 | $124,505 | $194,759 | $124,505 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended **June 30, 2022** and **2021** Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $24,740 | $19,436 | | Net cash provided by (used in) investing activities | $17,028 | $(27,133) | | Net cash used in financing activities | $(36,451) | $(7,635) | | Net increase (decrease) in cash and cash equivalents | $5,317 | $(15,332) | | Cash and cash equivalents—beginning of period | $78,925 | $83,281 | | Cash and cash equivalents—end of period | $84,242 | $67,949 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's business description, significant accounting policies, recent accounting pronouncements, lease obligations, marketable securities, inventory, property and equipment, accrued liabilities, deferred revenue, commitments, equity incentive plans, stock-based compensation, net income per share, income taxes, geographic information, revenue recognition, and subsequent events [1. Description of Business and Summary of Significant Accounting Policies](index=13&type=section&id=1.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section describes A10 Networks' business, key products, revenue streams, and summarizes significant accounting policies and recent pronouncements - A10 Networks is a leading provider of networking solutions for next-generation networks, focusing on reliability, availability, scalability, and cybersecurity across cloud, on-premise, and hybrid environments[38](index=38&type=chunk) - Key product categories include Standalone Thunder Application Delivery Controller (ADC), Carrier-Grade Network Access Translation (CGNAT)/Convergent Firewall (CFW), and Thunder Threat Protection System (TPS) for DDOS protection/Secure Socket Layer Insight (SSLi), along with management tools like Harmony Controller and aGalaxy[39](index=39&type=chunk) - Revenue is **primarily from hardware appliances with perpetual software licenses and related maintenance/support contracts**, with sales conducted globally through a high-touch sales organization and channel partners[40](index=40&type=chunk)[43](index=43&type=chunk) Significant Customers as % of Total Revenue | Customer | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer A | **20%** | **10%** | **18%** | * | | Customer B | **11%** | * | **10%** | * | - The adoption of ASU **2016-13** (Credit Losses), ASU **2017-04** (Goodwill Impairment), ASU **2018-13** (Fair Value Measurement), ASU **2019-12** (Income Taxes), and ASU **2020-10** (Codification Improvements) **did not have a significant impact** on the condensed consolidated financial statements[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) [2. Leases](index=15&type=section&id=2.%20Leases) This section provides details on the company's operating lease assets, liabilities, future lease payments, and total lease costs for the reported periods Operating Lease Assets and Liabilities (in thousands) | Metric | June 30, 2022 | | :------------------------ | :-------------- | | Total right-of-use assets | $23,546 | | Total operating lease liabilities | $23,862 | Aggregate Future Lease Payments (in thousands) | Period | Amount | | :--------------- | :------- | | Remainder of 2022 | $2,631 | | 2023 | $5,359 | | 2024 | $5,467 | | 2025 | $4,964 | | 2026 | $4,892 | | Thereafter | $2,414 | | Total lease payments | $25,727 | | Present value of lease liabilities | $23,862 | Total Lease Costs (in thousands) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total lease costs | $1,253 | $3,041 | $2,454 | $4,561 | [3. Marketable Securities and Fair Value Measurements](index=17&type=section&id=3.%20Marketable%20Securities%20and%20Fair%20Value%20Measurements) This section details the company's marketable securities portfolio, fair value measurements, and any impairment charges for the reported periods Marketable Securities (in thousands) | Type | June 30, 2022 Fair Value | December 31, 2021 Fair Value | | :------------------------ | :----------------------- | :----------------------- | | Corporate securities | $40,705 | $62,421 | | U.S. Treasury and agency securities | $19,515 | $13,845 | | Commercial paper | $14,559 | $23,570 | | Asset-backed securities | $7,772 | $6,281 | | Total | $82,551 | $106,117 | Marketable Securities by Maturity (in thousands) | Maturity | June 30, 2022 Fair Value | | :--------------- | :----------------------- | | Less than 1 year | $65,596 | | 1 - 3 years | $16,955 | | Total | $82,551 | - All available-for-sale securities have been classified as current because they are available for use in current operations[65](index=65&type=chunk) - The company did **not recognize any other-than-temporary impairment charges** on securities in a continuous loss position during the three and six months ended **June 30, 2022** and **2021**[67](index=67&type=chunk) [4. Condensed Consolidated Financial Statement Details](index=18&type=section&id=4.