A10 Networks (ATEN) 30 Apr 242024 Q1 Earnings call transcript

Hello, and welcome to A10 Networks' First Quarter 2024 Financial Results. My name is Elliot, and I will be coordinating your call today. [Operator Instructions] I would now like to hand over to Tom Baumann with FNK IR. The floor is yours. Please go ahead.

joining for all you us today. Thank is accessed for call Networks aXXnetworks.com. being via recorded be may website, slides webcast at AXX and the This least days XX CEO are AXX's Hosting Dhrupad call Brian Becker. today President the and and CFO, Trivedi,

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

financial release, statements financial Additionally, the statements supplemental You presentation a and the access published section trended AXX Relations trended press on website. Investor of presentation may company's and the

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

are rely These of that These of not events otherwise, should actual these current of to XXXX. beliefs unless and XX, to statements, could risks statements of uncertainties, April of involve based today, materially, by our differ control, on in number as a results information are them does future beyond and not statements as you and intend future events. update as whether law. forward-looking new contained predictions information, forward-looking result cause expectations AXX a on which some required or

posted are for uncertainties, results to the the been found today companies. a certain detailed reconciliation be please website. on intended measures between For statements and accordance recent to to and today financial these as exception Please measures and financial on The or press quarterly non-GAAP financial GAAP non-GAAP basis non-GAAP GAAP release have refer prepared trended in may with considered in discussed a and other more non-GAAP metrics the A note isolation revenue, on by the measures charges. exclude of not description the can presented risks company's issued of in be a be XX-K. most adjusted financial that different from with substitute are

to Now turn of I would Trivedi, call AXX to President CEO Networks. Dhrupad the and like over

Thank Tom, team are enabling economic revenue This a us sales demand environment, a even that told and has drive for our for demonstrate throughout driving to AXX, efficiency was profitability differentiation do Once benefiting quarter solid delayed. our is for business, we all strong today. you decisions joining with responded and our us and organization the we results am cycles of to I our as you, our way thank and what growth. would enabling volatile again, elongate buying do continued certain proud to investors solutions. us

customers especially age higher Our of AI. in need in the throughput networks,

amidst generation management challenges, need be these agreements delayed, a posture address but for directly optional their also new revenue are they Buying from typically customers tools. AI security including and array investments customers. require not approvals, because enhance cyber or of to challenges Our growing our decisions risk may additional

in the trends year-over-year The quarters it spending relative nor note, suggest few the Of of quarter. for of does last losses longer-term AXX reflective XX% to Providers not was Service Service revenue demand slower from competitive up products. any our Provider is

we grilled, are investments As are benefiting.

outpace of basis, continues our During example Enterprise overall a this growth. to revenue revenue pattern. saw growth region an XX-month QX, we growth in strong On as APJ trailing

solutions AXX plans. customer we are said, of have workflows. a we As And part key into are CapEx designed

to Enterprise outpace expect full growth. revenue growth year basis, overall we revenue a On

the the to investing believe enterprise of to first better than sales to a confident are be and our the compared enterprise half. We will the terms are in year pipeline, of second in the effectively we and Enterprise-facing investments in our terms first we quarter team These R&D capabilities half strengthen target have will sales second segment. been meaningful expanding both that marketing and and quarter, be our the of improvement

As this base expect we we deferred see a for solutions in building stronger growth the recurring consumption increasingly market, revenue, to to trends revenue our future. in align in

Turning continue be areas. capabilities R&D for our key efficient more Enhance on focused to X initiatives. cybersecurity Enterprise investments customers. These and models and flexible to consumption

security AI, particularly our growing are bringing We addition in use network applications of in insights. our to

evolve and recognition machine and threats of utilizing remain learning using new the AI capability, as continue attacks provide best become cyber faster been to solutions. contributing continues technology is already to has sophisticated. for The component important machine as years. it of to at learning leading improve, AXX But edge the we to increasingly the and

our road We of the product of is aligning strong networks. work leading continue and types closely who base, threats enable customer infrastructure new adoption maps, AI their transformation on traffic to in with to

productivity driving actively to support are We objectives. our strategic

to foreign XX% first EBITDA the continued In commitment of our gross on margin remains gross stated Our XX% to XX%, quarter, achieving margin XX% XX% goals margin to and exceed revenue adjusted plan. sustained resilience ability showcasing to operations our underscores efficiency. currency. with challenges in were Non-GAAP earnings to the per of business our meet consistent for AXX's profitability line model. share expectations targets amidst

