ATEN A10 Networks Inc

Sequential Revenue Improvement Due to Durable Business Model; Company Generates $0.15 of GAAP EPS in Q2, $0.19 of Non-GAAP EPS

A10 Networks (NYSE: ATEN), a leading provider of cybersecurity and infrastructure solutions, today announced financial results for its second quarter ended June 30, 2023.

Second Quarter 2023 Financial Summary

• Revenue of $65.8 million, up 14.1% sequentially from Q1 and in-line with expectations.
• GAAP gross margin of 79.5%; non-GAAP gross margin of 80.2% as a result of continued successful navigation of short-term input cost pressures.
• GAAP net income of $11.6 million, or $0.15 per diluted share, compared with GAAP net income of $10.4 million, or $0.13 per diluted share in the second quarter of 2022.
• Non-GAAP net income of $14.5 million, or $0.19 per diluted share (non-GAAP EPS), compared with non-GAAP net income of $13.4 million, or $0.17 per diluted share in the second quarter of 2022.
• Adjusted EBITDA of $17.4 million, representing 26.4% of revenue, in line with stated business model goals and unchanged as a percent of revenue compared to the second quarter last year.
• Company repurchased 437,000 shares at an average price of $14.27 for a total of $6.2 million.
• The Board of Directors approved a quarterly cash dividend of $0.06 per share, payable on September 1, 2023 to stockholders of record at the close of business on August 15, 2023.

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

“The second quarter results demonstrated sequential improvements consistent with our expectations and our continued focus on our business model,” said Dhrupad Trivedi, President and Chief Executive Officer of A10 Networks. “Spending from large enterprises and tier-one service providers in North America remains volatile, but we are seeing encouraging signs, particularly for security solutions, that support our confidence for continuing improvements in the second half of the year.”

“A10 remains solidly profitable, with earnings per share exceeding last year’s levels even on slightly lower revenue, demonstrating our systemic profitability and the focus on our business model,” continued Trivedi. “For the first six months of 2023, our Adjusted EBITDA margin increased by 248 basis points to a record 26.6%, compared to 24.1% last year. We continue to balance profitability and growth as we navigate headwinds.”

Conference Call

Management will host a call at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, July 26, 2023, to discuss these results. Interested parties may access the conference call by dialing (833) 470-1428 (toll-free) or (404) 975-4839 and referencing access code: 983165.

A live audio webcast of the conference call will be accessible from the “Investor Relations” section of A10 Network’s website at investors.a10networks.com. The webcast will be archived for at least 90 days. A telephonic replay of the conference call will be available two hours after the conclusion of the live call and will run for seven days and may be accessed by dialing (866) 813-9403 (toll-free) or (929) 458-6194 and entering the passcode 923761.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our anticipated future financial results, confidence for continuing improvements in the second half of the year, quarterly dividend payments, strategy, demand and positioning. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Factors that may cause actual results to differ include a significant decline in global macroeconomic or political conditions that have an adverse impact on our business and financial results; business interruptions related to our supply chain; our ability to manage our business and expenses if customers cancel or delay orders; execution risks related to closing key deals and improving our execution; the continued market adoption of our products; our ability to successfully anticipate market needs and opportunities; our timely development of new products and features; our ability to achieve or maintain profitability; any loss or delay of expected purchases by our largest end-customers; our ability to maintain or improve our competitive position; competitive and execution risks related to cloud-based computing trends; our ability to attract and retain new end-customers and our largest end-consumers; our ability to maintain and enhance our brand and reputation; changes demanded by our customers in the deployment and payment model for our products; continued growth in markets relating to network security; the success of any future acquisitions or investments in complementary companies, products, services or technologies; the ability of our sales team to execute well; our ability to shorten our close cycles; the ability of our channel partners to sell our products; variations in product mix or geographic locations of our sales; risks associated with our presence in international markets; weaknesses or deficiencies in our internal control over financial reporting; our ability to timely file periodic reports required to be filed under the Securities Exchange Act of 1934; the impact of any cybersecurity incidents and other risks that are described in “Risk Factors” in our periodic filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Commission on February 27, 2023. We do not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-GAAP Financial Measures

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

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

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

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

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

About A10 Networks

A10 Networks (NYSE: ATEN) provides secure application services and solutions for on-premises, multi-cloud and edge-cloud environments at hyperscale. Our mission is to enable service providers and enterprises to deliver business-critical applications that are secure, available and efficient for multi-cloud transformation and 5G readiness. We deliver better business outcomes that support investment protection, new business models and help future-proof infrastructures, empowering our customers to provide the most secure and available digital experience. Founded in 2004, A10 Networks is based in San Jose, Calif. and serves customers globally. For more information, visit https://www.a10networks.com/ and follow us @A10Networks.