%20Condensed%20Consolidated%20Financial%20Statement%20Details) This section provides detailed breakdowns of inventory, property and equipment, and accrued liabilities, highlighting key changes and components Inventory (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--------------- | :-------------- | :---------------- | | Raw materials | $10,831 | $10,774 | | Finished goods | $11,095 | $11,688 | | Total inventory | $21,926 | $22,462 | Property and Equipment, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------ | :-------------- | :---------------- | | Property and equipment, gross | $37,723 | $34,813 | | Less: accumulated depreciation | $(22,677) | $(24,121) | | Property and equipment, net | $15,046 | $10,692 | - Construction in process, primarily deferred software development costs, **increased to $7.65 million** as of **June 30, 2022**, **from $4.82 million** at **December 31, 2021**, with the **largest project expected for release in Q4 2022**[72](index=72&type=chunk) Accrued Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------ | :-------------- | :---------------- | | Accrued compensation and benefits | $17,282 | $24,003 | | Accrued tax liabilities | $5,833 | $1,020 | | Lease liability | $4,664 | $3,983 | | Other | $9,091 | $7,095 | | Total accrued liabilities | $36,870 | $36,101 | [5. Commitments and Contingencies](index=20&type=section&id=5.%20Commitments%20and%20Contingencies) This section outlines the company's significant commitments, including lease obligations and purchase commitments, and potential contingent liabilities - Aggregate future lease payments for non-cancellable operating leases **totaled $25.7 million** as of **June 30, 2022**, expiring through **July 2027**[78](index=78&type=chunk) - Open purchase commitments with third-party manufacturers in Taiwan **totaled $39.0 million** as of **June 30, 2022**, expected to be paid **within one year**[80](index=80&type=chunk) - The company provides indemnifications for intellectual property infringement and product/service performance, which have **not had a significant impact** on financial statements[81](index=81&type=chunk) [6. Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Program](index=20&type=section&id=6.%20Equity%20Incentive%20Plans,%20Stock-Based%20Compensation%20and%20Stock%20Repurchase%20Program) This section details equity incentive plans, stock-based compensation expenses, and the company's stock repurchase program activities - As of **June 30, 2022**, **14,126,916 shares were available** for future grant under the **2014** Equity Incentive Plan[84](index=84&type=chunk) - As of **June 30, 2022**, **1,251,660 shares were available** for future issuance under the Amended **2014** Employee Stock Purchase Plan[85](index=85&type=chunk) Stock-Based Compensation Expense (in thousands) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation | $2,861 | $2,491 | $6,313 | $6,891 | - Under the **2021** stock repurchase program, the company **repurchased 0.2 million shares for $3.4 million** in **Q2 2022** and **2.4 million shares for $31.8 million** in **H1 2022**[91](index=91&type=chunk) - As of **June 30, 2022**, **$61.2 million remained available** for repurchases under the **2021** Program[91](index=91&type=chunk) [7. Net Income Per Share](index=22&type=section&id=7.%20Net%20Income%20Per%20Share) This section presents basic and diluted net income per share calculations, including the weighted-average shares outstanding and anti-dilutive exclusions Net Income Per Share (except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $10,416 | $6,616 | $16,765 | $9,273 | | Weighted-average shares outstanding - basic | 75,893 | 76,774 | 76,343 | 76,745 | | Weighted-average shares outstanding - diluted | 78,306 | 79,316 | 78,809 | 79,501 | | Net income per share (Basic) | $0.14 | $0.09 | $0.22 | $0.12 | | Net income per share (Diluted) | $0.13 | $0.08 | $0.21 | $0.12 | - **56 thousand and 225 thousand potentially dilutive shares were excluded** from diluted EPS calculations for the three and six months ended **June 30, 2022**, respectively, as their effect would have been **anti-dilutive**[94](index=94&type=chunk) [8. Income Taxes](index=23&type=section&id=8.%20Income%20Taxes) This section details the company's income tax expense, unrecognized tax benefits, and the impact of tax regulations on its financial statements Income Tax Expense (in millions) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $3.2 | $0.5 | $4.4 | $0.7 | - The **income tax provision for Q2 and H1 2022 primarily consisted of U.S. taxes**, while for **Q2 and H1 2021**, it was **primarily foreign taxes**[95](index=95&type=chunk) - The company had **$6.8 million of unrecognized tax benefits** as of **June 30, 2022**, with **no material change anticipated** in the **next twelve months**[97](index=97&type=chunk) - The Tax Act's requirement for capitalization of R&D costs starting in **2022** is **not expected to materially impact the income tax provision**[99](index=99&type=chunk)[100](index=100&type=chunk) [9. Geographic Information](index=24&type=section&id=9.%20Geographic%20Information) This section provides a breakdown of revenue by geographic region and the location of long-lived assets, reflecting changes in reporting segments - **Revenue reporting changed to Americas, Asia Pacific, and EMEA**, combining Japan and Asia Pacific (excluding Japan) into Asia Pacific[101](index=101&type=chunk) Revenue by Geographic Region (in thousands) | Region | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $38,553 | $28,836 | $71,511 | $55,106 | | Asia Pacific | $21,614 | $23,267 | $39,403 | $43,221 | | EMEA | $7,806 | $7,065 | $19,731 | $15,684 | | Total revenue | $67,973 | $59,168 | $130,645 | $114,011 | - Long-lived assets (property and equipment, net, and operating lease right-of-use assets) **totaled $38.6 million** as of **June 30, 2022**, with **$35.3 million in the United States**[101](index=101&type=chunk) [10. Revenue](index=24&type=section&id=10.