XX% value year full The of to to non-GAAP are gross EPS. margins in through our invest to business single-digit first EBITDA returns, results XX% full continue shareholders maintain year achieve and innovation. in model to of while in we quarter growth ahead, the objectives, XX%, and adjusted our to of Looking including XX% us our ability confident position we margins profitability to capital deliver

and than funds We continue buyback buy dividend. stock back to flow and cash our more our

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

Dhrupad. you, Thank

revenue increase was $XX.X X.X% an year-over-year. million, First of quarter

sales both elongated and Service the volatility Provider continue Enterprise to described, in have and sectors cycles Dhrupad quarter-to-quarter As high. be

was total million the revenue. total of for revenue XX% revenue was Services Product $XX.X million, of quarter XX% or representing revenue. $XX.X

our product XX%, our validating for we past confidence recurring XX% quarter for and last competitors. to losing sales stronger Enterprise opportunities to X increased increased the are deferred Solutions, year demonstrating revenue that quarter revenue quarters First compared first not the continued demand and nearly

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

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

quarter, of in Gross XX% was basis, margin revenue. in EBITDA the our line line XX% of in XX.X% revenue. of with quarter On million first up to goals was stated quarters. a for with last to and stated trailing X from our revenue, adjusted was XX% of of XX% XX.X%, the Adjusted XX% goal EBITDA the XX-month representing $XX.X slightly

quarter shares per $X.XX $X.XX compared the ago the XX.X share, the in million year for $X.X for for non-GAAP EPS income $XX.X in were ago was quarter. shares, XX.X Diluted shares weighted compared to to per net share or million first quarter quarter. computing used year Non-GAAP diluted million the diluted or million approximately

for more On $X.X diluted year than million in our basis, net million doubling was or ago GAAP of a $X.XX the net per $X per diluted income quarter share, income or $X.XX share quarter. the

we operations. During $XX.X generated the in cash million from quarter,

XXXX. be full receivables, of better of had million year onetime for excess flow expect the we in of benefit QX cash to $XX timing While

to the balance Turning sheet.

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

share in dividends repurchases. million $X.X and paid in we $X million quarter, cash used the During

continue to approved of to quarterly also carry paid Board shareholders May on $X.XX XXXX, per dividend cash a XX, of X, has The We XXXX. debt. on be June share no to record

shareholders in repurchase Board capital new As the plan to share discussed $XX returned million we of repurchases, a during approved quarter. our November, $X.X the during had last of share call, inclusive million

revenue single line XXXX EPS digits, expect We expectations. in growth and the with in market

XX% on margins full basis. a We margins adjusted gross XX% target XX% continue and to XX% to to of year EBITDA of

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

demand need you, aligned Thank and an AXX and for related cybersecurity latency. the lower to maintains enviable increased trends throughput Brian. for with the position

investing our to aligned with position Enterprise strengthen customers are with are customer plans. well and Provider we investment Service We

profitability future meaningful investing shareholders Our and returning capital are innovation generation, and we enables consistent business growth. for to cash while in model

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

Anja with question Sidoti. First comes from Instructions] [Operator Soderstrom

what This sales results from My team? Hantman the terms question, of that in on have you in, cycles first is you you're elongated mentioned in changes seeing inning Alex for curious Anja. sales think

Yes.

