A10 Networks (ATEN) 26 Jul 232023 Q2 Earnings call transcript

Good afternoon. Thank you for attending today's A10 Networks' Second Quarter 2023 Financial Results. My name is Cole and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions]

to with conference AXX. like host, to now Fink Rob would pass over the our I Please ahead. go

Thank you, live Cole. via today. accessed This Thank at AXX you all is for recorded for Networks being website and XX webcasted least and aXXnetworks.com. be call may days joining us

and the Hosting President today Brian CFO, Dhrupad are and call Becker. AXX's Trivedi, CEO;

financial issued Before results. second market closed the that shortly we after its begin, I announcing AXX would a Networks like quarter release to XXXX remind you press today,

a Additionally, trended statements. published supplemental AXX presentation financial and

section You and may access trended financials the the press release, on presentation, the company's Investor of website. Relations

allocation During regarding supply expectations, and management or projections the will chain potential market repurchase call, operating positioning, statements and future capital including including results, statements and strategy, course for industry today's revenue share. constraints, make programs of and dividend growth, forward-looking trends, customer

are These are and could XXth, statements results materially These you forward-looking based expectations predictions of uncertainties to them of rely cause as should of as current number and July events. statements control future on and differ that XXXX. the risks company's some a on involve actual beliefs not of beyond which

information result AXX law. events, to forward-looking intend update as a these does otherwise whether unless of not statements future information, by new in or required

a detailed the these description recent risks of most and For XX-Ks. more to uncertainties, please refer

may of results from measures or with be measures been being today discussed a non-GAAP by in in financial are are measures as exception considered to non-GAAP different non-GAAP and companies. revenue exclude presented adjusted to have isolation other substitute financial the basis certain a not GAAP for accordance with and note charges. be Please on The prepared intended financial

quarterly and non-GAAP statements in can financial on A posted trended the the press reconciliation found the on release website. issued today company's between be GAAP measures

the the call to to is I'd that call like turn all With yours. said, over now Dhrupad. Dhrupad

strong an was today. nearly revenues year-over-year AXX all encouraging and sequentially comp. with for thank particularly This Thank joining that you you, grew a quarter Rob and us double-digits for matched

supports results of that balance improvement through first performance represented our the expectation move as floor the we quarter borrower This sequential the of belief the XXXX. with

we addition, the profitability execution now central systemic model. is that our demonstrating business and higher strong AXX's In profitability, generated

Our the six a record of our at with continues up to Analyst of Day line goal of in adjusted first XXXX months compared our months of stated EBITDA This basis model. XXXX. margin earnings our XXXX, to XX% the for first in points demonstrating was six XX.X%, early to XXX business the power be XX% also

in marketplace are with Many X a shifting some these spending remains North and providers. organizations larger Tier taking enterprises The across periods. especially projects challenging is conservative approach of to particularly of planned and America the result cautious service the and and

the faced In rest This not we of revenue second offset a highlights environment these the our Businesses world delayed. now. in type. North our the been market North importance have heavily geography this that reliant terms of the and performance weakness the challenging both diversification of business We in in opportunities. do believe in are have American on customer quarter just They lost macro America. right

quarter. us Asia in North helped headwinds presence strong particular the in mitigate the in American Our Pacific second

revenue and trimmed quarter many delayed, on both to often security-led while are Additionally last the investments is trailing year-over-year be projects X%. in are up being basis the a security XX-month

threats especially learning a about and more to business. respect real-time. effective in making solutions customers. AI and AI have AI the questions detect artificial intelligence in used machine AI note attractive example solutions our helps impact our as this act more our DDoS to mitigation multiplier, mitigate I'd for force received for technology some have In and security-led now. our that We time we of and on

will of to harness power continue in We way. this AI the

expect the We and more of serves as and and centers profit. general, market high and generating we to a of as tailwind as This and In cost-effective well latency next infrastructure generation serves expansion as AI the require more construction low encourage network new existing AI of with the for throughput, extremely our aligned believe a mature. as more the AI catalyst making ones. data to continues concept that to business