%20Revenue) This section details contract balances, deferred revenue, and recognized revenue from prior periods, along with deferred contract acquisition costs Contract Balances (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------ | :-------------- | :---------------- | | Accounts receivable, net | $67,908 | $61,795 | | Deferred revenue, current | $80,022 | $73,132 | | Deferred revenue, non-current | $47,848 | $48,499 | - **Total deferred revenue was $127.9 million** as of **June 30, 2022**, with **$80.0 million expected to be recognized within one year**[109](index=109&type=chunk) - **Recognized revenue from deferred revenues at the beginning of the period was $19.6 million for Q2 2022 and $44.2 million for H1 2022**[104](index=104&type=chunk)[105](index=105&type=chunk) - **Deferred contract acquisition costs were $7.1 million (current) and $4.0 million (non-current)** as of **June 30, 2022**. **Amortization expense was $2.1 million for Q2 2022 and $4.2 million for H1 2022**[107](index=107&type=chunk) [11. Subsequent Events](index=25&type=section&id=11.%20Subsequent%20Events) This section discloses significant events occurring after the reporting period, including dividend declarations and their implications - **A quarterly dividend of $0.05 per share was declared on August 2, 2022**, **payable September 1, 2022**, to **shareholders of record on August 15, 2022**[110](index=110&type=chunk) - Future dividends are **subject to Board review and approval**, based on results, financial condition, cash requirements, and other factors[110](index=110&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, detailed analysis of revenue, cost of revenue, gross profit, operating expenses, and non-operating items, also discussing liquidity, capital resources, cash flows, contractual obligations, and critical accounting policies, highlighting key trends and factors influencing performance for the three and six months ended **June 30, 2022**, compared to **2021** [Overview](index=26&type=section&id=Overview) This section provides a high-level business description, product portfolio, revenue sources, and key financial highlights for the reporting period - A10 Networks is a leading provider of networking solutions focused on reliability, availability, scalability, and cybersecurity for cloud, on-premise, or hybrid environments[113](index=113&type=chunk) - Product portfolio includes Thunder ADC, CGNAT/CFW, and Thunder TPS for DDOS protection/SSLi, offered in various form factors and licensing models[114](index=114&type=chunk) - Revenue is derived from sales of hardware appliances with perpetual software licenses and related maintenance and support contracts[115](index=115&type=chunk) - In **Q2 2022**, **Americas generated 57% of total revenue (up from 49% in Q2 2021), Asia Pacific 32% (down from 39%), and EMEA 11% (down from 12%)**[119](index=119&type=chunk) - **Service provider customers accounted for 65% of total revenue in Q2 2022 (up from 61% in Q2 2021), and enterprise customers 35% (down from 39%)**[119](index=119&type=chunk) - **Purchases by the top ten end-customers accounted for 49% of total revenue in Q2 2022 (up from 37% in Q2 2021), indicating reliance on a limited number of large customers**[120](index=120&type=chunk) - As of **June 30, 2022**, **cash and cash equivalents were $84.2 million, and marketable securities were $82.6 million**. **Cash provided by operating activities was $24.7 million for H1 2022, compared to $19.4 million for H1 2021**[121](index=121&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Total revenue increased **14.9%** to **$68.0 million** for **Q2 2022** and **14.6%** to **$130.6 million** for **H1 2022**, driven by product and service revenue growth, while gross profit increased **19.7%** to **$54.5 million** for **Q2 2022** and **18.7%** to **$104.3 million** for **H1 2022**, operating expenses increased **7.9%** to **$41.3 million** for **Q2 2022** and **8.5%** to **$83.2 million** for **H1 2022**, and net income rose significantly, up **57.4%** to **$10.4 million** for **Q2 2022** and **80.8%** to **$16.8 million** for **H1 2022** [Revenue](index=29&type=section&id=Revenue) This section analyzes the company's revenue performance, breaking down product and service revenue by geographic region and customer type for the reported periods Total Revenue (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Products revenue | $41,475 (61% of total) | $34,363 (58% of total) | $78,520 (60% of total) | $64,903 (57% of total) | | Services revenue | $26,498 (39% of total) | $24,805 (42% of total) | $52,125 (40% of total) | $49,108 (43% of total) | | Total revenue | $67,973 (100% of total) | $59,168 (100% of total) | $130,645 (100% of total) | $114,011 (100% of total) | - **Total revenue increased $8.8 million (15%) in Q2 2022 and $16.6 million (15%) in H1 2022**, primarily due to increases in the Americas and EMEA regions, partially offset by a decrease in Asia Pacific[129](index=129&type=chunk)[130](index=130&type=chunk) - The overall revenue increase was **driven by an $8.2 million increase from service provider customers in Q2 2022 (especially Americas, up $10.9 million) and a $15.0 million increase from service provider customers in H1 2022 (especially Americas, up $17.6 million)**[129](index=129&type=chunk)[130](index=130&type=chunk) - **Products revenue increased 21% in both Q2 and H1 2022**, driven by **increased demand from service provider customers in the Americas and EMEA**[131](index=131&type=chunk)[132](index=132&type=chunk) - **Services revenue increased 7% in Q2 2022 and 6% in H1 2022**, attributable to **increased PCS sales from a growing installed