Market Overview

A10 Networks Reports Third Quarter 2018 Financial Results

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A10 Networks (NYSE:ATEN), a provider of intelligent and automated
cybersecurity solutions, today announced financial results for its third
quarter ended Sept. 30, 2018.

Third Quarter 2018 Financial Summary

  • Revenue of $60.5 million, compared with $62.0 million in third quarter
    2017
  • GAAP gross margin of 78.5 percent, non-GAAP gross margin of 78.8
    percent
  • GAAP operating margin loss of 2.6 percent, non-GAAP operating margin
    of 4.2 percent
  • GAAP net loss of $1.8 million, or $0.02 per share, non-GAAP net income
    of $2.3 million, or $0.03 per share

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

"We delivered a solid third quarter achieving revenue of $60.5 million,
which exceeded the high-end of our guidance range. In the quarter, we
continued to execute on our initiatives to transform our sales team,
sharpen our focus on execution and expand our advanced suite of 5G,
security and cloud solutions, and we are pleased with the initial
results of our efforts," said Lee Chen, president and chief executive
officer of A10 Networks. "We are building momentum in the market with
our highly scalable and intelligent automation driven security
solutions. During the quarter, strong growth in sales for Thunder TPS
and record Thunder CFW sales drove security product revenue to exceed 40
percent of total product revenue. We have a clear strategy and are
hyper-focused on maximizing our opportunities in the fast-growing areas
of our market. We believe we are on the right path and remain confident
in our strategy to grow our business."

Prepared Materials and Conference Call Information

A10 Networks has made available a presentation with management's
prepared remarks on its third quarter 2018 financial results. These
materials are accessible from the "Investor Relations" section of the
A10 Networks website at investors.a10networks.com.

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 third
quarter 2018 results and outlook for its fourth quarter of 2018. Open to
the public, investors may access the call by dialing +1-844-792-3728 or
+1-412-317-5105. A live audio webcast of the conference call will be
accessible from the "Investor Relations" section of the A10 Networks
website at investors.a10networks.com.
The webcast will be archived for a period of one year. A telephonic
replay of the conference call will be available two hours after the
call, will run for five business days, and may be accessed by dialing
+1-877-344-7529 or +1-412-317-0088 and entering the passcode 10124388.
The press release and supplemental financials will be accessible from
the "Investor Relations" section of the A10 Networks website prior to
the commencement of the conference call.

Forward-Looking Statements

This press release contains "forward-looking statements," including
statements regarding our initiatives to transform our sales team,
improve our execution and expand our solutions, our ability to maximize
our opportunities, the pace of growth in our market, our belief that we
are on the right path, and our confidence in our strategies.
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 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
attract and retain new end-customers, our ability to maintain and
enhance our brand and reputation, 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 and risks associated with our presence in international markets.

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 table contain certain non-GAAP financial measures,
including non-GAAP net income (loss), non-GAAP gross profit and non-GAAP
operating income (loss). 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. We define non-GAAP
net income (loss) as our GAAP net loss excluding: (i) stock-based
compensation, (ii) amortization expense related to acquisition and (iii)
non-recurring expenses associated with the litigation and internal
investigation. We define non-GAAP gross profit as our GAAP gross profit
excluding stock-based compensation. We define non-GAAP operating income
(loss) as our GAAP loss from operations excluding (i) stock-based
compensation, (ii) amortization expense related to acquisition and (iii)
non-recurring expenses associated with the litigation and internal
investigation.

We have included our non-GAAP net income (loss), non-GAAP gross profit
and non-GAAP operating income (loss) in this press release. Non-GAAP
financial measures are presented for supplemental informational purposes
only for understanding the company's operating results. The non-GAAP
financial measures should not be considered a substitute for financial
information presented in accordance with GAAP, and may be different from
non-GAAP financial measures presented by other companies. Please see the
reconciliation of non-GAAP financial measures to the most directly
comparable GAAP measure attached to this release.

About A10 Networks

A10 Networks (NYSE:ATEN) is a provider of intelligent and automated
cybersecurity solutions, providing a portfolio of high-performance
secure application solutions that enable intelligent automation with
machine learning to ensure business-critical applications are secure and
always available. Founded in 2004, A10 Networks is based in San Jose,
Calif., and serves customers in more than 80 countries with offices
worldwide. For more information, visit: www.a10networks.com
and @A10Networks.

The A10 logo, A10 Networks, A10 Thunder and A10 5G-GiLAN 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)

   

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018   2017 2018   2017
Revenue:
Products $ 38,265 $ 40,404 $ 105,638 $ 116,930
Services 22,237   21,601   64,760   62,982  
Total revenue 60,502   62,005   170,398   179,912  
Cost of revenue:
Products 8,790 9,357 24,979 28,124
Services 4,224   4,510   13,106   13,286  
Total cost of revenue 13,014   13,867   38,085   41,410  
Gross profit 47,488   48,138   132,313   138,502  
Operating expenses:
Sales and marketing 24,539 26,930 77,231 78,754
Research and development 15,505 15,997 49,874 49,529
General and administrative 9,012   6,945   30,464   21,444  
Total operating expenses 49,056   49,872   157,569   149,727  
Loss from operations (1,568 ) (1,734 ) (25,256 ) (11,225 )
Non-operating income (expense):
Interest expense (34 ) (20 ) (99 ) (128 )
Interest and other income (expense), net (131 ) (37 ) 6   779  
Total non-operating income (expense), net (165 ) (57 ) (93 ) 651  
Loss before income taxes (1,733 ) (1,791 ) (25,349 ) (10,574 )
Provision for income taxes 74   454   660   963  
Net loss $ (1,807 ) $ (2,245 ) $ (26,009 ) $ (11,537 )
Net loss per share:
Basic and diluted $ (0.02 ) $ (0.03 ) $ (0.36 ) $ (0.17 )
Weighted-average shares used in computing net loss per share:
Basic and diluted 72,707   70,705   72,550   69,688  
 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(unaudited, in thousands, except per share amounts)

