A10 Networks, Inc. Q3 FY2024 earnings call

• Improved performance in both enterprise and service provider sectors; enterprise revenue up 5% year-to-date and 9% on a trailing 12-month basis. - Security-led revenue increased 10% year-to-date; expanding security-led offerings with AI integration. - Infrastructure solutions to improve application performance and resiliency, integrating AI for network performance prediction. - Focus on internal investments, returning capital to shareholders, and evaluating strategic opportunities. - Maintained robust profitability; expanded operating, EBITDA, and net margins; R&D investment increased over 15% year-over-year; generated $21 million in cash from operations during the quarter.

Third quarter revenue was $66.7 million, up 15.5% year-over-year. Product revenue was $36.9 million (55% of total revenue), and services revenue was $29.9 million (45% of total revenue). Recurring revenue increased 6% compared to the third quarter last year. Security-led revenue was up 10% year-to-date.

• Target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28% on a full year basis. - Continue to return capital to shareholders via stock buybacks and dividends. - Anticipate improving trend in service provider demand with more positive signs of resumed investments. - Enterprise segment showing progress with trailing 12-month/9-month growth above industry average and dollar basis growth.

• Forward-looking statements involve risks and uncertainties beyond control that could cause actual results to differ materially. - Non-GAAP financial measures may differ from those of other companies. - Volatility in the North American service provider market remains a potential risk.

Q: How should we expect demand in the service provider segment to continue throughout the rest of the year and into next year?

A: Expect some volatility but overall trend is improving and stabilizing more; customer demand beginning to resume investments for infrastructure growth.

Q: Any puts and takes on enterprise revenue up 3% year-over-year?

A: Focus in enterprise is large enterprise; funnel and opportunities improving on dollar basis, trailing 12-month/9-month growth above industry average.

Q: Plan to manage accounts receivable which went up?

A: Not concerned, reflective of timing of the year, expecting linearity to return to normal.

Q: Future expectation for security-led business?

A: Near future expects 10% to 12% growth, baked into plan.

Q: Potential strategic alternatives or M&A?

A: Active in looking at scalable assets to accelerate security portfolio, mindful of capital deployment.

Q: Will new solutions and R&D increase be upsell and margin profile?

A: Confident in continuing 80%-82% gross margin, new solutions aim to expand product categories.

Q: Aggressiveness on buybacks?

A: Continue buybacks as part of capital strategy, balancing with organic and strategic investments.