A10 Networks Reports 14.9% Organic Growth for Q2 2022, Driven by Growth in Proprietary Security-Led Solutions

SAN JOSE, Calif.–(BUSINESS WIRE)–A10 Networks (NYSE: ATEN), a leading provider of cybersecurity and infrastructure solutions, today announced financial results for its second quarter and six-month period ended June 30, 2022.

Second Quarter 2022 Financial Summary

• Revenue of $68.0 million, up 14.9% year-over-year.
• Revenue growth led by a 33.7% increase in the Americas year-over-year.
• GAAP gross margin of 80.2%; non-GAAP gross margin of 80.6% as a result of better product mix and continued successful navigation of short-term input cost pressures.
• GAAP net income of $10.4 million, or $0.13 per diluted share, compared with GAAP net income of $6.6 million, or $0.08 per diluted share in the second quarter of 2021.
• Non-GAAP net income of $13.4 million, or $0.17 per diluted share, compared with non-GAAP net income of $10.5 million, or $0.13 per diluted share in the second quarter of 2021.
• Adjusted EBITDA of $18.0 million, representing 26.4% of revenue, in line with stated business model goals.
• Returned $7.2 million to shareholders through the repurchase of approximately 248,000 shares during the quarter for a total of $3.4 million and the issuance of $3.8 million in cash dividends.
• The Board of Directors declared a quarterly cash dividend of $0.05 per share, payable on September 1, 2022 to stockholders of record at the close of business on August 15, 2022.

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

“Continued strong demand for our proprietary, security-led solutions, combined with sustained business execution, resulted in 14.9% top-line growth and overall performance that exceeded our ‘Rule of 40’ target,” said Dhrupad Trivedi, President and Chief Executive Officer of A10 Networks. “The increasing threat of cyberattacks, exacerbated by geopolitical events in Europe, Asia and elsewhere, make our security and infrastructure solutions a growing priority even as certain non-security investments are reprioritized due to macroeconomic concerns. We are capturing market share through better technology that helps our customers to achieve their business goals and we continue to invest in strategic growth opportunities. Simultaneously, our proven business model, including gross profit margins exceeding 80% and Adjusted EBITDA margins of 26% enable us to deliver consistent shareholder returns through share repurchases and a quarterly cash dividend.”

“We have been able to successfully navigate supply chain challenges and input cost pressures, as evidenced by our stable gross margins, and we expect these challenges will persist for some time,” continued Trivedi. “We reiterate our full year targets around top line growth of 10 – 12% and expanding EBITDA in the range of 26 – 28% of revenue. Our targeted, strategic investments in technology are enabling us to capture market share, while our diversity of revenue and cybersecurity solutions serve as catalysts for durable growth, even amidst macroeconomic conditions.”

Conference Call

Management will host a call at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, August 2, 2022, to discuss these results. Interested parties may access the conference call by dialing (844) 200-6205 (toll-free) or (929) 526-1599 and entering passcode 598873.

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 107391.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our anticipated future financial results, quarterly dividend payments, drivers of growth, demand, supply chain challenges, positioning, growth and EBITDA expectations. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Factors that may cause actual results to differ include the impact of the COVID-19 pandemic on our business and the business of our customers; 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; and other risks that are described in “Risk Factors” in our periodic filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Commission on March 8, 2022. We do not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release and the accompanying tables and Exhibit 99.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this release contain certain non-GAAP financial measures, including non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP operating expenses, and Adjusted EBITDA. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies.

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

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

We define non-GAAP net income as our GAAP net income excluding: (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition and (iii) global distribution center transition expense. 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, and (ii) global distribution center transition expense. We define non-GAAP gross margin as our non-GAAP gross profit divided by our GAAP revenue. We define non-GAAP operating income as our GAAP income from operations excluding (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition and (iii) global distribution center transition 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) amortization expense related to acquisition and (iii) global distribution center transition expense. We define Adjusted EBITDA as our GAAP net income excluding (i) interest expense (if any), (ii) interest income and other (income) expense, net, (iii) depreciation and amortization expense, (iv) benefit from (provision for) income taxes, (v) stock-based compensation and related payroll tax and (vi) global distribution center transition expense.

We have included our non-GAAP net income, non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP operating expenses and Adjusted EBITDA in this press release. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company’s operating results.

About A10 Networks

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

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

A10 NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts, on a GAAP Basis)
	Three Months Ended June 30,							Six Months Ended June 30,
	2022			2021				2022				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
Non-operating income (expense), net:
Interest income		184			96				304				241
Other income (expense), net		301			(208	)			(332	)			(1,536	)
Total non-operating income (expense), net		485			(112	)			(28	)			(1,295	)
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
Diluted	$	0.13		$	0.08			$	0.21			$	0.12
Weighted-average shares used in computing net income per share:
Basic		75,893			76,774				76,343				76,745
Diluted		78,306			79,316				78,809				79,501