note business that flex our goals to near-term operating as growth mindful expenses on of want I enables demand. to based us mid-term long-term particularly we near-term reviewed Our proactively related model and spend. were we our to

operating even year-to-date, while macro X.X% more our expand while for investing us our result revenue down a by future to is challenges. enabling declined As growth navigating expenses profitability X.X% our and

with products to security nearly demonstrating AXX In organic consumers is operators subscribers' one interest, subscribers, and XX shift deliver carrier-grade largest AXX dedicated ago, infrastructure. two networks from to the R&D a fact investing cloud Recently their X% commitment the X% up solution help helped in consistent their and opportunities. our protecting increased subscriber year-over-year telecom protection and networking our while businesses chose nation's of experience secure facilitate over we how to to growth critical highlighted million and DDoS years for

incoming estimate system traffic, and DDoS or threat block traffic. protection and to Our ill center, clear operations their helping backbone detect the to all attacks security Internet provided analyze anomalies

customer ability cloud directly new mitigation has hybrid is cloud by solution the to AXX’s value providers. Our this to helped these Increasingly important created providers mitigation traffic. solution, service their case. this protect DDoS deployed in infrastructure monetize been long enabling by

our scrubbing approaches alternate continues America, North significantly over five cloud be utilized been In effective more almost years provide DDoS now. and for by a to to has solution service service provider

strategy. our fuels capital allocation profitability consistent Our

of in dividends our $X.X balance. During and cash $X.X we shares, the repurchased quarter, worth cash million paid while all our growing million

three-pronged for We continue to focus on our capital strategy allocation.

business growth. future investing for in our First,

Second, returning to acquisitions. and shareholders; to continuing third, capital strategic accretive explore and

months the the to With for like a of six over quarter Brian? of detailed turn first the that, the I'd call Brian to year. review and

Thank Dhrupad. you,

the but Product sequentially, revenue expectations. worth with the Services revenue, to of was this X.X% of improving quarter maintenance in quarter for year, support mentioned. decrease reflecting revenue was line It's product XX.X% and Second revenue the total of total XX.X% first million, quarter representing XX.X% $XX.X or Dhrupad million, of $XX.X revenue revenue. noting compared year-over-year, a million which revenue. includes conditions $XX.X was that increased

customers, partially by Moving currency reflects decline the due to decline our increased APJ, from a America, revenue service basis. a standpoint. to purchasing Americas, X.X% $XX.X Latin Revenue X.X% The economic from which XX.X%, constant down including concerns. sequentially. but geographic offset in America was on providers million, from up year-over-year was year-over-year North larger The primarily slowing year-over-year,

balance $XXX was of X% year-over-year. as on XX, can our sheet, our you June As revenue deferred see million, up XXXX,

basis, non-GAAP otherwise With of stated. non-GAAP on all our exception of reconciliation results call release provided in are Full revenue, the GAAP website. discussed are on on to this and our metrics unless a press

second ago our reported revenue. in reflecting was was $XX.X operating line with in Adjusted quarter. X.X% $XX.X goals. Gross quarter compared million margin XX.X%, million $XX.X the with non-GAAP in in of stated XX.X% the for quarter, million EBITDA year We income, down the

year diluted basis million or targeted million able were from the shares by for I'd per the as quarter like $XX.X EPS for income weighted $X.XX diluted approximately $X.XX to to second we million share per XX.X Non-GAAP or revenue shares Diluted quarter. XX.X X%. a EBITDA achieve even margins the up for the on year note non-GAAP net to declined share in was compared our shares that million ago quarter $XX.X in ago computing used quarter. were

year with into have million compared $X.XX net income a revenue On was million we AXX. a per quarter. diluted ago built $XX.X net quarter GAAP lower share in per earnings our significant $XX.X accomplishment the basis the net income or is income a or Maintaining $X.XX for demonstrating share the of power on diluted

year-to-date to year-over-year. $XXX.X X.X% was results. Revenue Turning down million

