ATEN A10 Networks Inc

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 EndedSeptember 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 EndedSeptember 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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Investor Contact:The Blueshirt GroupMaria Riley & Chelsea Lish, 415-217-7722investors@a10networks.com