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

Source: A10 Networks, Inc.

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts, on a GAAP Basis)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

Products

$

39,090

 

$

41,475

 

$

70,272

 

 

$

78,520

 

Services

 

26,727

 

 

26,498

 

 

53,236

 

 

 

52,125

 

Total revenue

 

65,817

 

 

67,973

 

 

123,508

 

 

 

130,645

 

Cost of revenue:

 

 

 

 

 

 

 

Products

 

9,436

 

 

9,518

 

 

15,519

 

 

 

18,151

 

Services

 

4,027

 

 

3,967

 

 

8,160

 

 

 

8,173

 

Total cost of revenue

 

13,463

 

 

13,485

 

 

23,679

 

 

 

26,324

 

Gross profit

 

52,354

 

 

54,488

 

 

99,829

 

 

 

104,321

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

 

20,868

 

 

21,773

 

 

43,202

 

 

 

44,555

 

Research and development

 

13,965

 

 

14,235

 

 

25,630

 

 

 

27,122

 

General and administrative

 

5,255

 

 

5,337

 

 

12,564

 

 

 

11,499

 

Total operating expenses

 

40,088

 

 

41,345

 

 

81,396

 

 

 

83,176

 

Income from operations

 

12,266

 

 

13,143

 

 

18,433

 

 

 

21,145

 

Non-operating income (expense), net:

 

 

 

 

 

 

 

Interest income

 

662

 

 

184

 

 

1,635

 

 

 

304

 

Other income (expense), net

 

1,884

 

 

301

 

 

(334

)

 

 

(332

)

Non-operating income (expense), net

 

2,546

 

 

485

 

 

1,301

 

 

 

(28

)

Income before provision for income taxes

 

14,812

 

 

13,628

 

 

19,734

 

 

 

21,117

 

Provision for income taxes

 

3,186

 

 

3,212

 

 

4,150

 

 

 

4,352

 

Net income

$

11,626

 

$

10,416

 

$

15,584

 

 

$

16,765

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.16

 

$

0.14

 

$

0.21

 

 

$

0.22

 

Diluted

$

0.15

 

$

0.13

 

$

0.21

 

 

$

0.21

 

Weighted-average shares used in computing net income per share:

 

 

 

 

 

 

 

Basic

 

74,017

 

 

75,893

 

 

74,009

 

 

 

76,343

 

Diluted

 

75,428

 

 

78,306

 

 

75,512

 

 

 

78,809

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME

(unaudited, in thousands, except per share amounts)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

GAAP net income

$

11,626

 

 

$

10,416

 

$

15,584

 

 

$

16,765

Non-GAAP items:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

3,527

 

 

 

2,944

 

 

7,497

 

 

 

6,625

Restructuring expense

 

—

 

 

 

—

 

 

1,861

 

 

 

—

Cyber incident remediation expense

 

(621

)

 

 

—

 

 

732

 

 

 

—

Adoption of tax-effecting non-GAAP items (1)

 

(3

)

 

 

—

 

 

(1,218

)

 

 

—

Total non-GAAP items

 

2,903

 

 

 

2,944

 

 

8,872

 

 

 

6,625

Non-GAAP net income (1)(2)

 

14,529

 

 

 

13,360

 

 

24,456

 

 

 

23,390

 

 

 

 

 

 

 

 

GAAP net income per share:

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.14

 

$

0.21

 

 

$

0.22

Diluted

$

0.15

 

 

$

0.13

 

$

0.21

 

 

$

0.21

Non-GAAP items:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

0.05

 

 

 

0.04

 

 

0.10

 

 

 

0.09

Restructuring expense

 

0.01

 

 

 

—

 

 

0.02

 

 

 

—

Cyber incident remediation expense

 

(0.01

)

 

 

—

 

 

0.01

 

 

 

—

Adoption of tax-effecting non-GAAP items (1)

 

—

 

 

 

—

 

 

(0.02

)

 

 

—

Total non-GAAP items

 

0.04

 

 

 

0.04

 

 

0.12

 

 

 

0.09

 

 

 

 

 

 

 

 

Non-GAAP net income per share: (1)(2)

 

 

 

 

 

 

 

Basic

$

0.20

 

 

$

0.18

 

$

0.33

 

 

$

0.31

Diluted

$

0.19

 

 

$

0.17

 

$

0.32

 

 

$

0.30

Weighted average shares used in computing net income per share:

 

 

 

 

 

 

 

Basic

 

74,017

 

 

 

75,893

 

 

74,009

 

 

 

76,343

Diluted

 

75,428

 

 

 