of target. revenue. reported compared $XX.X revenue first million million the income also our down total last of product with X.X% X.X% services was While year. reflecting non-GAAP non-GAAP representing was approximately margin in months total gross about XX.X% XX.X% XX.X% $XX.X representing revenue. in XX% with Year-to-date revenue EBITDA in Adjusted up is million six $XX.X line of revenue, was XX% We operating up

share the period. diluted net net $X.XX the for income share months or first months compared for per $XX.X million ago $XX.X was basis six or the On from a with income GAAP share. in income million per first or million or diluted million per diluted up $X.XX was net Non-GAAP diluted share year six of $XX.X per $XX.X $X.XX $X.XX

balance the sheet. to Turning

$XXX.X As at million cash, the of of to XXXX. end million June the in $XXX.X had securities XX XXXX, marketable compared cash total we equivalents,

coming In addition, with This is sequentially. DSOs of and the function decisions accounts customer sequentially quarter. slightly remained in delayed healthy has at the end buying a decreasing orders of increased receivable

and historical small very levels our despite. line receivables Our with remain in

$X.X of cash dividends in an the paid approximately in million quarter shares repurchases. price also we million totaling at average XX,XXXX $X.X During and repurchased $XX.XX

to continue carry debt. We no

you audit have from audit with growing support have a our firm to complexities. As to firm seen a national firm capabilities audit independent our we upgraded regional

our finished our XXXX cybersecurity. such grow to we areas audit as business and it was determined and our our with new fiscal new expansion into year, support align we important independent as we As geographies into cloud

and thank well. We years wish of their them support many for Armanino

has on Board to X, be XXXX mentioned, August $X.XX share shareholders a XXXX. of Dhrupad on per XX, dividend As paid record approved cash quarterly to September the of

for closing the turn to now I'll over Dhrupad call back remarks.

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Thank you, Brian.

continued reflect for demand security-led results and As expected, our our improving conditions solutions.

the second the in with half demand are target year, across of segments aligned where geographies of secular continue in the and expect We sequential to each in catalysts. all improvement solutions customer durable

the Operator, open up you questions. can now for call

Thank you.

from with BTIG. the Q&A is We now begin [Operator will Powell Instructions] first Gray Our question session.

Your line is now open.

for you taking Thank Great. the question.

on couple my side. a Just

have improved in So we QX. how the or to any months? potential visibility And then from decline from things into that deals there. to think the revenue return it's like there months for good QX over product helped growth back six slipped just sounds months positive that on X should It about the revenue see product better just out QX in Were to you QX? in next territory XX

that how curious trend. should be would So

I'll add question, start and good it. Gray, Brian no, can to Yeah, and

spending about So things North resumption. we into see had market QX we put in that right? American to things I in environment QX I are in internal we had moved improving with had think did seeing combined obviously, materially potentially visibility in QX not talked place. think challenging and QX improving some confidence We unusually from

as elsewhere. are coming part expect performance would to QX North we improving what of we is QX relative year to as continue back from and the we of than America So And to that normalizing to the deferrals your revenue a I QX. of say, the market see side look from forward the we seeing the markets on like product half side rather majority into QX, question, second

borders, across conditions moving to So we that of place of that adjusted programs put have resume things not that. commercial that just inherently we expect improving and kind reflective but market do to be are in now and

Understood.

my then on follow-up be Okay. side. Great. And cost the guess would I question

has So, the demand impressive on it is visibility year-to-date controls been seems OpEx and on improving. like

the that's and marketing marketing and the a sales the top lag side about case or be recovery think side? if in would growth? in something And So how reinvesting or business line top investing recovery that on particularly lead on should would line that like sales we growth, Thanks. in is the

good question. Yeah,

So marketing think, is, probably revenue like is the sales rebates pretty components two right? things and one that, commissions right? mechanical and would where with which way component Flex obviously separate more So of levels, is I component. a of So I and that, that's there's spend,

So proportionally cost variable higher. as will and be higher, sales just of revenues commissioned

and sales Our themes forth. commercial and Flex to generally that beyond or events to and pretty investment outlook marketing funnel. relates so our close it marketing as in around initiatives

our type. qualified outside are we So our to at outlook, negative that and commissions to which us to and pipeline, sales of in marketing look relevant us generally regions, or reflects trends spend

would increase I when we we in in where sales each add when an we by in be sales followed we think limited would headcount, before you occur opportunities, may other much see six them rev. months up it would they spending see because see think the generally ramp you see revenue I adding not to closer

Understood.

