ATEN A10 Networks Inc

A10 Networks, Inc. (NYSE: ATEN), a leading provider of intelligent and automated cybersecurity solutions, today announced financial results for its fourth quarter and year ended Dec. 31, 2018.

Fourth Quarter 2018 Financial Summary

• Revenue increased 11 percent to $61.8 million, compared with $55.5 million in fourth quarter 2017
• GAAP gross margin of 77.7 percent, non-GAAP gross margin of 78.2 percent
• GAAP operating margin of (3.9) percent, non-GAAP operating margin of 5.3 percent
• GAAP net loss of $1.6 million, or $0.02 per basic and diluted share, non-GAAP net income of $4.1 million, or $0.05 per diluted share

Year 2018 Financial Summary

• Revenue of $232.2 million, compared with $235.4 million in 2017
• GAAP gross margin of 77.7 percent, non-GAAP gross margin of 78.3 percent
• GAAP operating margin of (11.9) percent, non-GAAP operating margin of 0.4 percent
• GAAP net loss of $27.6 million, or $0.38 per basic and diluted share, non-GAAP net income of $0.9 million, or $0.01 per diluted share
• Ended the year with $128.4 million in cash, cash equivalents and marketable securities

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

“We are building solid momentum in the market with our advanced suite of 5G, security and multi-cloud solutions. Revenue increased 11 percent year-over-year to $61.8 million and our security product revenue grew to reach 38 percent of product revenue for the year, achieving our goal for the year. We also continue to make good progress with our sales transformation initiative and drove double-digit year-over-year product revenue growth in North America, Japan, APAC and Latin America,” said Lee Chen, president and chief executive officer of A10 Networks. “Our technology vision and differentiated platform is resonating with customers and we remain committed to increasing our pace of innovation, refining our go-to-market engine and improving our sales productivity. Our strategy is clear, our team is energized and we believe we are on the right path to maximize our opportunities in the fast-growing areas of security, 5G and multi-cloud.”

Prepared Materials and Conference Call Information

A10 Networks has made available a presentation with management’s prepared remarks on its fourth quarter and year 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 fourth quarter and year 2018 financial results and outlook for its first quarter 2019. 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 10127435. 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 projections for our future operating results, the pace of growth in the market for our solutions, our sales transformation initiative, our pace of innovation, the refining of our go-to-market engine, improving our sales productivity, our belief that we are on the right path, and our ability to maximize our opportunities. 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 income (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 income (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 December 31, Years EndedDecember 31, 2018   2017 2018   2017 Revenue: Products $ 39,044 $ 32,973 $ 144,682 $ 149,903 Services 22,781   22,544   87,541   85,526   Total revenue 61,825   55,517   232,223   235,429   Cost of revenue: Products 9,087 8,145 34,066 36,269 Services 4,724   3,763   17,830   17,049   Total cost of revenue 13,811   11,908   51,896   53,318   Gross profit 48,014   43,609   180,327   182,111   Operating expenses: Sales and marketing 25,983 22,606 103,214 101,360 Research and development 15,283 13,462 65,157 62,991 General and administrative 9,171   6,688   39,635   28,132   Total operating expenses 50,437   42,756   208,006   192,483   Income (loss) from operations (2,423 ) 853   (27,679 ) (10,372 ) Non-operating income (expense): Interest expense (30 ) (34 ) (129 ) (162 ) Interest and other income (expense), net 1,267   210   1,273   989   Total non-operating income (expense), net 1,237   176   1,144   827   Income (loss) before income taxes (1,186 ) 1,029 (26,535 ) (9,545 ) Provision for income taxes 422   243   1,082   1,206   Net income (loss) $ (1,608 ) $ 786   $ (27,617 ) $ (10,751 ) Net income (loss) per share: Basic $ (0.02 ) $ 0.01   $ (0.38 ) $ (0.15 ) Diluted $ (0.02 ) $ 0.01   $ (0.38 ) $ (0.15 ) Weighted-average shares used in computing net income (loss) per share: Basic 73,865   71,145   72,882   70,053   Diluted 73,865   74,559   72,882   70,053     A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(unaudited, in thousands, except per share amounts)     Three Months Ended December 31, Years EndedDecember 31, 2018   2017 2018   2017 GAAP net income (loss) $ (1,608 ) $ 786 $ (27,617 ) $ (10,751 ) Stock-based compensation 3,983 3,379 17,038 17,203 Amortization expense related to acquisition 252 252 1,010 1,010 Litigation and investigation expense 1,465   —   10,496   —   Non-GAAP net income $ 4,092   $ 4,417   $ 927   $ 7,462   Non-GAAP net income per share: Basic $ 0.06   $ 0.06   $ 0.01   $ 0.11   Diluted $ 0.05   $ 0.06   $ 0.01   $ 0.10   Weighted average shares used in computing non-GAAP net income per share: Basic 73,865   71,145   72,882   70,053   Diluted 75,737   74,559   75,222   74,270     A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)    

