A10 Networks Reports Fourth Quarter 2019 Financial Results and First Quarter Outlook

Fourth Quarter Revenue Grew 14% Sequentially, Above Prior Guidance
GAAP Net Income and GAAP EPS Break-even
Adjusted EBITDA of $10 Million, a Company Record
Non-GAAP EPS of $0.10 Exceeds Prior Guidance
Expects First Quarter Revenue Growth of 5% YoY at High End of Range

SAN JOSE, Calif.--()--A10 Networks (NYSE: ATEN), a leading provider of intelligent and automated cybersecurity solutions, today announced financial results for its fourth quarter and year ended December 31, 2019.

Fourth Quarter 2019 Financial Summary

  • Revenue of $60.3 million, up 14 percent compared with $52.8 million in third quarter 2019
  • GAAP gross margin of 77.7 percent; non-GAAP gross margin of 78.5 percent
  • GAAP operating expenses of $46.8 million; non-GAAP operating expenses of $39.7 million
  • GAAP net income of $0.0 million, or $0.00 per basic and diluted share, compared with GAAP net income of $0.2 million, or $0.00 per basic and diluted share in third quarter of 2019; non-GAAP net income of $7.8 million, or $0.10 per basic and diluted share
  • Adjusted EBITDA of $10.0 million, compared with $4.0 million in third quarter 2019

Year 2019 Financial Summary

  • Revenue of $212.6 million, compared with $232.2 million in 2018
  • GAAP gross margin of 77.0 percent; non-GAAP gross margin of 77.8 percent
  • GAAP operating margin of (8.0) percent; non-GAAP operating margin of 1.2 percent
  • GAAP net loss of $17.8 million, or $0.23 per basic and diluted share; non-GAAP net income of $2.0 million, or $0.03 per basic and diluted share
  • Ended the year with $129.9 million in cash, cash equivalents and marketable securities

A reconciliation between GAAP and non-GAAP information is contained in the financial statements below.

I am thrilled to join A10 Networks at an exciting time for the business,” said Dhrupad Trivedi, president and chief executive officer of A10 Networks. “A10 occupies an attractive area within networking and security, as companies increasingly focus on delivering business outcomes while managing operational complexities from proliferation of IoT, shift to hybrid cloud environments, and ever-increasing complexity of the cybersecurity landscape. Service providers around the world also face the same challenges while getting ready for 5G technology to support many of these consumption trends. Based on our legacy, A10 is well-positioned to help our customers address these emerging themes. We deeply understand their applications and have a strong talent base to support them through these digital transformations. We remain committed to driving growth and improving profitability as demonstrated by our EBITDA performance in the fourth quarter. We believe our focus and commitment to profitable growth will reward our shareholders, customers and employees.”

First Quarter 2020 Business Outlook (+)

For the first quarter of 2020, the company currently expects:

  • Revenue in the range of $51 million to $53 million, representing 5 percent year-over-year growth at the high end of the range
  • Non-GAAP gross margin in the range of 76 percent to 78 percent
  • Non-GAAP operating expenses in the range of $37.5 million to $38.5 million
  • Adjusted EBITDA in the range of $3.7 million to $5 million
  • Non-GAAP earnings per share in the range of $0.01 to $0.03 using approximately 81 million diluted shares

(+) Please refer to the note below on forward-looking statements and the risks involved with such statements as well as the note on non-GAAP financial measures.

Conference Call Information

A10 Networks will host a conference call today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time for analysts and investors to discuss its fourth quarter 2019 financial results and outlook for its first quarter 2020. Open to the public, investors may access the call by dialing +1-844-792-3728 or +1-412-317-5105. A live audio webcast of the conference call will be accessible from the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. The webcast will be archived for a period of one year. A telephonic replay of the conference call will be available two hours after the call, will run for five business days, and may be accessed by dialing +1-877-344-7529 or +1-412-317-0088 and entering the passcode 10137756. The press release and supplemental financials will be accessible from the “Investor Relations” section of the A10 Networks website prior to the commencement of the conference call.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our position to help our customers; projections for our future operating results; and the strength and capabilities of our talent base. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Factors that may cause actual results to differ include execution risks related to closing key deals and improving our execution, the continued market adoption of our products, our ability to successfully anticipate market needs and opportunities, our timely development of new products and features, our ability to achieve or maintain profitability, any loss or delay of expected purchases by our largest end-customers, our ability to maintain or improve our competitive position, competitive and execution risks related to cloud-based computing trends, our ability to attract and retain new end-customers and our largest end-consumers, our ability to maintain and enhance our brand and reputation, changes demanded by our customers in the deployment and payment model for our products, continued growth in markets relating to network security, the success of any future acquisitions or investments in complementary companies, products, services or technologies, the ability of our sales team to execute well, our ability to shorten our close cycles, the ability of our channel partners to sell our products, variations in product mix or geographic locations of our sales, risks associated with our presence in international markets, weaknesses or deficiencies in our internal control over financial reporting, and our ability to timely file periodic reports required to be filed under the Securities Exchange Act of 1934.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release and the accompanying table contain certain non-GAAP financial measures, including non-GAAP net income (loss), non-GAAP net income (loss) per basic and diluted share, non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses, and Adjusted EBITDA. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies.

