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A10 Networks Reports Organic Growth, Expansion of Recurring Revenue and Security Solutions, Driven by 5G and Cybersecurity, for Q1 2021

First Quarter GAAP EPS of $0.03, non-GAAP EPS of $0.12

A10 Networks (NYSE: ATEN), a leading provider of secure application services and solutions, today announced financial results for its first quarter ended March 31, 2021.

First Quarter 2021 Financial Summary

  • Revenue of $54.8 million, up 2.0% year-over-year.
  • Deferred revenue of $113.2 million, up 11.8% year-over-year.
  • Security solutions grew to 60% of revenue and increased 15.5% on TTM basis.
  • GAAP gross margin of 77.2%; non-GAAP gross margin of 78.9%.
  • GAAP net income of $2.7 million, or $0.03 per share, compared with a net loss of $(297,000), or $(0.00) per share in the first quarter of 2020.
  • Non-GAAP net income of $9.4 million, or $0.12 per share compared with non-GAAP net income of $4.0 million, or $0.05 per share in the first quarter of 2020.
  • Adjusted EBITDA of $13.0 million, an improvement of $5.8 million compared with $7.2 million in the first quarter of 2020.

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

“We made significant progress in the first quarter against our stated goal of growing recurring revenue, and continued increasing security solutions revenue as a percent of total revenue,” said Dhrupad Trivedi, President and Chief Executive Officer of A10 Networks. “Our best-in-class security solutions are increasingly well-received by the market, and demand for network security solutions is growing. Software now represents more than 10% of our total revenue in the first quarter, compared to 6% for the full-year of 2020 and just 4% in 2019. Our stated goal was to grow recurring revenue faster than our consolidated revenue, giving us greater predictability into our quarterly revenues and enhancing the financial leverage we have built into our business model. As expected, we saw a decline in our Japan revenue related to the timing of the Olympics, but our strong book-to-bill performance in the quarter of 1.2:1 supports our full-year growth outlook for Japan. We were able to offset this temporary weakness with strong, improving performance in the Americas.”

“Over the past two years, we have maintained discipline in our cost structure while continuing to invest in growth initiatives,” continued Trivedi. “This enabled us to deliver more than $10.8 million in non-GAAP operating income versus $4.1 million in the first quarter last year and a loss of $5.9 million just two years ago, strengthening our balance sheet by growing cash and cash equivalents to $161 million, or approximately $2.02 per diluted share, and no debt. We now have an efficient, focused organization and we are positioned to increase investment in sales, marketing and R&D to facilitate growth in line with our business model. Security solutions grew 15.5% year-over-year on a trailing-12-month basis, and these solutions are creating strong momentum to expand our business going forward in addition to driving recurring revenue. With compelling offerings and powerful catalysts driving demand for our solution, we are well-positioned for a solid 2021.”

Conference Call Information

A10 Networks will host a conference call today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time for analysts and investors to discuss its first quarter 2021 financial results. Open to the public, interested parties may access the conference call by dialing (844) 792-3728 or (412) 317-5105. 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 business days and may be accessed by dialing (877) 344-7529 or (412) 317-0088 and entering the passcode 10155102.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our strategic focus, demand for our solutions, revenue predictability, financial leverage, growth outlook for Japan, investment in growth initiatives and sales, marketing and R&D, revenue growth, including recurring revenue, and our 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 the impact of the COVID-19 pandemic, and its impact on the timing of customer orders and product shipments; members of our management team or a significant number of our global employee base becoming ill with COVID-19; changes in government regulations and mandates to address COVID-19 that may adversely impact our ability to continue to operate without disruption; a significant decline in global macroeconomic conditions that have an adverse impact on our business and financial results; challenges to our infrastructure because of the number of employees working from remote locations; 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 10, 2020. 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 contain certain non-GAAP financial measures, including non-GAAP net income (loss), non-GAAP net income (loss) per basic and diluted share, non-GAAP gross profit and gross margin, non-GAAP operating income (loss) 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 (loss) excluding: (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define non-GAAP net income per basic and diluted share as our non-GAAP net income (loss) 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 (loss) as our GAAP income (loss) from operations excluding (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define non-GAAP operating margin as our non-GAAP operating income (loss) 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, (iii) non-recurring expenses associated with the litigation settlement and internal investigation expense, (iv) global distribution center transition expense, and (v) non-recurring facilities expense. We define Adjusted EBITDA as our GAAP net income (loss) excluding (i) interest expense (if any), (ii) interest income and other (income) expense, net, (iii) depreciation and amortization expense, (iv) provision for income taxes, (v) stock-based compensation and related payroll tax, (vi) litigation settlement and internal investigation expense, (vii) global distribution center transition expense, and (viii) non-recurring facilities expense.