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,
	2022			2021			2022			2021
GAAP net income	$	10,416		$	6,616		$	16,765		$	9,273
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		2,944			2,612			6,625			7,232
Amortization expense related to acquisition		—			252			—			505
Global distribution center transition expense		—			1,036			—			2,947
Non-GAAP net income	$	13,360		$	10,516		$	23,390		$	19,957
GAAP net income per share:
Basic	$	0.14		$	0.09		$	0.22		$	0.12
Diluted	$	0.13		$	0.08		$	0.21		$	0.12
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		0.04			0.04			0.09			0.09
Amortization expense related to acquisition		—			0.00			—			0.01
Global distribution center transition expense		—			0.01			—			0.04
Non-GAAP net income per share:
Basic	$	0.18		$	0.14		$	0.31		$	0.26
Diluted	$	0.17		$	0.13		$	0.30		$	0.25
Weighted-average shares used in computing non-GAAP net income per share:
Basic		75,893			76,774			76,343			76,745
Diluted		78,306			79,316			78,809			79,501

A10 NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except par value, on a GAAP Basis)
	June 30, 2022				December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	84,242			$	78,925
Marketable securities		82,551				106,117
Accounts receivable, net of allowances of $447 and $543, respectively		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
Current liabilities:
Accounts payable	$	5,567			$	6,852
Accrued liabilities		36,870				36,101
Deferred revenue		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
Stockholders’ equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 85,626 and 84,717 shares issued and 75,962 and 77,423 shares outstanding, respectively		1				1
Treasury stock, at cost: 9,664 and 7,294 shares, respectively		(87,435	)			(55,677	)
Additional paid-in-capital		455,539				446,035
Dividends paid		(11,543	)			(3,880	)
Accumulated other comprehensive income		(1,206	)			(229	)
Accumulated deficit		(160,597	)			(177,362	)
Total stockholders’ equity		194,759				208,888
Total liabilities and stockholders’ equity	$	384,565			$	393,085

A10 NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands, on a GAAP Basis)
	Six Months Ended June 30,
	2022				2021
Cash flows from operating activities:
Net income	$	16,765			$	9,273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,712				4,753
Stock-based compensation		6,313				6,891
Other non-cash items		113				531
Changes in operating assets and liabilities:
Accounts receivable		(5,580	)			882
Inventory		(31	)			1,499
Prepaid expenses and other assets		(2,163	)			(1,200	)
Accounts payable		(1,283	)			821
Accrued liabilities		655				(11,642	)
Deferred revenue		6,239				7,628
Net cash provided by operating activities		24,740				19,436
Cash flows from investing activities:
Proceeds from sales of marketable securities		4,550				2,865
Proceeds from maturities of marketable securities		39,148				48,586
Purchases of marketable securities		(21,649	)			(76,141	)
Purchases of property and equipment		(5,021	)			(2,443	)
Net cash provided by (used in) investing activities		17,028				(27,133	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans		2,970				3,578
Repurchase of common stock		(31,758	)			(11,213	)
Payments for dividends		(7,663	)			—
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
Non-cash investing and financing activities:
Transfers between inventory and property and equipment	$	567			$	146
Purchases of property and equipment included in accounts payable	$	1			$	11

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,
	2022				2021				2022				2021
GAAP gross profit	$	54,488			$	45,538			$	104,321			$	87,882
GAAP gross margin		80.2	%			77.0	%			79.9	%			77.1	%
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		331				303				759				944
Global distribution center transition expense		—				252				—				525
Non-GAAP gross profit	$	54,819			$	46,093			$	105,080			$	89,351
Non-GAAP gross margin		80.6	%			77.9	%			80.4	%			78.4	%

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,
	2022				2021				2022				2021
GAAP total operating expenses	$	41,345			$	38,322			$	83,176			$	76,642
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		(2,613	)			(2,309	)			(5,866	)			(6,288	)
Amortization expense related to acquisition		—				(252	)			—				(505	)
Global distribution center transition expense		—				(784	)			—				(2,422	)
Non-GAAP total operating expenses	$	38,732			$	34,977			$	77,310			$	67,427

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,
	2022				2021				2022				2021
GAAP income from operations	$	13,143			$	7,216			$	21,145			$	11,240
GAAP operating margin		19.3	%			12.2	%			16.2	%			9.9	%
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		2,944				2,612				6,625				7,232
Amortization expense related to acquisition		—				252				—				505
Global distribution center transition expense		—				1,036				—				2,947
Non-GAAP operating income	$	16,087			$	11,116			$	27,770			$	21,924
Non-GAAP operating margin		23.7	%			18.8	%			21.3	%			19.2	%

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,
	2022				2021			2022			2021
GAAP net income	$	10,416			$	6,616		$	16,765		$	9,273
Exclude: Interest and other (income) expense, net		(485	)			112			28			1,295
Exclude: Depreciation and amortization expense		1,868				2,340			3,712			4,753
Exclude: Provision for income taxes		3,212				488			4,352			672
EBITDA		15,011				9,556			24,857			15,993
Exclude: Stock-based compensation and related payroll tax		2,944				2,612			6,625			7,232
Exclude: Global distribution center transition expense		—				1,036			—			2,947
Adjusted EBITDA	$	17,955			$	13,204		$	31,482		$	26,172

 

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August 03, 2022 at 09:09AM

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