Thank much. very very you helpful. That’s Okay.

you. Thank

Gray. you, Thank

question Our next Hamed Financial. BWS Khorsand is from from

Your line is now open.

a these have hoping you you're go to as infrastructure more able purchases? understanding you customers far could the was would delays. these provide as them bit I be what Hi. to a be these to decisions they as doing If bit there? What on deeper going already that delaying little encountering purchasing what's allows comfortable more just are little

Yes. Good question, Hamed.

more XX% be the first what So year where not to in that annual in new budget maintenance Americas business maybe planned – would in we normalized The a telco cable the nature right? they customer expansion reflects planned have the around and The our much large I are a Americas, typically revenue. in investments they large for is the typically a is generate who the projects cycles, company, differentiate, that see already. could or new of Americas, So were Americas. is year XX% the the not CapEx it relates CapEx, of projects XX% capacity sources which for and funding to then XX%

often of later in half out and but because cancel it's will of being nature or as this So was it will, nine today's in doing? where revenue of is six places The in the of now cost you we security. themselves to headwind. Those year they including not we type today, went pushed security will projects a modernization. of they are do today's capital the companies what significant restructuring where rescaling, or increasingly see not cost adjustments to as if these of project months related of to more and continue are critical see critical are through seeing project right many What generally to in and a products half it they QX more

think they maybe are line I spend in push have of the And is products customers seeing of in planned are terms their where revenue, something generating in where between decision-making, out June. we our two to in

July, it's deferred So our that's are saying to canceled. we be because going generating all maybe they and not to for till again it's Now right? but it's customers, going hold again revenue they're off review the CapEx

gives don't Hamed. So you that on if know I color more

needs how trend you out maybe design helpful. seeing security That's of that and And any And you is customers those? their are or design in based your you reevaluate going? upon

spending categories and category security same that not spending and one-off the operations than risks ties right? generally, as decisions security that. like business Because think is back enterprise I the IT spending also category into things

So, just much it's kind of risk as as about IT. upgrading management It's not a anything.

I say their press volume would more sensitivity So, certainly and to about as environment you see certainly make things attacks the themselves this hearing increased of the to awareness doing secure. we keep and in complexity

security So, that us. trend is for including probably most a tailwind for companies

what There's about don't effort larger of using churn we that and lot news but see demand a -- I in that increasing a own base companies right? and types is being in market concerns they churn certainly spend right generally and see the is products, a see is. of their don't lot because in context, lot of reflecting in they there the into of impact attacked these think organizations we their terms time our the customer of So, integration what

you. Thank Okay.

Hamed. you, Thank

Our question is Soderstrom next Sidoti. Anja with from

Your line is now open.

taking for my Hi, thank you questions.

do themselves. their for think you said you in services through the congratulations been curious for So, digital out you progress good and you the quarter. see for and on need what have accelerated And in going of them? transformation more terms of customers that restructuring building their just have from might them of a I'm for your lot terms that

good Yes, question Yes. Anja.

managing us what concerned is So, and that about thoughtful efficiently more meant has I leveraging their would being more hear generally about are from secure or better. what and they They are them say longer than that more existing we effectively. more infrastructure and before more for risk

really they required around move them think big or and forth. to projects different ways are I IT more so consuming in cautious to originally where thoughtful of is that

So, think decisions economic-driven of balanced they So, say different our and their sudden cloud along view I networks place, I differently, with customers use more right? to everything change a of are plan versus would more said in are I that think a put making there who many than on-prem is technology-driven.

some Okay. the competitors. anything year you've the environment? been And displacing to there past Thank talking out call been in you. in Have about UK competitive

in any the No, have the significant I seen last change in don't think three, we six months, competitive environment. certainly

and -- I and would no terms those change demand of things. in customers and all of is on think but we market compete the how win I force the why stronger, we say real