customer base**[133](index=133&type=chunk) - **Americas revenue increased 34% in Q2 2022 and 30% in H1 2022**, primarily due to **higher products revenue from service providers**[134](index=134&type=chunk)[135](index=135&type=chunk) - **Asia Pacific revenue decreased 7% in Q2 2022 and 9% in H1 2022**, due to **lower products revenue from service provider customers**[136](index=136&type=chunk)[137](index=137&type=chunk) - **EMEA revenue increased 10% in Q2 2022 and 26% in H1 2022**, driven by **higher products revenue from service provider customers**[138](index=138&type=chunk)[139](index=139&type=chunk) [Cost of Revenue, Gross Profit and Gross Margin](index=31&type=section&id=Cost%20of%20Revenue,%20Gross%20Profit%20and%20Gross%20Margin) This section details the cost of revenue, gross profit, and gross margin for products and services, analyzing changes and contributing factors for the reported periods Cost of Revenue (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Products cost of revenue | $9,518 (15.9% increase) | $8,215 | $18,151 (18.6% increase) | $15,301 | | Services cost of revenue | $3,967 (26.7% decrease) | $5,415 | $8,173 (24.5% decrease) | $10,828 | | Total cost of revenue | $13,485 (1.1% decrease) | $13,630 | $26,324 (0.7% increase) | $26,129 | - **Products cost of revenue increased due to higher products revenue and changes in product/geographic mix**[143](index=143&type=chunk) - **Services cost of revenue decreased due to the mix of services delivered** (technical support, training, service costs)[144](index=144&type=chunk) Gross Profit and Gross Margin (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Products gross profit | $31,957 (77.1% margin) | $26,148 (76.1% margin) | $60,369 (76.9% margin) | $49,602 (76.4% margin) | | Services gross profit | $22,531 (85.0% margin) | $19,390 (78.2% margin) | $43,952 (84.3% margin) | $38,280 (78.0% margin) | | Total gross profit | $54,488 (80.2% margin) | $45,538 (77.0% margin) | $104,321 (79.9% margin) | $87,882 (77.1% margin) | - **Products gross margin increased due to changes in product and geographic mix, and increased products revenue in the Americas**[149](index=149&type=chunk) - **Services gross margin increased due to the mix of services delivered**[150](index=150&type=chunk) [Operating Expenses](index=33&type=section&id=Operating%20Expenses) This section provides an analysis of sales and marketing, research and development, and general and administrative expenses, highlighting key drivers and trends Operating Expenses (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales and marketing | $21,773 (10.2% increase) | $19,749 | $44,555 (14.7% increase) | $38,841 | | Research and development | $14,235 (5.5% increase) | $13,491 | $27,122 (1.3% decrease) | $27,472 | | General and administrative | $5,337 (5.0% increase) | $5,082 | $11,499 (11.3% increase) | $10,329 | | Total operating expenses | $41,345 (7.9% increase) | $38,322 | $83,176 (8.5% increase) | $76,642 | - **Sales and marketing expenses increased due to higher employee headcount and associated personnel costs**[154](index=154&type=chunk) - **R&D expenses increased in Q2 2022 due to consulting costs but decreased in H1 2022 due to lower personnel costs, partially offset by consulting costs**[157](index=157&type=chunk)[158](index=158&type=chunk) - **G&A expenses increased due to higher consulting costs for outsourced functions**[161](index=161&type=chunk) - The company **expects sales and marketing, R&D, and G&A expenses to remain at 2021 levels in 2022, with a disciplined focus on high-opportunity investments**[155](index=155&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) [Interest and Other Expense, Net](index=34&type=section&id=Interest%20and%20Other%20Expense,%20Net) This section discusses non-operating income and expenses, primarily focusing on foreign exchange gains and losses and their impact on financial results - **Favorable changes in interest and other expense, net, were $0.6 million for Q2 2022 and $1.3 million for H1 2022, primarily due to foreign exchange gains and losses**[163](index=163&type=chunk) - The company **incurred $0.4 million in foreign exchange gains in Q2 2022 (vs. $0.1 million loss in Q2 2021) and immaterial foreign currency exchange losses in H1 2022 (vs. $1.3 million losses in H1 2021), mainly driven by Japanese Yen/U.S. Dollar fluctuations**[163](index=163&type=chunk) [Provision for Income Taxes](index=35&type=section&id=Provision%20for%20Income%20Taxes) This section details the company's income tax provision, including its composition and the primary factors influencing tax expense for the reported periods Income Tax Provisions (in millions) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $3.2 | $0.5 | $4.4 | $0.7 | - The **income tax provision for Q2 and H1 2022 primarily consisted of U.S. federal and state taxes, compared to primarily foreign taxes in the same periods of 2021**[164](index=164&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial liquidity, capital resources, and ability to meet future cash needs, including details on cash, marketable securities, and capital allocation programs - As of **June 30, 2022**, **cash and cash equivalents were $84.2 million** (including **$2.6 million** held outside the U.S.), and **marketable securities were $82.6 million**[165](index=165&type=chunk) - **Working capital was $149.2 million, accumulated deficit was $160.6 million, and total stockholders' equity was $194.8 million as of June 30, 2022**[165](index=165&type=chunk) - Management