A10 Networks considers these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the company, exclusive of unusual events or factors that do not directly affect what we consider to be our core operating performance, and are used by the company's management for that purpose.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures provided in the financial statement tables below. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis is not available due to high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures.

We define non-GAAP net income as our GAAP net income (loss) excluding: (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition and (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring facilities expense. We define non-GAAP net income per basic and diluted share as our non-GAAP net income (loss) divided by our basic and diluted weighted-average shares outstanding. We define non-GAAP gross profit as our GAAP gross profit excluding stock-based compensation and related payroll tax. We define non-GAAP gross margin as our non-GAAP gross profit divided by our GAAP revenue. We define non-GAAP operating income (loss) as our GAAP income (loss) from operations excluding (i) stock-based compensation, and related tax, (ii) amortization expense related to acquisition and (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring facilities expense. We define non-GAAP operating margin as our non-GAAP operating income (loss) divided by our GAAP revenue. We define non-GAAP operating expenses as our GAAP operating expenses excluding (i) stock-based compensation, and related tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring facilities expense. We define Adjusted EBITDA as our GAAP net income (loss) excluding (i) interest expense, (ii) interest income and other (income) expense, net, (iii) depreciation and amortization expense, (iv) provision for income taxes, (v) stock-based compensation and related payroll tax, (vi) litigation settlement and internal investigation expense (vii) restructuring expense, and related tax, and (viii) non-recurring facilities expense.

We have included our non-GAAP net income (loss), non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses and Adjusted EBITDA in this press release. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company's operating results.

About A10 Networks

A10 Networks (NYSE: ATEN) is a leading provider of secure application services and solutions, with a range of high-performance application networking solutions that help organizations ensure that their data center applications and networks remain highly available, accelerated and secure. Founded in 2004, A10 Networks is based in San Jose, Calif., and serves customers globally with offices worldwide. For more information, visit: www.a10networks.com and @A10Networks.

The A10 logo and A10 Networks are trademarks or registered trademarks of A10 Networks, Inc. in the United States and other countries. All other trademarks are the property of their respective owners.

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts, on a GAAP Basis)

 

 

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

Products

$

36,853

 

 

$

39,044

 

 

$

121,920

 

 

$

144,682

 

Services

23,463

 

 

22,781

 

 

90,708

 

 

87,541

 

Total revenue

60,316

 

 

61,825

 

 

212,628

 

 

232,223

 

Cost of revenue:

 

 

 

 

 

 

 

Products

8,301

 

 

9,087

 

 

29,816

 

 

34,066

 

Services

5,139

 

 

4,724

 

 

19,065

 

 

17,830

 

Total cost of revenue

13,440

 

 

13,811

 

 

48,881

 

 

51,896

 

Gross profit

46,876

 

 

48,014

 

 

163,747

 

 

180,327

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

22,618

 

 

25,983

 

 

92,783

 

 

103,214

 

Research and development

15,257

 

 

15,283

 

 

61,824

 

 

65,157

 

General and administrative

6,393

 

 

9,171

 

 

23,704

 

 

39,635

 

Restructuring expense

2,530

 

 

 

 

2,530

 

 

 

Total operating expenses

46,798

 

 

50,437

 

 

180,841

 

 

208,006

 

Income (loss) from operations

78

 

 

(2,423

)

 

(17,094

)

 

(27,679

)

Non-operating income (expense):

 

 

 

 

 

 

 

Interest expense

(15

)

 

(30

)

 

(237

)

 

(129

)

Interest and other income (expense), net

522

 

 

1,267

 

 

919

 

 

1,273

 

Total non-operating income (expense), net

507

 

 

1,237

 

 

682

 

 

1,144

 

Income (loss) before income taxes

585

 

 

(1,186

)

 

(16,412

)

 

(26,535

)

Provision for income taxes

534

 

 

422

 

 

1,407

 

 

1,082

 

Net income (loss)

$

51

 

 

$

(1,608

)

 

$

(17,819

)

 

$

(27,617

)

Net income (loss) per share:

 

 

 

 

 

 

 

Basic

$

 

 

$

(0.02

)

 

$

(0.23

)

 

$

(0.38

)

Diluted

$

 

 

$

(0.02

)

 

$

(0.23

)

 

$

(0.38

)

 

 

 

 

 

 

 

 

Weighted-average shares used in computing net income (loss) per share:

 

 

 

 

 

 