That Okay. was Thank for you. me. all

Thank you, Anja.

next Gabelli question Hendi with Susanto from Our Funds. is

open. line is now Your

Good evening Brian. and Dhrupad

Hi, Hendi.

on America, I if delays purchase different? inquire like maybe let's insight I that I'm see see may wondering business let's specifically of may we certain if And then how Dhrupad, trends your how of or think North similar, outside purchase outside lagging like say meaning America, orders later? those

Yeah, good question.

factors, manage that a is a have reduction right, demand, of is their So to North think, in what to therefore, Hendi, try about on unique which size et concern cetera. new combination seeing in in companies therefore, and we is restructuring inflation, I movements themselves, interest the response America

that scale So combined elsewhere. all certainly issues the is those true of not

you yes global where and concerned to and of about being America on big Europe So to degree restructuring. of people well they the the Asia, as outside escalating look worried unmanageable cost do North but when not having input side cost about outlook are inflation at is as their are capital

new not the more and degree more signatures questions So capacity that. it's couple we that need yeah, plan asked of made in a all those themselves we features. in going to and And, through see companies in telcos couple Europe. they quarter layoffs decisions were saw but where the to add are of right a first in of sense or think purchasing add there's outside to certainly the restructuring the we that I massive But big of security saw examples US they more of when environment of normalized

unique the forth. that environment of yeah and global though is even is think American there I combination North factors So in so pessimism

it. of element So that's probably one

technology the of up using were of replacement focused right? case infrastructure that drastic in would probably lot or on more the is their upgrading technologies, wholesale is I less outside that focused North regions that of America shift better while on already say and element second The So not down. a

the think help And do that is we so, to to the they best we -- need can them path that I things therefore, them. for do by degree see the upgrading

that to they're going we see So concern not I think dramatic as see that a something later.

in see combination I we beyond anything going to did America. telcos in North factors through think But You seeing don't right we big some that of couple the are similar a of see of that restructuring. European

And then development road map Dhrupad, year? any this update product product on and for

Yeah.

so -- features and the around think before, the are hybrid So around I discussed have side capabilities and on enabling infrastructure we more what cybersecurity and our supporting heavily environment. consistently operating more investments more

you see move if So methodology. agile a -- we to continued to and have more

our So continuous box releases months. are six sort more of every versus big one

map frame. So we yes, our last operating But security more time on road new supporting and and released either side R&D another platform driving and QX hardware this probably software we QX have a more portfolio a one December environments. hybrid or predominantly

should how And of anticipate us you question OpEx the then Brian. mix. run tax terms Brian the rate can additionally, the business a insight we I for remainder some maybe the OpEx if at rate look like QX for give in a of is And good year?

I year? tax is rate higher think last the like somewhat than closer to XX%

Yes. is No Thanks to expectations. on get currently what I course comp. variable our OpEx we're lean as both. mean questions your great for question achieve, about we as Hendi. on is not

earlier as lot So OpEx up yes, and commissions. my expect then pay to could more of accordingly. you continue think this and to progress Dhrupad monitor sales go mentioned plan a we is But I flex our to things our

what rate that's quarters the basically expect. the what seeing is run is Currently the So could probably about last is you variable. two you're

OpEx them or growth achieve continue targets we'll to we and up run accordingly. on to our least then meet the grow And as at year for see to attempt rates

XX% a spot effective rate you're bit a at but tax. to saving Obviously, to align GAAP on. of we invest we of tax about different. as tax We're function little far tax I maintain it's little tax different them mean That's with strategies rate. rate EBITDA to continue profit before approximately It's As in our is non-GAAP running bit outlook. a both and that try but

Thank Thank Brian. you, Dhrupad. you,

Hendi. Thanks,

Thank you, Hendi.

the time our reached the management now turning for over We have call now and to remarks. team closing allotted back

And today joining you. world. Thank our employees all continued Thank AXX around your you all for to thank for shareholders and you. the of us and support to

conference Thank your concludes you That call. the participation. for

your You may now disconnect line.