I for it's X as as service in about close think ago significant as a And enterprise well. longer we would cycle changes go-to-market least side. in provider to years know, a time, say, I typical our investment made is sales X in you at an months I to bit well X year So say little and in would and any certainly, X sale ago X

or third we new fully third, factor I of as people somewhere time, that. like in second the So sales cycle the would processes you the up in right, ramp are probably and say, inning and

still the have just feel And going? this Do are you you pricing Great. in power environment? conversations curious, how like

I right? think certainly, well broad input pressure that it on understood and costs. there's cost is X accepted that So inflationary there it, into factors go is

think don't that's huge issue. necessarily a I So

the drive right? our very pressure, to is more a obviously, collaborative discouraging through inflationary customer I also conversation. price we with that, where we that, and operational typically that drive To gains, balancing, investment. focus And degree necessarily work through efficiency that to our So it's are not balance cost but to look it not we understand customers think beyond our to margin find

more allocation you about me. talk future Got you're for thinking priorities. and little even about you. just Last how room maybe some capital you'll from a bit that around buybacks? question around context add Could

Sure.

talk our business. for example, because is investment I best to the invest right? QX, the we So our R&D think I increased in mean in way to that, think you continue is provide can important ensure continuing We the solution. right, first that's we growth it, see, priority in for of to us organic even And about we

organic first growth. priority is So funding

to Second constraints and dividend return programs way right? on buyback a priority that all exercise that. And, we is But we subject find on obviously and active volume to of and shareholders, have we utilize. balanced buyback trading between and certainly,

that continue us. we look at lever as a available to So to

few we in a adjustable of a monthly but in in more historically, manner, last right, And buyback the utilized most years, manner. have not but the

So have and be market generation strategy. obviously, the even second. accelerate in debt and that's current no before help the we always given third, to that for And look us business that healthy we our opportunities a the inorganic cash continue

on strategy engagements that not term. a customer and in long or our that but means are model for goals So the that, also in us plan to business do would dilute be predicated dependent doing a our thoughtful on not way us But it does right? business accelerate

turn now Powell with Gray to BTIG. We

And results. congratulations on the good

okay. -- So

about talk it your last was Do quarter the today maybe it you you can just So tone pipeline your and between feel months a of is feel it, too call than like And for your you here? and about call how yes, lines ability just business versus, better os like point seems your but maybe the inflection reading XXXX. the an maybe much, I'm much to X, hit ago? has quality today business XX lot

question. Yes.Great

So seeing things would not I to think say inflection ago, certainly, I the correct, like deteriorating. the from in saw I But trend to X, XX volatility. see would as if to perspective, we months quarters, you use are word things certainly I we X not are the say, nervous will, in terms point. X that a last right, getting of we Gray. compared and X, you bad I'm as

in engaged So on maybe sporadic, phenomenon certainly we as still pipeline where is there activity that's more right, our we see see but that and actual plans. projects, a customers the definitely

that from than year. X than we or a QX Now are last I trend certainly But does say, or certainly, would plus/minus worse perspective, Maybe. QX what's quarters? not flex X

Understood.

remarks. It's to prepared was Very little results confused return to some extent this than on mix. in And we definitely Okay. territory. the good see helpful. the were the I The looking positive you for. what to better then were answered growth a combined

just Provider underlying stronger you mix you there? kind Can what the expected. It just Or happened you declined. was yes, that Enterprise talked Service the year. QX? about in trends So for looks just us explain you talk in of happened help much can the -- Can about than -- APJ. like mean, I

Yes, absolutely. No, good question.

on first, a So still you Enterprise positive months. if think, I period is Enterprise, bit others. segment, Enterprise territory to right? growth look compared at service longer provider in like So many what's trailing maybe business us, little for our the XX

negative, right? Providers data one obviously Service is point. So And that's

QX unusually drops typically, an in point and that segment, data bit a strong. right? say very I strong of had the Second obviously that Because is Enterprise QX off. QX QX is QX would made to year compare I quarter, Enterprise maybe more the last think challenging, little

say pipeline Enterprise And expect is comments jumping to our that's of and is point, QX right? supports based of overall year data grow our I would so when expectation we that at I faster think And a off little it year's recover on that third, QX the Provider second point. function for So bit to funnel we feel and last that from look versus that certainly a continue the Service we than revenue. to is

relates need But it a think case be of you had had delayed an some -- on Provider, the clear spending even use region. are right, in and quarter We that realized cost, comments, to but happened As delaying in or was it in phenomenon capacity. we adding X I doesn't -- to there in correct. the of customer last waited was X, And it's Service mentioned I that I example they have get years, the wants more product, the -- where customers where the for we prepared to mean think QX. that's in That necessarily QX. going that's every to though saw

more our not being kind exposure, because us. very pattern of exactly sort But out a geographic of global for function it netted that's of So ST spending that of predictable.