We have included our non-GAAP net income (loss), non-GAAP gross profit and gross margin, non-GAAP operating income (loss) 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

March 31,

 

2021

 

 

2020

 

Revenue:

 

 

 

Products

$

30,540

 

 

 

$

30,736

 

 

Services

24,303

 

 

 

23,028

 

 

Total revenue

54,843

 

 

 

53,764

 

 

Cost of revenue:

 

 

 

Products

7,086

 

 

 

6,941

 

 

Services

5,413

 

 

 

5,201

 

 

Total cost of revenue

12,499

 

 

 

12,142

 

 

Gross profit

42,344

 

 

 

41,622

 

 

Operating expenses:

 

 

 

Sales and marketing

19,092

 

 

 

20,621

 

 

Research and development

13,981

 

 

 

15,315

 

 

General and administrative

5,247

 

 

 

5,895

 

 

Total operating expenses

38,320

 

 

 

41,831

 

 

Income (loss) from operations

4,024

 

 

 

(209

)

 

Non-operating income (expense):

 

 

 

Interest and other income (expense), net

(1,183

)

 

 

231

 

 

Total non-operating income (expense), net

(1,183

)

 

 

231

 

 

Income (loss) before provision for income taxes

2,841

 

 

 

22

 

 

Provision for income taxes

184

 

 

 

319

 

 

Net income (loss)

$

2,657

 

 

 

$

(297

)

 

Net income (loss) per share:

 

 

 

Basic

$

0.03

 

 

 

$

 

 

Diluted

$

0.03

 

 

 

$

 

 

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

 

 

 

Basic

76,704

 

 

 

78,061

 

 

Diluted

79,636

 

 

 

78,061

 

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (LOSS)

(unaudited, in thousands, except per share amounts)

 

 

Three Months Ended

March 31,

 

2021

 

2020

 

GAAP net income (loss)

$

2,657

 

 

$

(297

)

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

4,620

 

 

 

3,241

 

 

Amortization expense related to acquisition

 

253

 

 

 

253

 

 

Litigation and investigation expense

 

 

 

 

30

 

 

Non-recurring facilities expense

 

 

 

 

795

 

 

Global distribution center transition expense

 

1,911

 

 

 

 

 

Non-GAAP net income

$

9,441

 

 

$

4,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income per share:

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

 

 

Diluted

$

0.03

 

 

$

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

0.06

 

 

 

0.04

 

 

Amortization expense related to acquisition

 

 

 

 

 

 

Litigation and investigation expense

 

 

 

 

 

 

Non-recurring facilities expense

 

 

 

 

0.01

 

 

Global distribution center transition expense

 

0.03

 

 

 

 

 

Non-GAAP net income (loss) per share:

 

 

 

 

 

 

 

Basic

$

0.12

 

 

$

0.05

 

 

Diluted

$

0.12

 

 

$

0.05

 

 

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

 

 

 

 

 

 

 

Basic

 

76,704

 

 

 

78,061

 

 

Diluted

 

79,636

 

 

 

79,747

 

 

 

 

 

 

 

 

 

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

March 31,

2021

 

December 31,

2020

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

75,696

 

 

 

$

83,281

 

 

Marketable securities

85,261

 

 

 

74,851

 

 

Accounts receivable, net of allowances of $4 and $41, respectively

51,449

 

 

 

51,051

 

 

Inventory

19,547

 

 

 

20,730

 

 

Prepaid expenses and other current assets

13,022

 

 

 

12,390

 

 

Total current assets

244,975

 

 

 

242,303

 

 

Property and equipment, net

8,223

 

 

 

7,888

 

 

Goodwill

1,307

 

 

 

1,307

 

 

Intangible assets, net

502

 

 

 

862

 

 

Other non-current assets

36,573

 

 

 

38,451

 

 

Total assets

$

291,580

 

 

 

$

290,811

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

$

4,521

 

 

 

$

4,851

 

 

Accrued liabilities

26,198

 

 

 

36,930

 

 

Deferred revenue

68,299

 

 

 

65,999

 

 

Total current liabilities

99,018

 

 

 

107,780

 

 

Deferred revenue, non-current

44,920

 

 

 

42,700

 

 

Other non-current liabilities

22,983

 

 

 

24,357

 

 

Total liabilities

166,921

 

 

 

174,837

 

 

Commitments and contingencies

 

 

 

Stockholders' equity:

Common stock, $0.00001 par value: 500,000 shares authorized; 77,102 and 76,346 shares issued and outstanding, respectively

1

 

 

 

1

 

 

Treasury stock, 5,587 and 5,578 shares, respectively

(37,498

)

 

 

(37,410

)

 

Additional paid-in-capital

431,738

 

 

 

425,534

 

 

Accumulated other comprehensive income

10

 

 

 

98

 

 

Accumulated deficit

(269,592

)

 

 

(272,249

)

 

Total stockholders' equity

124,659

 

 

 

115,974

 

 

Total liabilities and stockholders' equity

$

291,580

 

 

 

$

290,811

 

 

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands, on a GAAP Basis)

 

 