believes existing cash and marketable securities will be sufficient to meet anticipated cash needs for **at least the next 12 months and beyond**[166](index=166&type=chunk) - The company has a **$100 million stock repurchase program** (authorized **October 2021**) with **$61.2 million available** as of **June 30, 2022**[167](index=167&type=chunk) - A **regular quarterly cash dividend of $0.05 per share** was initiated in **October 2021**, with payments made in **December 2021**, **March 2022**, and **June 2022**[168](index=168&type=chunk) [Statements of Cash Flows](index=36&type=section&id=Statements%20of%20Cash%20Flows) This section provides a detailed breakdown of cash flows from operating, investing, and financing activities, explaining significant changes between periods Summary of Cash Flow Activities (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------ | :----------------------------- | :----------------------------- | | Operating activities | $24,740 | $19,436 | | Investing activities | $17,028 | $(27,133) | | Financing activities | $(36,451) | $(7,635) | | Net increase (decrease) in cash and cash equivalents | $5,317 | $(15,332) | | Cash and cash equivalents—beginning of period | $78,925 | $83,281 | | Cash and cash equivalents—end of period | $84,242 | $67,949 | - **Cash provided by operating activities in H1 2022 was $24.7 million**, driven by net income (**$16.8 million**) and non-cash charges (**$10.1 million**), partially offset by a **$2.2 million decrease from changes in operating assets and liabilities**[173](index=173&type=chunk) - **Cash provided by investing activities in H1 2022 was $17.0 million**, primarily from maturities of marketable securities (**$39.1 million**), partially offset by purchases of marketable securities (**$21.6 million**) and property and equipment (**$5.0 million**)[177](index=177&type=chunk) - **Cash used in financing activities in H1 2022 was $36.5 million**, primarily for stock repurchases (**$31.8 million**) and cash dividend payments (**$7.7 million**)[179](index=179&type=chunk) [Contractual Obligations](index=37&type=section&id=Contractual%20Obligations) This section outlines the company's significant contractual commitments, including lease obligations and uncertain tax positions, and their expected timing of settlement - Contractual obligations for non-cancellable operating lease arrangements **totaled $25.7 million** as of **June 30, 2022**, with various expiration dates through **July 2027**[181](index=181&type=chunk) - The company has **$6.8 million in tax liabilities** related to uncertain tax positions as of **June 30, 2022**, with an unreliable estimate for timing of settlement[182](index=182&type=chunk) [Critical Accounting Policies and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section describes the key accounting policies and estimates that require significant management judgment and their potential impact on the financial statements - Financial statements require estimates and assumptions for revenue recognition, allowances, marketable securities valuation, contingencies, and stock-based compensation[183](index=183&type=chunk) - **No material changes** to significant accounting policies occurred during the six months ended **June 30, 2021**[184](index=184&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily foreign currency risk and interest rate sensitivity, noting that foreign currency fluctuations, particularly involving the Japanese Yen, British Pound, and Euro against the U.S. Dollar, can impact operating income, though a hypothetical **10%** change in exchange rates would **not have a significant impact**, and interest rate sensitivity relates to marketable securities, where a hypothetical **10%** change in interest rates would **not materially impact** interest expense [Foreign Currency Risk](index=37&type=section&id=Foreign%20Currency%20Risk) This section assesses the company's exposure to foreign currency fluctuations, particularly the Japanese Yen, and its potential impact on operating results - **Majority of revenue contracts are in U.S. Dollars**, except for Japan (Japanese Yen), while expenses are in local currencies (Americas, EMEA, Asia Pacific)[185](index=185&type=chunk) - **Foreign currency exchange gains were $0.4 million in Q2 2022 (vs. $0.1 million losses in Q2 2021) and immaterial losses in H1 2022 (vs. $1.3 million losses in H1 2021)**, mainly driven by Japanese Yen/U.S. Dollar fluctuations[187](index=187&type=chunk)[188](index=188&type=chunk) - A hypothetical **10%** change in exchange rates would **not have a significant impact** on consolidated results of operations[188](index=188&type=chunk) [Interest Rate Sensitivity](index=38&type=section&id=Interest%20Rate%20Sensitivity) This section evaluates the company's exposure to interest rate changes, primarily concerning marketable securities, and its potential impact on financial performance - **Market risk for interest rates relates primarily to marketable securities, which had an aggregate fair market value of $82.6 million as of June 30, 2022**[189](index=189&type=chunk) - A hypothetical **10%** change in interest rates would **not have a material impact** on interest expense[189](index=189&type=chunk) Hypothetical Fair Values of Marketable Securities (in thousands) | Scenario | Fair Value as of 3/31/2022 | | :--------------- | :------------------------- | | -150 BPS | $85,551 | | -100 BPS | $83,441 | | -50 BPS | $83,147 | | 0 BPS | $82,852 | | +50 BPS | $82,245 | | +100 BPS | $81,939 | | +150 BPS | $81,632 | [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the company's disclosure controls and procedures and internal control over financial reporting, concluding that as of **June 30, 2022**, the CEO and CFO found disclosure controls and procedures **effective at a reasonable assurance level**, with **no material changes** to internal control over financial reporting occurring during **Q2 2022**, despite remote work challenges [Management's Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Management's%20Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details management's assessment of the effectiveness of the company's disclosure controls and procedures as of the reporting date - As of **June 30, 2022**, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective at the reasonable assurance level**[193](index=193&type=chunk) - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required for SEC filings[191](index=191&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting during the quarter and ongoing monitoring efforts - **No material changes** in internal control over financial reporting occurred during the three months ended **June 30, 2022**[194](index=194&type=chunk) - The company is monitoring and assessing the impact of **COVID-19** and remote work on internal controls to minimize any impact on their design and operating effectiveness[194](index=194&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=38&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) This section acknowledges the inherent limitations of control systems, emphasizing that they provide reasonable, not absolute, assurance of achieving objectives - Control systems provide only **reasonable, not absolute, assurance** of achieving objectives due to resource constraints and judgment application[196](index=196&type=chunk) - Controls may become inadequate over time due to changing conditions or deterioration in compliance[196](index=196&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, comprehensive risk factors, equity security sales, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings with uncertain outcomes, where management assesses the probability and amount of potential losses, recording liabilities when probable and estimable, noting that judgments are subjective and may differ from actual outcomes, potentially harming the business - The company is involved in various legal proceedings, the outcomes of which are not within its complete control or may not be known for prolonged periods of time[198](index=198&type=chunk) - A liability for claims is recorded when a loss is deemed probable and the amount can be reasonably estimated, based on subjective judgments that may differ materially from actual outcomes[198](index=198&type=chunk) - Any adverse settlements or judgments in litigation could have a **material adverse impact** on the company's results of operations, cash balances, and cash flows[169](index=169&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This comprehensive section outlines significant risks that could materially harm the company's business, financial condition, operating results, and stock price, categorizing these risks into those related to business operations and industry, intellectual property and legal/regulatory matters, and capitalization and financial markets, covering a wide range of potential challenges from market competition and technological changes to global economic conditions and legal compliance [Risks Related to Our Business, Operations and Industry](index=40&type=section&id=Risks%20Related%20to%20Our%20Business,%20Operations%20and%20Industry) This section details risks concerning business operations, including market competition, product development, supply chain disruptions, and reliance on key customers - The **COVID-19** pandemic could have a **material adverse effect** on operations, supply chain (e.g., global semiconductor shortage), and customer demand, potentially causing business interruptions and harming financial results[200](index=200&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) - Failure to anticipate market needs, timely develop new products/features, or achieve widespread market acceptance for application delivery solutions could **significantly harm business and operating results**[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[209](index=209&type=chunk) - Operating results are **highly variable and unpredictable** due to factors like the timing and size of large customer sales, reliance on end-of-quarter shipments, variations in product/geographic mix, and **intense competition**[214](index=214&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk) - **Intense competition** from larger, well-established companies in traditional ADC, CGN, DDoS protection, and SSL decryption markets could lead to fewer customer orders, price reductions, and loss of market share[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[223](index=223&type=chunk) - Cloud-based computing trends present competitive and execution risks, requiring significant resources to develop new cloud solutions and adapt to evolving deployment and payment models[224](index=224&type=chunk) - **Reliance on a limited number of large end-customers** (e.g., service providers, accounting for approximately **65%** of **H1 2022** revenue) makes the company **vulnerable to the loss or delay** of expected purchases[226](index=226&type=chunk)[229](index=229&type=chunk) - Real