December 31, 2018

December 31, 2017

ASSETS Current Assets: Cash and cash equivalents $ 40,621 $ 46,567 Marketable securities 87,754 84,567 Accounts receivable, net of allowances 53,972 48,266 Inventory 17,930 17,577 Prepaid expenses and other current assets 14,662   6,825   Total current assets 214,939 203,802 Property and equipment, net 7,262 9,913 Goodwill 1,307 1,307 Intangible assets 3,748 5,190 Other non-current assets 8,620   4,646   Total Assets $ 235,876   $ 224,858   LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 8,202 $ 9,033 Accrued liabilities 25,291 21,835 Deferred revenue 63,874   61,858   Total current liabilities 97,367 92,726 Deferred revenue, non-current 34,092 32,779 Other non-current liabilities 534   967   Total liabilities 131,993   126,472   Stockholders’ Equity: Common stock and additional paid-in-capital 376,273 355,534 Accumulated other comprehensive loss (144 ) (123 ) Accumulated deficit (1) (272,246 ) (257,025 ) Total Stockholders' Equity 103,883   98,386   Total Liabilities and Stockholders' Equity $ 235,876   $ 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)   Years Ended December 31, 2018   2017 Cash flows from operating activities: Net loss $ (27,617 ) $ (10,751 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 7,880 8,511 Stock-based compensation 17,038 17,203 Provision for doubtful accounts and sales returns 212 1,147 Other non-cash items (68 ) (422 ) Changes in operating assets and liabilities: Accounts receivable (6,119 ) 12,362 Inventory (1,529 ) (4,669 ) Prepaid expenses and other assets (2,434 ) (2,399 ) Accounts payable (603 ) (942 ) Accrued and other liabilities 3,116 (8,868 ) Deferred revenue 7,331 3,018 Other 99   124   Net cash (used in) provided by operating activities (2,694 ) 14,314   Cash flows from investing activities: Proceeds from sales of marketable securities 32,720 27,901 Proceeds from maturities of marketable securities 51,024 60,138 Purchases of marketable securities (86,823 ) (87,447 ) Purchase of investment (1,000 ) — Purchases of property and equipment (2,797 ) (5,734 ) Net cash used in investing activities (6,876 ) (5,142 ) Cash flows from financing activities: Proceeds from issuance of common stock under employee equity incentive plans 3,701 12,244 Repurchases and retirement of common stock — (3,071 ) Payment of contingent consideration — (650 ) Other (77 ) (103 ) Net cash provided by financing activities 3,624   8,420   Net (decrease) increase in cash and cash equivalents (5,946 ) 17,592 Cash and cash equivalents - beginning of period 46,567   28,975   Cash and cash equivalents - end of period $ 40,621   $ 46,567     A10 NETWORKS, INC. RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT (unaudited, in thousands, except percentages)     Three Months Ended December 31, Years EndedDecember 31, 2018   2017 2018   2017 GAAP gross profit $ 48,014 $ 43,609 $ 180,327 $ 182,111 GAAP gross margin 77.7

 %

78.6

 %

77.7

 %

77.4

 %

Non-GAAP adjustments: Stock-based compensation 325   294   1,602   1,362   Non-GAAP gross profit $ 48,339   $ 43,903   $ 181,929   $ 183,473   Non-GAAP gross margin 78.2

 %

79.1

 

78.3

 %

77.9

 %

    RECONCILIATION OF GAAP OPERATING INCOME (LOSS) TO NON-GAAP OPERATING INCOME (unaudited, in thousands, except percentages)   Three Months Ended December 31, Years EndedDecember 31, 2018 2017 2018 2017 GAAP income (loss) from operations $ (2,423 ) $ 853 $ (27,679 ) $ (10,372 ) GAAP operating margin (3.9 )% 1.5

 %

(11.9 )% (4.4 )% Non-GAAP adjustments: Stock-based compensation 3,983 3,379 17,038 17,203 Amortization expense related to acquisition 252 252 1,010 1,010 Litigation and investigation expense 1,465   —   10,496   —   Non-GAAP operating income $ 3,277   $ 4,484   $ 865   $ 7,841   Non-GAAP operating margin 5.3

 %

8.1

 %

0.4

 %

3.3

 %

 

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Investor Contact:Maria Riley & Chelsea LishThe Blueshirt Group415-217-7722investors@a10networks.com