78,306

 

 

75,512

 

 

 

78,809

1)

For 2023, we adopted presenting non-GAAP net income impacted for the income tax effect of excluding non-GAAP items. In the three and six months ended June 30, 2023, the income tax effect represents a non-GAAP profit before tax rate of 18.0%. For the three months ended June 30, 2022, the income tax effect of excluding non-GAAP items would be $1,409 thousand and non-GAAP net income adjusted for the income tax effect of excluding non-GAAP items would be $11,951 thousand, representing a $0.02 decrease in reported non-GAAP net income per share in the table above. The tax effect of $1,409 thousand represents a non-GAAP profit before tax rate of 27.9%. For the six months ended June 30, 2022, the income tax effect of excluding non-GAAP items would be $3,045 thousand and non-GAAP net income adjusted for the income tax effect of excluding non-GAAP items would be $20,345 thousand, representing a $0.04 decrease in reported non-GAAP net income per share in the table above. The tax effect of $3,045 thousand represents a non-GAAP profit before tax rate of 26.7%.

 

 

2)

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

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except par value, on a GAAP Basis)

 

 

June 30, 2023

 

December 31, 2022

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

111,181

 

 

$

67,971

 

Marketable securities

 

42,730

 

 

 

83,018

 

Accounts receivable, net of allowances of $223 and $32, respectively

 

69,171

 

 

 

72,928

 

Inventory

 

20,438

 

 

 

19,693

 

Prepaid expenses and other current assets

 

12,945

 

 

 

13,381

 

Total current assets

 

256,465

 

 

 

256,991

 

Property and equipment, net

 

25,210

 

 

 

19,743

 

Goodwill

 

1,307

 

 

 

1,307

 

Deferred tax assets, net

 

59,871

 

 

 

63,183

 

Other non-current assets

 

25,379

 

 

 

27,881

 

Total assets

$

368,232

 

 

$

369,105

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

$

6,399

 

 

$

6,725

 

Accrued liabilities

 

22,656

 

 

 

37,183

 

Deferred revenue

 

78,023

 

 

 

74,340

 

Total current liabilities

 

107,078

 

 

 

118,248

 

Deferred revenue, non-current

 

53,590

 

 

 

52,652

 

Other non-current liabilities

 

14,626

 

 

 

17,193

 

Total liabilities

 

175,294

 

 

 

188,093

 

Stockholders' equity:

Common stock, $0.00001 par value: 500,000 shares authorized; 87,904 and 87,123 shares issued and 74,083 and 73,738 shares outstanding, respectively

 

1

 

 

 

1

 

Treasury stock, at cost: 13,821 and 13,384 shares, respectively

 

(141,164

)

 

 

(134,934

)

Additional paid-in-capital

 

477,111

 

 

 

466,927

 

Dividends paid

 

(28,682

)

 

 

(19,802

)

Accumulated other comprehensive income

 

542

 

 

 

(726

)

Accumulated deficit

 

(114,870

)

 

 

(130,454

)

Total stockholders' equity

 

192,938

 

 

 

181,012

 

Total liabilities and stockholders' equity

$

368,232

 

 

$

369,105

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands, on a GAAP Basis)

 

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

Net income

$

15,584

 

 

$

16,765

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

4,307

 

 

 

3,712

 

Stock-based compensation

 

7,214

 

 

 

6,313

 

Other non-cash items

 

(270

)

 

 

113

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

3,698

 

 

 

(5,580

)

Inventory

 

(1,705

)

 

 

(31

)

Prepaid expenses and other assets

 

3,827

 

 

 

(2,163

)

Accounts payable

 

(1,460

)

 

 

(1,283

)

Accrued liabilities

 

(17,094

)

 

 

655

 

Deferred revenue

 

4,621

 

 

 

6,239

 

Net cash provided by operating activities

 

18,722

 

 

 

24,740

 

Cash flows from investing activities:

 

 

 

Proceeds from sales of marketable securities

 

42,252

 

 

 

4,550

 

Proceeds from maturities of marketable securities

 

44,532

 

 

 

39,148

 

Purchases of marketable securities

 

(44,680

)

 

 

(21,649

)

Purchases of property and equipment

 

(5,065

)

 

 

(5,021

)

Net cash provided by investing activities

 

37,039

 

 

 

17,028

 

Cash flows from financing activities:

 

 

 

Proceeds from issuance of common stock under employee equity incentive plans

 

2,559

 

 

 

2,970

 

Repurchase of common stock

 

(6,230

)

 

 

(31,758

)

Payments for dividends

 

(8,880

)

 

 

(7,663

)

Net cash used in financing activities

 

(12,551

)

 

 