   

Three Months Ended
September 30,

Nine Months Ended
September 30,
2018   2017 2018   2017
GAAP net loss $ (1,807 ) $ (2,245 ) $ (26,009 ) $ (11,537 )
Stock-based compensation 2,333 4,545 13,055 13,824
Amortization expense related to acquisition 253 253 758 758
Litigation and investigation expense 1,531     9,031    
Non-GAAP net income (loss) $ 2,310   $ 2,553   $ (3,165 ) $ 3,045  
Non-GAAP net income (loss) per share:
Basic $ 0.03   $ 0.04   $ (0.04 ) $ 0.04  
Diluted $ 0.03   $ 0.03   $ (0.04 ) $ 0.04  
Weighted average shares used in computing non-GAAP net income (loss)
per share:
Basic 72,707   70,705   72,550   69,688  
Diluted 74,940   73,572   72,550   74,086  
 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

   
September 30,
2018
December 31,
2017
ASSETS
Current Assets:
Cash and cash equivalents $ 36,162 $ 46,567
Marketable securities 87,391 84,567
Accounts receivable, net of allowances 51,084 48,266
Inventory 15,102 17,577
Prepaid expenses and other current assets 13,266   6,825  
Total current assets 203,005 203,802
Property and equipment, net 7,994 9,913
Goodwill 1,307 1,307
Intangible assets 4,108 5,190
Other non-current assets 8,380   4,646  
Total Assets $ 224,794   $ 224,858  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,630 $ 9,033
Accrued liabilities 20,602 21,835
Deferred revenue 60,653   61,858  
Total current liabilities 90,885 92,726
Deferred revenue, non-current 34,202 32,779
Other non-current liabilities 642   967  
Total Liabilities 125,729   126,472  
Stockholders' Equity:
Common stock and additional paid-in-capital 369,859 355,534
Accumulated other comprehensive loss (157 ) (123 )
Accumulated deficit (1) (270,637 ) (257,025 )
Total Stockholders' Equity 99,065   98,386  
Total Liabilities and Stockholders' Equity $ 224,794   $ 224,858  
(1) The adoption of ASU 2014-09, Revenue from Contracts with Customers
(Topic 606) in the first quarter of 2018 resulted in a reduction to
the accumulated deficit balance of $12.4 million as of January 1,
2018.
 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 
Nine Months Ended
September 30,
2018   2017
Cash flows from operating activities:
Net loss $ (26,009 ) $ (11,537 )
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 6,020 6,222
Stock-based compensation 13,055 13,824
Other non-cash items 152 930
Changes in operating assets and liabilities:
Accounts receivable (3,144 ) 11,288
Inventory 1,550 (2,513 )
Prepaid expenses and other assets (868 ) (2,785 )
Accounts payable 806 (1,243 )
Accrued and other liabilities (1,482 ) (3,023 )
Deferred revenue 4,219 (1,245 )
Other 183   102  
Net cash (used in) provided by operating activities (5,518 ) 10,020  
Cash flows from investing activities:
Proceeds from sales of marketable securities 23,194 18,747
Proceeds from maturities of marketable securities 41,732 52,119
Purchases of marketable securities (67,754 ) (69,580 )
Purchase of investment (1,000 )
Purchases of property and equipment (2,252 ) (4,223 )
Net cash used in investing activities (6,080 ) (2,937 )
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity
incentive plans
1,269 7,665
Repurchases and retirement of common stock (3,071 )
Payment of contingent consideration (650 )
Other (76 ) (83 )
Net cash provided by financing activities 1,193   3,861  
Net (decrease) increase in cash and cash equivalents (10,405 ) 10,944
Cash and cash equivalents - beginning of period $ 46,567   $ 28,975  
Cash and cash equivalents - end of period $ 36,162   $ 39,919  
 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT

(unaudited, in thousands, except percentages)

   
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018   2017 2018   2017
GAAP gross profit $ 47,488 $ 48,138 $ 132,313 $ 138,502
GAAP gross margin 78.5 % 77.6 % 77.6 % 77.0 %
Non-GAAP adjustments:
Stock-based compensation 187   403   1,277   1,068  
Non-GAAP gross profit $ 47,675   $ 48,541   $ 133,590   $ 139,570  
Non-GAAP gross margin 78.8 % 78.3 % 78.4 % 77.6 %
 

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

(unaudited, in thousands, except percentages)

   
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018   2017 2018   2017
GAAP loss from operations $ (1,568 ) $ (1,734 ) $ (25,256 ) $ (11,225 )
GAAP operating margin (2.6 )% (2.8 )% (14.8 )% (6.2

)%

Non-GAAP adjustments:
Stock-based compensation 2,333 4,545 13,055 13,824
Amortization expense related to acquisition 253 253 758 758
Litigation and investigation expense 1,531     9,031    
Non-GAAP operating income (loss) $ 2,549   $ 3,064   $ (2,412 ) $ 3,357  
Non-GAAP operating margin 4.2

 %

4.9

 %

(1.4 )% 1.9

 %

 

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