 

Basic

77,147

 

 

73,865

 

 

76,080

 

 

72,882

 

Diluted

79,248

 

 

73,865

 

 

76,080

 

 

72,882

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(unaudited, in thousands, except per share amounts)

 

 

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

GAAP net income (loss)

$

51

 

 

$

(1,608

)

 

$

(17,819

)

 

$

(27,617

)

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

4,332

 

 

3,983

 

 

16,790

 

 

17,038

 

Amortization expense related to acquisition

253

 

 

252

 

 

1,012

 

 

1,010

 

Litigation and investigation expense

43

 

 

1,465

 

 

(1,066

)

 

10,496

 

Restructuring expense and related taxes

2,676

 

 

 

 

2,676

 

 

 

Non-recurring facilities expense

425

 

 

 

 

425

 

 

 

Non-GAAP net income

$

7,780

 

 

$

4,092

 

 

$

2,018

 

 

$

927

 

GAAP net income (loss) per share:

 

 

 

 

 

 

 

Basic

$

 

 

$

(0.02

)

 

$

(0.23

)

 

$

(0.38

)

Diluted

$

 

 

$

(0.02

)

 

$

(0.23

)

 

$

(0.38

)

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

$

0.05

 

 

$

0.05

 

 

$

0.21

 

 

$

0.23

 

Amortization expense related to acquisition

$

 

 

$

 

 

$

0.01

 

 

$

0.01

 

Litigation and investigation expense

$

 

 

$

0.02

 

 

$

(0.01

)

 

$

0.14

 

Restructuring expense and related taxes

$

0.03

 

 

$

 

 

$

0.03

 

 

$

 

Non-recurring facilities expense

$

0.01

 

 

$

 

 

$

0.01

 

 

$

 

Non-GAAP net income per share:

 

 

 

 

 

 

 

Basic

$

0.10

 

 

$

0.06

 

 

$

0.03

 

 

$

0.01

 

Diluted

$

0.10

 

 

$

0.05

 

 

$

0.03

 

 

$

0.01

 

Weighted average shares used in computing non-GAAP net income per share:

 

 

 

 

 

 

 

Basic

77,147

 

 

73,865

 

 

76,080

 

 

72,882

 

Diluted

79,248

 

 

75,737

 

 

78,487

 

 

75,222

 

 

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except per share data, on a GAAP Basis)

 

 

December 31,

 

December 31,

2019

 

2018

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

45,742

 

 

40,621

 

Marketable securities

84,180

 

 

87,754

 

Accounts receivable, net of allowances of $52 and $319, respectively

53,566

 

 

53,972

 

Inventory

22,384

 

 

17,930

 

Prepaid expenses and other current assets

15,067

 

 

14,662

 

Total current assets

220,939

 

 

214,939

 

Property and equipment, net

7,656

 

 

7,262

 

Goodwill

1,307

 

 

1,307

 

Intangible assets

2,305

 

 

3,748

 

Other non-current assets

41,846

 

 

8,620

 

Total assets

$

274,053

 

 

$

235,876

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

7,592

 

 

8,202

 

Accrued liabilities

27,756

 

 

25,291

 

Deferred revenue

62,233

 

 

63,874

 

Total current liabilities

97,581

 

 

97,367

 

Deferred revenue, non-current

38,931

 

 

34,092

 

Other non-current liabilities

28,754

 

 

534

 

Total liabilities

165,266

 

 

131,993

 

 

 

 

 

Stockholders' equity:

Common stock, $0.00001 par value: 500,000 shares authorized; 77,580 and

74,301 shares issued and outstanding, respectively

1

 

 

1

 

Additional paid-in-capital

398,600

 

 

376,272

 

Accumulated other comprehensive income (loss)

251

 

 

(144

)

Accumulated deficit

(290,065

)

 

(272,246

)

Total stockholders' equity

108,787

 

 

103,883

 

Total liabilities and stockholders' equity

$

274,053

 

 

$

235,876

 

 

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands, on a GAAP Basis)

 

 

Twelve Months Ended

December 31,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net loss

$

(17,819

)

 

$

(27,617

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Depreciation and amortization

10,028

 

 

7,880

 

Stock-based compensation

16,529

 

 

17,038

 

Other non-cash items

(274

)

 

144

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

530

 

 

(6,119

)

Inventory

(5,648

)

 

(1,529

)

Prepaid expenses and other assets

(452

)

 

(2,434

)

Accounts payable

(621

)

 

(603

)

Accrued and other liabilities

(5,897

)

 

3,116

 

Deferred revenue

3,198

 

 

7,331

 

Other

 

 

99

 

Net cash used in operating activities

(426

)

 

(2,694

)

Cash flows from investing activities:

 

 

 

Proceeds from sales of marketable securities

32,200

 

 

32,720

 

Proceeds from maturities of marketable securities

43,525

 

