A10 Networks, Inc. (NYSE:ATEN) is a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies. The company's comprehensive portfolio of products and services addresses the growing demand for enhanced cyber protection and digital responsiveness across dynamic IT and network infrastructures.
Business Overview
A10 Networks was founded in 2004 and is headquartered in San Jose, California. The company's product portfolio consists of six secure application solutions - Thunder Application Delivery Controller (ADC), Lightning ADC, Thunder Carrier Grade Networking (CGN), Thunder Threat Protection System (TPS), Thunder SSL Insight (SSLi), and Thunder Convergent Firewall (CFW) - as well as two intelligent management and automation tools, Harmony Controller and aGalaxy TPS.
A10's solutions are available in a variety of form factors, including optimized hardware appliances, bare metal software, containerized software, virtual appliances, and cloud-native software. The company's customers span a diverse range of industries, including telecommunications, technology, industrial, retail, financial, gaming, education, and government. A10 sells its products and services primarily through a high-touch sales organization and distribution channel partners, such as resellers and distributors.
Financials
For the full year 2023, A10 Networks reported annual revenue of $251.7 million, up from $239.8 million in the prior year. The company's annual net income was $39.97 million, while annual operating cash flow and free cash flow were $44.51 million and $33.62 million, respectively.
In the first quarter of 2024, A10 reported revenue of $60.7 million, an increase of 5.2% compared to the same period in 2023. Product revenue was $30.1 million, or 49.6% of total revenue, while services revenue was $30.6 million, or 50.4% of total revenue. The company's gross margin for the quarter was 81.1%, and it generated $32.4 million in cash from operations.
Geographic Breakdown
During the first quarter of 2024, A10 Networks generated 45% of its revenue from the Americas region, 41% from the APJ region, and 14% from the EMEA region. Within the Americas, 38% of revenue came from the United States, while 31% of APJ revenue was generated in Japan.
Segment Performance
A10 Networks reports revenue from two customer verticals: service providers and enterprises. In the first quarter of 2024, service provider revenue accounted for 62% of total revenue, while enterprise revenue made up 38%. On a year-over-year basis, service provider revenue increased by 16%, while enterprise revenue declined by 8%.
The company attributes the stronger service provider performance to delayed investments in the prior quarters being realized in the first quarter of 2024. Conversely, the enterprise revenue decline was partly due to a particularly strong first quarter of 2023 for the segment, as well as elongated sales cycles in the current environment.
Looking ahead, A10 expects enterprise revenue growth to outpace overall revenue growth for the full year 2024, as the company continues to invest in its enterprise-facing sales and marketing efforts, as well as R&D to strengthen its capabilities in this segment.
Profitability and Capital Allocation
A10 Networks has demonstrated a consistent ability to maintain profitability and generate strong cash flow. In the first quarter of 2024, the company's non-GAAP earnings per share were $0.17, compared to $0.13 in the same period of the prior year. The company's adjusted EBITDA margin for the quarter was 22.9%, in line with its full-year target of 26% to 28%.
A10 continues to return capital to shareholders through a combination of quarterly cash dividends and share repurchases. During the first quarter of 2024, the company paid $4.5 million in dividends and used $3.0 million for share repurchases. The company's balance sheet remains strong, with $182.1 million in cash, cash equivalents, and marketable securities as of March 31, 2024, and no debt.
Guidance and Outlook
For the full year 2024, A10 Networks expects revenue and non-GAAP EPS growth in the single digits, in line with market expectations. The company reaffirmed its target of 80% to 82% gross margins and 26% to 28% adjusted EBITDA margins on a full-year basis.
Management believes the company is well-positioned to capitalize on the growing demand for enhanced cyber protection and increased network throughput, driven by trends such as the adoption of AI and the need for more flexible and efficient consumption models for enterprise customers. A10 continues to invest in R&D to strengthen its cybersecurity capabilities and expand its enterprise-focused solutions.
Risks and Challenges
While A10 Networks has demonstrated resilience in the face of macroeconomic headwinds, the company is not immune to the potential impact of elongated sales cycles, volatile customer spending patterns, and intensifying competition. The company's reliance on a limited number of large customers, particularly in the service provider segment, also presents a risk, as any delays or cancellations in orders from these customers could significantly impact A10's financial performance.
Additionally, the company's ability to successfully execute on its enterprise growth strategy and maintain its profitability targets will be crucial in the coming years. Failure to effectively align its product roadmap and go-to-market approach with the evolving needs of enterprise customers could hinder A10's long-term growth prospects.
Conclusion
A10 Networks is well-positioned to capitalize on the growing demand for secure application solutions and services that enable intelligent connectivity. The company's diversified product portfolio, strong profitability, and consistent cash flow generation make it an attractive investment opportunity for investors seeking exposure to the cybersecurity and network infrastructure markets. While challenges remain, A10's focus on innovation, customer alignment, and disciplined capital allocation position the company for continued success in the years ahead.