or perceived defects, errors, or vulnerabilities in products or services, or failure to prevent security breaches, could **harm reputation, lead to declining sales, increased expenses, and potential litigation**[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) - Dependence on third-party manufacturers (Lanner and AEWIN in Taiwan) exposes the company to **supply disruptions, quality control problems, and geopolitical risks** (e.g., Taiwan-China tensions)[246](index=246&type=chunk) - Use of open source software carries **risks of license non-compliance and potential litigation**, which could require licensing proprietary portions or redesigning products[257](index=257&type=chunk)[258](index=258&type=chunk)[260](index=260&type=chunk) [Risks Related to Intellectual Property, Litigation, Laws and Regulations](index=54&type=section&id=Risks%20Related%20to%20Intellectual%20Property,%20Litigation,%20Laws%20and%20Regulations) This section outlines risks related to intellectual property, legal proceedings, regulatory compliance, data security, and international trade policies - The company is subject to frequent intellectual property claims and litigation, which can be **time-consuming, expensive**, and may require paying damages/royalties or altering products[285](index=285&type=chunk)[287](index=287&type=chunk) - **Inadequate protection** of intellectual property (patents, copyrights, trademarks, trade secrets) could harm competitive position, allow competitors access to technology, or incur significant enforcement expenses[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - Exposure to UK political developments, including the effects of Brexit, creates **economic uncertainty and potential adverse impacts** on operating results and financial condition[295](index=295&type=chunk)[298](index=298&type=chunk) - Enhanced U.S. tariffs, import/export restrictions, and Chinese regulations could **increase costs, reduce profits, and negatively impact** global economic conditions and the company's business[299](index=299&type=chunk)[301](index=301&type=chunk) - Failure to protect and ensure confidentiality and security of data could lead to **legal liability, reputational damage, and significant costs** for security breaches or regulatory penalties (e.g., GDPR, CCPA)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk) - Non-compliance with various governmental laws and regulations (employment, environmental, anti-bribery, export/import controls, tax) could result in **investigations, sanctions, fines, and adverse effects** on business[310](index=310&type=chunk)[311](index=311&type=chunk)[313](index=313&type=chunk) - The ability to use net operating loss carryforwards may be **limited by ownership changes, potentially increasing future tax liability**[314](index=314&type=chunk) [Risks Related to Capitalization and Financial Markets](index=62&type=section&id=Risks%20Related%20to%20Capitalization%20and%20Financial%20Markets) This section addresses risks associated with the company's capital structure, financial markets, stock price volatility, and shareholder value initiatives - Fluctuations in currency exchange rates, especially the Japanese Yen, can **negatively affect results of operations**, despite hedging practices[328](index=328&type=chunk) - Concentration of ownership (**13% by executive officers/directors, 38% including 5%+ holders**) may **prevent new investors from influencing significant corporate decisions**[329](index=329&type=chunk) - Future needs for additional funds may **lead to dilution for existing stockholders** if raised through equity or convertible debt, or restrictive covenants if through debt financing[330](index=330&type=chunk) - The price of common stock has been and may continue to be **volatile** due to

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $68 million, up 14.9% year-over-year, marking the second highest quarterly revenue in the company's history [17] - Product revenue, a leading indicator for future revenue, was $41.5 million, representing 61% of total revenue and up 20.7% year-over-year [17] - Gross margin for Q2 was 80.6%, with non-GAAP operating income of $16.1 million compared to $11.1 million in the same quarter last year [18][19] - Non-GAAP net income for Q2 was $13.4 million, or $0.17 per share, compared to $0.08 per share in the prior year [19][20] - Year-to-date revenue for the first half of 2022 was $130.6 million, up 14% year-over-year [20] Business Line Data and Key Metrics Changes - Standalone ADC revenue continued to decline as a percentage of overall revenue, while proprietary security-led product revenue increased by 26% on a trailing 12-month basis [11][12] - Services revenue, which includes maintenance and support, was $26.5 million, or 39% of total revenue [17] Market Data and Key Metrics Changes - Revenue from the Americas grew 33.7% year-over-year to $38.6 million, reflecting strong demand and investment in commercial initiatives [13][17] - EMEA revenue increased 10.5% year-over-year, while Asia revenue decreased 7.1% year-over-year due to currency impacts [13][17] Company Strategy and Development Direction - The company is focused on transitioning from legacy offerings to proprietary security-led solutions, positioning itself as a leader in network security [8][10] - A10 aims to achieve full-year revenue growth of 10% to 12% and adjusted EBITDA margins of 26% to 28% for 2022 [15][22] - The company is committed to a disciplined capital allocation strategy, prioritizing organic growth