 

51,024

 

Purchases of marketable securities

(71,636

)

 

(86,823

)

Purchase of investment

 

 

(1,000

)

Purchases of property and equipment

(4,340

)

 

(2,797

)

Net cash used in investing activities

(251

)

 

(6,876

)

Cash flows from financing activities:

 

 

 

Proceeds from issuance of common stock under employee equity incentive plans

5,798

 

 

3,701

 

Other

 

 

(77

)

Net cash provided by financing activities

5,798

 

 

3,624

 

Net increase (decrease) in cash and cash equivalents

5,121

 

 

(5,946

)

Cash and cash equivalents - beginning of period

40,621

 

 

46,567

 

Cash and cash equivalents - end of period

$

45,742

 

 

$

40,621

 

 

A10 NETWORKS, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT

(unaudited, in thousands, except percentages)

 

 

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

GAAP gross profit

$

46,876

 

 

$

48,014

 

 

$

163,747

 

 

$

180,327

 

GAAP gross margin

77.7

%

 

77.7

%

 

77.0

%

 

77.7

%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

466

 

 

325

 

 

1,592

 

 

1,602

 

Non-GAAP gross profit

$

47,342

 

 

$

48,339

 

 

$

165,339

 

 

$

181,929

 

Non-GAAP gross margin

78.5

%

 

78.2

%

 

77.8

%

 

78.3

%

 

RECONCILIATION OF GAAP TOTAL OPERATING EXPENSES TO

TO NON-GAAP TOTAL OPERATING EXPENSES

(unaudited, in thousands)

 

 

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2,018

 

 

 

 

 

 

 

 

GAAP total operating expenses

$

46,798

 

 

$

50,437

 

 

$

180,841

 

 

$

208,006

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

3,866

 

 

3,658

 

 

15,197

 

 

15,436

 

Amortization expense related to acquisition

253

 

 

252

 

 

1,012

 

 

1,010

 

Litigation and investigation expense

43

 

 

1,465

 

 

(1,066

)

 

10,496

 

Restructuring expense

2,530

 

 

 

 

2,530

 

 

 

Non-recurring facilities expense

425

 

 

 

 

425

 

 

 

Non-GAAP total operating expenses

$

39,682

 

 

$

45,062

 

 

$

162,743

 

 

$

181,064

 

 

 

RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS

TO NON-GAAP OPERATING INCOME

(unaudited, in thousands, except percentages)

 

 

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

GAAP income (loss) from operations

$

78

 

 

$

(2,423

)

 

$

(17,094

)

 

$

(27,679

)

GAAP operating margin

0.1

%

 

(3.9

)%

 

(8.0

)%

 

(11.9

)%

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation and related payroll tax

4,332

 

 

3,983

 

 

16,790

 

 

17,038

 

Amortization expense related to acquisition

253

 

 

252

 

 

1,012

 

 

1,010

 

Litigation and investigation expense

43

 

 

1,465

 

 

(1,066

)

 

10,496

 

Restructuring expense

2,530

 

 

 

 

2,530

 

 

 

Non-recurring facilities expense

425

 

 

 

 

425

 

 

 

Non-GAAP operating income

$

7,661

 

 

$

3,277

 

 

$

2,597

 

 

$

865

 

Non-GAAP operating margin

12.7

%

 

5.3

%

 

1.2

%

 

0.4

%

 

RECONCILIATION OF GAAP NET INCOME (LOSS) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(unaudited, in thousands)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

GAAP net income (loss)

$

51

 

 

$

(1,608

)

 

$

(17,819

)

 

$

(27,617

)

Exclude: Interest expense

15

 

 

30

 

 

237

 

 

129

 

Exclude: Interest income and other (income) expense, net

(522

)

 

(1,267

)

 

(919

)

 

(1,273

)

Exclude: Depreciation and amortization expense

2,595

 

 

1,860

 

 

10,028

 

 

7,880

 

Exclude: Provision for income tax expense

534

 

 

422

 

 

1,407

 

 

1,082

 

EBITDA

2,673

 

 

(563

)

 

(7,066

)

 

(19,799

)

Exclude: Stock-based compensation and related payroll tax

4,332

 

 

3,983

 

 

16,790

 

 

17,038

 

Exclude: Litigation settlement and investigation expense

43

 

 

1,465

 

 

(1,066

)

 

10,496

 

Exclude: Restructuring expense

2,530

 

 

 

 

2,530

 

 

 

Exclude: Non-recurring facilities expense

425

 

 

 

 

425

 

 

 

Adjusted EBITDA

$

10,003

 

 

$

4,885

 

 

$

11,613

 

 

$

7,735

 

 

Contacts

Tom Constantino
Chief Financial Officer
investors@a10networks.com

Contacts

Tom Constantino
Chief Financial Officer
investors@a10networks.com