A10 Networks, Inc. Q1 FY2025 earnings call

· A10 delivered broad-based growth and solid profitability, with enterprise revenue growing 18% YOY and service provider revenue up 3% YOY; enterprise revenue up 12% on a trailing 12-month basis. · Service provider market in North America improved, while Asia Pacific was impacted by strong Q1 2024. · Acquired ThreatXProtect to expand cybersecurity portfolio with web application and API protection, aligning with AI-driven demand in the enterprise segment. · Target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28% on a full-year basis. · Cash from operations was $15.2 million; cash, cash equivalents, and marketable securities totaled $355.8 million; long-term debt was $217.7 million. · Board approved a $0.06 per share quarterly cash dividend and a new $75 million share repurchase program.

First quarter revenue was $66.1 million, up 9% year-over-year. Enterprise revenue grew 18% YOY, service provider revenue grew 3% YOY. Product revenue was $36 million (54% of total revenue), services revenue was $30.2 million (46% of total revenue). Total deferred revenue increased 8% to $152.7 million. Gross margin was 80.9%, in line with the target of 80% to 82%. Adjusted EBITDA was $19.5 million, representing 29.5% of revenue. Non-GAAP net income was $15 million or $0.20 per diluted share.

· Target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28% for the full year. · Management is comfortable with high single-digit revenue growth for the year barring unusual macroeconomic shifts. · Board authorized a new $75 million share repurchase program.

· Tariff uncertainty causing caution in customer spending. · Dependence on contract manufacturing partners in Taiwan, requiring diversification of the supply chain. · Exchange rate fluctuations affecting revenue and operating aspects.

Q: How is tariff uncertainty impacting customer conversations and the difference between service providers and enterprise customers?

A: Broadly, customers are more cautious due to macroeconomic concerns, with some waiting for tariff clarity and others considering ahead procurement; impact is neutral so far.

Q: What is the visibility on large customer AI data center build-outs and the incremental demand?

A: Reasonably good visibility, but some uncertainty based on financials; bigger opportunity in enterprise inference outside the U.S. due to data sovereignty/privacy reasons.

Q: Are you still anticipating high single-digit revenue growth?

A: Comfortable with high single-digit growth barring unusual macro shifts.

Q: Competitive landscape in data center capacity and AI products?

A: Similar competitive dynamic, leveraging existing partnerships with service providers.

Q: What's driving enterprise revenue growth?

A: Continued progress, not solely from a single large order, with multiple customers contributing and comparing to a soft Q1 2024.

Q: Service provider caution?

A: Broad-based caution, but stabilization expected with most customers spending something this year.

Q: Why was sales and marketing spend down?

A: Managed costs to maintain EBITDA margin, balancing with R&D investments.

Q: Target EBITDA margin and contract manufacturing in Taiwan?

A: Confident in EBITDA margin range; working on diversifying manufacturing footprint globally.

Q: Exchange rate impact?

A: Yen exposure, projects driven by timeline, hedge receivables to manage exposure.

Q: Product refresh and enterprise AI inferencing opportunity outside U.S.?

A: Normal product refresh cycle; opportunity outside U.S. due to data sovereignty/privacy requirements.

Q: Tariff impact on pricing?

A: Will work with customers to share impact, but unclear until after July 7th.