Three Months Ended

March 31,

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

Net income (loss)

$

2,657

 

 

 

$

(297

)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

Depreciation and amortization

2,413

 

 

 

3,311

 

 

Stock-based compensation

4,399

 

 

 

3,040

 

 

Other non-cash items

181

 

 

 

(13

)

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

(315

)

 

 

10,767

 

 

Inventory

1,086

 

 

 

1,472

 

 

Prepaid expenses and other assets

(60

)

 

 

2,426

 

 

Accounts payable

(501

)

 

 

(3,718

)

 

Accrued and other liabilities

(12,106

)

 

 

(4,919

)

 

Deferred revenue

4,519

 

 

 

114

 

 

Net cash provided by operating activities

2,273

 

 

 

12,183

 

 

Cash flows from investing activities:

 

 

 

Proceeds from sales of marketable securities

1,300

 

 

 

1,914

 

 

Proceeds from maturities of marketable securities

24,140

 

 

 

10,175

 

 

Purchases of marketable securities

(36,197

)

 

 

(5,518

)

 

Purchases of property and equipment

(769

)

 

 

(868

)

 

Net cash provided by (used in) investing activities

(11,526

)

 

 

5,703

 

 

Cash flows from financing activities:

 

 

 

Proceeds from issuance of common stock under employee equity incentive plans

1,756

 

 

 

2,005

 

 

Repurchase of common stock

(88

)

 

 

 

 

Net cash provided by financing activities

1,668

 

 

 

2,005

 

 

Net increase (decrease) in cash and cash equivalents

(7,585

)

 

 

19,891

 

 

Cash and cash equivalents—beginning of period

$

83,281

 

 

 

$

45,742

 

 

Cash and cash equivalents—end of period

$

75,696

 

 

 

$

65,633

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Inventory transfers to property and equipment

$

97

 

 

 

$

149

 

 

Purchases of property and equipment included in accounts payable

$

172

 

 

 

$

63

 

 

 

 

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT

(unaudited, in thousands, except percentages)

 

 

Three Months Ended

March 31,

 

2021

 

2020

GAAP gross profit

$

42,344

 

 

$

41,622

 

GAAP gross margin

 

77.2

%

 

 

77.4

%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

641

 

 

 

501

 

Global distribution center transition expense

 

273

 

 

 

 

Non-GAAP gross profit

$

43,258

 

 

$

42,123

 

Non-GAAP gross margin

 

78.9

%

 

 

78.3

%

 

 

 

 

 

 

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP TOTAL OPERATING EXPENSES TO

TO NON-GAAP TOTAL OPERATING EXPENSES

(unaudited, in thousands)

 

 

Three Months Ended

March 31,

 

2021

 

 

2020

 

GAAP total operating expenses

$

38,320

 

 

 

$

41,831

 

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

(3,979

)

 

 

 

(2,740

)

 

Amortization expense related to acquisition

 

(253

)

 

 

 

(253

)

 

Litigation and investigation expense

 

 

 

 

 

(30

)

 

Non-recurring facilities expense

 

 

 

 

 

(795

)

 

Global distribution center transition expense

 

(1,638

)

 

 

 

 

 

Non-GAAP total operating expenses

$

32,450

 

 

 

$

38,013

 

 

 

 

 

 

 

 

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS

TO NON-GAAP OPERATING INCOME (LOSS)

(unaudited, in thousands, except percentages)

 

 

Three Months Ended

March 31,

 

2021

 

2020

 

GAAP income (loss) from operations

$

4,024

 

 

$

(209

)

 

GAAP operating margin

 

7.3

%

 

 

(0.4

)%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

 

4,620

 

 

 

3,241

 

 

Amortization expense related to acquisition

 

253

 

 

 

253

 

 

Litigation and investigation expense

 

 

 

 

30

 

 

Non-recurring facilities expense

 

 

 

 

795

 

 

Global distribution center transition expense

 

1,911

 

 

 

 

 

Non-GAAP operating income

$

10,808

 

 

$

4,110

 

 

Non-GAAP operating margin

 

19.7

%

 

 

7.6

%

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(unaudited, in thousands)

 

 

Three Months Ended

March 31,

 

2021

 

2020

 

GAAP net income (loss)

$

2,657

 

 

$

(297

)

 

Exclude: Interest and other (income) expense, net

1,183

 

 

(231

)

 

Exclude: Depreciation and amortization expense

2,413

 

 

3,311

 

 

Exclude: Provision for income taxes

184

 

 

319

 

 

EBITDA

6,437

 

 

3,102

 

 

Exclude: Stock-based compensation and related payroll tax

4,620

 

 

3,241

 

 

Exclude: Litigation and investigation expense

 

 

30

 

 

Exclude: Non-recurring facilities expense

 

 

795

 

 

Exclude: Global distribution center transition expense

1,911

 

 

 

 

Adjusted EBITDA

$

12,968

 

 

$

7,168

 

 

 

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