(36,451

)

Net increase in cash and cash equivalents

 

43,210

 

 

 

5,317

 

Cash and cash equivalents—beginning of period

 

67,971

 

 

 

78,925

 

Cash and cash equivalents—end of period

$

111,181

 

 

$

84,242

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

Transfers between inventory and property and equipment

$

959

 

 

$

567

 

Purchases of property and equipment included in accounts payable

$

1,134

 

 

$

1

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT

(unaudited, in thousands, except percentages)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

52,354

 

 

$

54,488

 

 

$

99,829

 

 

$

104,321

 

GAAP gross margin

 

79.5

%

 

 

80.2

%

 

 

80.8

%

 

 

79.9

%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

417

 

 

 

331

 

 

 

861

 

 

 

759

 

Restructuring expense

 

—

 

 

 

—

 

 

 

42

 

 

 

—

 

Cyber incident remediation expense

 

—

 

 

 

—

 

 

 

3

 

 

 

—

 

Non-GAAP gross profit

$

52,771

 

 

$

54,819

 

 

$

100,735

 

 

$

105,080

 

Non-GAAP gross margin

 

80.2

%

 

 

80.6

%

 

 

81.6

%

 

 

80.4

%

A10 NETWORKS, INC.

RECONCILIATION OF GAAP TOTAL OPERATING EXPENSES

TO NON-GAAP TOTAL OPERATING EXPENSES

(unaudited, in thousands)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

GAAP total operating expenses

$

40,088

 

 

$

41,345

 

 

$

81,396

 

 

$

83,176

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

(3,110

)

 

 

(2,613

)

 

 

(6,636

)

 

 

(5,866

)

Restructuring expense

 

—

 

 

 

—

 

 

 

(1,819

)

 

 

—

 

Cyber incident remediation expense

 

621

 

 

 

—

 

 

 

(729

)

 

 

—

 

Non-GAAP total operating expenses

$

37,599

 

 

$

38,732

 

 

$

72,212

 

 

$

77,310

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP INCOME FROM OPERATIONS

TO NON-GAAP OPERATING INCOME

(unaudited, in thousands, except percentages)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

GAAP income from operations

$

12,266

 

 

$

13,143

 

 

$

18,433

 

 

$

21,145

 

GAAP operating margin

 

18.6

%

 

 

19.3

%

 

 

14.9

%

 

 

16.2

%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

3,527

 

 

 

2,944

 

 

 

7,497

 

 

 

6,625

 

Restructuring expense

 

—

 

 

 

—

 

 

 

1,861

 

 

 

—

 

Cyber incident remediation expense

 

(621

)

 

 

—

 

 

 

732

 

 

 

—

 

Non-GAAP operating income

$

15,172

 

 

$

16,087

 

 

$

28,523

 

 

$

27,770

 

Non-GAAP operating margin

 

23.1

%

 

 

23.7

%

 

 

23.1

%

 

 

21.3

%

A10 NETWORKS, INC.

RECONCILIATION OF GAAP NET INCOME TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(unaudited, in thousands)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

GAAP net income

$

11,626

 

 

$

10,416

 

 

$

15,584

 

 

$

16,765

 

GAAP net income margin

 

17.7

%

 

 

15.3

%

 

 

12.6

%

 

 

12.8

%

 

 

 

 

 

 

 

 

Exclude: Interest and other (income) expense, net

 

(2,546

)

 

 

(485

)

 

 

(1,301

)

 

 

28

 

Exclude: Depreciation and amortization

 

2,202

 

 

 

1,868

 

 

 

4,308

 

 

 

3,712

 

Exclude: Provision for income taxes

 

3,186

 

 

 

3,212

 

 

 

4,150

 

 

 

4,352

 

EBITDA

 

14,468

 

 

 

15,011

 

 

 

22,741

 

 

 

24,857

 

Exclude: Stock-based compensation and related payroll tax

 

3,527

 

 

 

2,944

 

 

 

7,497

 

 

 

6,625

 

Exclude: Restructuring expense

 

—

 

 

 

—

 

 

 

1,861

 

 

 

—

 

Exclude: Cyber incident remediation expense

 

(621

)

 

 

—

 

 

 

732

 

 

 

—

 

Adjusted EBITDA

$

17,374

 

 

$

17,955

 

 

$

32,831

 

 

$

31,482

 

Adjusted EBITDA margin

 

26.4

%

 

 

26.4

%

 

 

26.6

%

 

 

24.1

%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726104563/en/

Investor Contact: Rob Fink / Tom Baumann FNK IR 646.809.4048 / 646.349.6641 aten@fnkir.com

Brian Becker Chief Financial Officer investors@a10networks.com