Hamed Khorsand Our comes next from BWS question with Financial.

the buying first process? any as had question Service just the don't the could kind not just And Where just sales the buying focused just in Or Provider of getting Are in underinvesting process? about as sales talk was, not or very care, your customers So you investment goes? you're far side anything why they're on? I your you're little? you return

Yes.

So Hamed. you, I think -- thank

I is if think would I correctly, phenomenon understand the I the question for say different us.

us customers is world. Provider Service the existing for around So

we, XX-plus And years, many cases, many customers X, in in X.

that account, in. where are are the see prospect get where And The trying customers ways to understand month. not the is them we every are so these customer, to customers every we find idea week,

network deeply and planning deployed. them We they that support on with aligned are are and once rollout

invest solving there investment that that the future to the their in they engineering So support is seen want company on capabilities in go is to and the well right? to business as technical the our being more projects aligned with them direction are problems,

there investment value. keeping things more your engaged in doing increase the of business them So for kind happy on customers that and is their

in phenomenon On our side, relative a because it's different Enterprise the of market. little presence the

sales selling selling to around experience, experience experience security more solutions hiring are investments Our more people with CIOs. Enterprise more

on that, account, own to and every then we bringing needs customers. there, has acquiring an a side, more And basically we look as we no base, in would obviously, So Provider at customers, customer there's meaningful -- the investment, Service I find sort And of existing different type right? have right? Enterprise of a new it's but resource about its and and addition it's adding profile or in it it's mix for phenomenon. whether right the it's different new Enterprise unique that, say it's

And to is far new as represent concerned? could customers as you as provide any revenue what kind to you, of data

don't probably Service Enterprise XX% but our business Enterprise, customers But subjectively combined percentage -- can that. we higher think, XX% between revenue customers follow and roughly within is that right? and of basis, Provider up typically existing that or on probably new probably data is and typically, is I we new so publish

skimming remains provider little as then I why you're be bit And is be far they last reason -- soft should security, any service guess mean, investment to Great. in characterize and on. security the a it Okay. I particular as should there.

fair. Yes. No,

of think I than security continue be QX and to XX% in noted tried revenue. us out more -- we for So period

that's So do think true. we

about, company them is has the talked environment, Provider I think particularly causing be Service than case, North America, macro like every more in cautious ever much to other much, in that before.

different. weigh So security probably think traction Enterprise Service would and needs the growth, I that who them building within of SP Even we our customers, with of the little is discussing kind to right? their I part faster are that's are Service the when timing specific Providers But than security just bit engagement, led much networks, say we see. are projects their own And a they more Providers a bigger So of is while network continue where probably of reality kind running spend, it. the new they when on side. of So so just right? growth

certainly, So -- QX. and that was case the in

We to turn now Schwab Craig-Hallum. Christian with

that this the first the we're sales kind end 'XX? to third question elongated second or we My at growth inning, is assuming of regarding by of end return double-digit 'XX, in can this of cycle,

concepts, maybe good right? leverage question was of in question. fully where on -- was to being Yes. And was decouple you just originally the the Chris, I that So capability. I think being and before question X the answering third as transformation And or able think I right? I inning second that the sales No, new maybe, are, us to

timing, the -- our continue of well say while I Enterprise our position assumption level, as and bring to our us and to that that terms normalized improve that yes. level, it returns more growth should spending as on In model to we SP is would then back segments,

question Hendi comes next Funds. with Gabelli from Our Susanto

much service Could service more several revenue you Dhrupad the color think Brian, strength be first on attributed is to I impressive. share solution? have grew XX%, of My and questions. security that that growth question, I and can how of