while remaining open to M&A opportunities [15][37] Management's Comments on Operating Environment and Future Outlook - Management noted that cybersecurity solutions are prioritized even amid economic challenges, particularly by service providers [9][10] - The company expressed confidence in its ability to navigate supply chain challenges and maintain gross margins despite external pressures [10][15] Other Important Information - A10 ended the quarter with nearly $167 million in cash, or $2.13 per share, and returned over $39 million to shareholders through share repurchases and dividends [10][22] - The board approved a quarterly cash dividend of $0.05 per share to be paid on September 1, 2022 [22] Q&A Session Summary Question: Impact of stronger dollar on international markets - Management indicated that the stronger dollar has not significantly impacted their North American business, while Japan faced headwinds due to currency fluctuations [25][26] Question: Sales funnel clarity and customer order delays - Management reported no significant delays in customer orders, attributing this to the essential nature of their solutions [29][30] Question: Competitive landscape and product differentiation - The company competes primarily with Arbor Networks and F5 Networks, with a focus on service providers and large enterprises [34][35] Question: Growth expectations between enterprise and service providers - Management expects service provider growth to remain strong, while enterprise growth may be slower due to macroeconomic factors [46][48] Question: Sustainability of gross margin levels - Management confirmed that they are tracking towards the higher end of their gross margin target of 78% to 80% for the year [49][50]

Financial Data and Key Metrics Changes - Revenue in Q1 2022 was $62.7 million, up 14.3% year-over-year [15] - Product revenue was $37 million, representing 59.1% of total revenue, up 21.3% year-over-year [15] - Gross margin in Q1 was 80.2%, with non-GAAP operating income of $11.7 million compared to $10.8 million in the previous year [17] - Non-GAAP income for the quarter was $10 million or $0.13 per share, compared to $6.3 million or $0.08 per share on a GAAP basis [18][19] Business Line Data and Key Metrics Changes - Security-led product revenue increased 20.1% year-over-year, with North America being the leading driver [11] - Services revenue, including maintenance and support, was $25.6 million, or 40.9% of total revenue [15] - Recurring revenue grew 8.9% year-over-year to $27.9 million, within the target range of 45% to 50% of total revenue [16] Market Data and Key Metrics Changes - Revenue from the Americas grew 25.5% year-over-year to $33 million [11] - EMEA revenue increased from $8.6 million to $11.9 million year-over-year [11] - Revenue from Asia, including Japan, declined from $20 million to $17.8 million, impacted by economic conditions and COVID-19 [11][15] Company Strategy and Development Direction - The company aims to achieve the Rule of 40, targeting a combined revenue growth and EBITDA margin of 40% or greater [8] - Focus on integrating security into all networking solutions to differentiate technology offerings [10] - Continued investment in growth opportunities while balancing profitability [12] Management's Comments on Operating Environment and Future Outlook - Management noted that cybersecurity remains a primary growth catalyst, with increasing focus from CIOs and IT leaders on security [9][13] - The company is well-positioned to achieve high-end revenue growth targets of 10% to 12% for the full year [19] - Management expressed confidence in navigating supply chain issues and maintaining operational performance [13] Other Important Information - The company repurchased $28.3 million in stock and returned $3.9 million to shareholders in dividends during the quarter [8][19] - Deferred revenue was $121.3 million, up 7.2% year-over-year, consistent with typical seasonality [16] Q&A Session Summary Question: Supply chain challenges and performance consistency - Management highlighted long-term planning and regionalizing supply chains as key strategies to mitigate supply chain issues [23][24] Question: Competitive landscape in the current security environment - Management noted competition primarily from established players in the DDoS marketplace and emphasized the importance of high reliability and expertise over price [25][26] Question: Product gross margin contraction - Management indicated that variations in product mix and input cost inflation were factors affecting gross margin [30][31] Question: Impact of geopolitical events on EMEA - Management observed increased importance of cybersecurity in EMEA, with expectations of budget prioritization despite economic uncertainty [36][38] Question: Order visibility and pipeline conviction - Management discussed refining sales processes and maintaining visibility on project budgets and approvals, indicating improved visibility compared to previous years [50][52]

A10 Networks, Inc. (NYSE:ATEN) Q3 2021 Results Earnings Conference Call October 28, 2021 4:30 PM ET Company Participants Jeff Stanlis - Investor Relations Dhrupad Trivedi - President and Chief Executive Officer Brian Becker - Chief Financial Officer Conference Call Participants Tyler Burmeister - Craig-Hallum Capital Group Anja Soderstrom - Sidoti & Company Hendi Susanto - Gabelli Fund Operator Good day and welcome to the A10 Networks Q3 2021 Earnings Conference Call. All participants will be in listen-only ...