of at and is think to slightly enabling look that at solutions our way. percent you think probably that engaging driver conversations, So to having growth those that of what think growth. you is other if I is sales currently, those lead meaningful to But also pretty That I a of of which us higher. door right? in and a revenue, result a security that's solutions as if driving at probably look look I the year-over-year you open broader solutions importantly, more customers products,

plans. the Which share Dhrupad, -- one more say, plans, cannot among higher could mentioned more can you postponed one are ones? And be the plans investment see. presentation insight you I provider like customer investment investment which priority Service share light postponed? Provider indefinitely which let's different surface Could and be and

Yes.

I as to where priority. products probably something actually usually to right? it or needing that of them capacity or add #X X think would help to revenue categories, generate think it related is I So is say maintain So

that right? X to I think that as can, the would those as to it that It's do So making long #X, hold are they categories more where they close relates secure. and more network forever. cannot resilient but typically they on

of I changing when highest network, not a you in They that, the think are new things delayed are being industry-wide, because solutions of look more risk rebuilding how applications, they are in line of more directly ones completely sort at that you that modernization. do of of have type about line are like the operations.

any solution That's more words, And security not opportunity security installed very much helpful base other out how still adopt your installed among penetration customer Or speaking, more how has solutions? among Dhrupad. base, insight your then base? much of of the your in qualitatively Dhrupad, rate into for like penetration installed there

right? more. they X quantify, they're that the more I to people difficult don't do spend So reason to think not doing and do there today are why, anything, One but So right? need security. they you but to that something they is realize reasons need on it's more, Yes, do they I think give why I'll

about when anything, demand. second So creation an it's of people do when them the of and of something doing first the expansion right? is case, it oftentimes case, In incidents prompts in were kind not hear breaches right? demand, actually public second they And it's to

benchmark our security. must would percent existing spend you I on And x with certainly, there's quantitative says no customers, that say,

many company think very a having our of think that, firm going on risk for the scale So and the to it and that's size, it of a we vertical, come. what own depends years financial on So, but for view like the right? they for a face, spend company meaningful more, certainly depends is I us of of opportunity kind to their said

which list Okay. security with say, like within the of AXX back, has hybrid then potential Network ago, and Yes. one say, cloud which let's or if at looking months XX Dhrupad, I a in then Solutions, more like stronger And one offers the upside other momentum words gained solutions, this like look and let's year?

would our rate do, I of to Hendi, main is why R&D probably that both are we trying things and as that think them way. the I aligned and that's everything

terms well right, doing SDN as So are to think with growth with infrastructure, going I much enterprise, help is plus and of in think which is us, hybrid we based, enterprise region. more popular. broader more it's which becoming is is what as in some I capabilities in we is -- new more providers. cloud, service on-prem more And directly and you're security doing what are every it's supporting

which say X can So we where the I see you are hopefully would main investing. investment areas those are are us, with aligned for XXX%

So...

And Brian, impact there is Japanese Or then QX? impact? any of anticipated one rates yen any question. more in exchange

dollar to points plan a over starting yen dollar there's U.S. higher. on seen, outcome. and that. don't a Japanese exchange about couple U.S. the trading mean budget as out everyone has I our of rate We even XXXs XXX quarter, based to little of today, declined really Yes. the make

meet And so to continues plan. Japanese our team

in line, nothing see receivables. some FX cover revenue, typically There or gaps and comes both because take benefit that adjustment, to regions but of on of. in it's help quarter really in there offset was our as terms hedged you consuming ways other the probably we pickup in impact we the other risks. was some just modest through don't yes, And speak it based and/or But OI&E to will then FX but disclose the

now our final for remarks. Dhrupad back to Q&A. concludes Trivedi This hand I'll

Thank to thank the joining for world And you. your of AXX continue and all all for around to support. thanks forward. employees to our you you. business Thank shareholders that today and us drive help the our

participation. thank now gentlemen, you Ladies has for your and We'd concluded. today's like to call

lines. your now may disconnect You