A10 Networks Reports Fourth Quarter and Year 2018 Financial Results

SAN JOSE, Calif.–(BUSINESS WIRE)–A10 Networks, Inc. (NYSE: ATEN), a leading provider of intelligent and
automated cybersecurity solutions, today announced financial results for
its fourth quarter and year ended Dec. 31, 2018.

Fourth Quarter 2018 Financial Summary

  • Revenue increased 11 percent to $61.8 million, compared with $55.5
    million in fourth quarter 2017
  • GAAP gross margin of 77.7 percent, non-GAAP gross margin of 78.2
    percent
  • GAAP operating margin of (3.9) percent, non-GAAP operating margin of
    5.3 percent
  • GAAP net loss of $1.6 million, or $0.02 per basic and diluted share,
    non-GAAP net income of $4.1 million, or $0.05 per diluted share

Year 2018 Financial Summary

  • Revenue of $232.2 million, compared with $235.4 million in 2017
  • GAAP gross margin of 77.7 percent, non-GAAP gross margin of 78.3
    percent
  • GAAP operating margin of (11.9) percent, non-GAAP operating margin of
    0.4 percent
  • GAAP net loss of $27.6 million, or $0.38 per basic and diluted share,
    non-GAAP net income of $0.9 million, or $0.01 per diluted share
  • Ended the year with $128.4 million in cash, cash equivalents and
    marketable securities

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

We are building solid momentum in the market with our advanced suite of
5G, security and multi-cloud solutions. Revenue increased 11 percent
year-over-year to $61.8 million and our security product revenue grew to
reach 38 percent of product revenue for the year, achieving our goal for
the year. We also continue to make good progress with our sales
transformation initiative and drove double-digit year-over-year product
revenue growth in North America, Japan, APAC and Latin America,” said
Lee Chen, president and chief executive officer of A10 Networks. “Our
technology vision and differentiated platform is resonating with
customers and we remain committed to increasing our pace of innovation,
refining our go-to-market engine and improving our sales productivity.
Our strategy is clear, our team is energized and we believe we are on
the right path to maximize our opportunities in the fast-growing areas
of security, 5G and multi-cloud.”

Prepared Materials and Conference Call Information

A10 Networks has made available a presentation with management’s
prepared remarks on its fourth quarter and year 2018 financial results.
These materials are accessible from the “Investor Relations” section of
the A10 Networks website at investors.a10networks.com.

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 and year 2018 financial results and outlook for its first
quarter 2019. 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 10127435.
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 projections for our future operating results,
the pace of growth in the market for our solutions, our sales
transformation initiative, our pace of innovation, the refining of our
go-to-market engine, improving our sales productivity, our belief that
we are on the right path, and our ability to maximize our opportunities.
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
attract and retain new end-customers, our ability to maintain and
enhance our brand and reputation, 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 and risks associated with our presence in international markets.

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 gross profit and non-GAAP
operating income (loss). 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. We define non-GAAP
net income (loss) as our GAAP net income (loss) excluding: (i)
stock-based compensation, (ii) amortization expense related to
acquisition and (iii) non-recurring expenses associated with the
litigation and internal investigation. We define non-GAAP gross profit
as our GAAP gross profit excluding stock-based compensation. We define
non-GAAP operating income (loss) as our GAAP income (loss) from
operations excluding (i) stock-based compensation, (ii) amortization
expense related to acquisition and (iii) non-recurring expenses
associated with the litigation and internal investigation.

We have included our non-GAAP net income (loss), non-GAAP gross profit
and non-GAAP operating income (loss) in this press release. Non-GAAP
financial measures are presented for supplemental informational purposes
only for understanding the company’s operating results. The non-GAAP
financial measures should not be considered a substitute for financial
information presented in accordance with GAAP, and may be different from
non-GAAP financial measures presented by other companies. Please see the
reconciliation of non-GAAP financial measures to the most directly
comparable GAAP measure attached to this release.

About A10 Networks

A10 Networks (NYSE: ATEN) is a provider of intelligent and automated
cybersecurity solutions, providing a portfolio of high-performance
secure application solutions that enable intelligent automation with
machine learning to ensure business-critical applications are secure and
always available. Founded in 2004, A10 Networks is based in San Jose,
Calif., and serves customers in more than 80 countries with offices
worldwide. For more information, visit: www.a10networks.com
and @A10Networks.

The A10 logo, A10 Networks, A10 Thunder and A10 5G-GiLAN 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)
   
Three Months Ended
December 31,
Years Ended
December 31,
2018   2017 2018   2017
Revenue:
Products $ 39,044 $ 32,973 $ 144,682 $ 149,903
Services 22,781   22,544   87,541   85,526  
Total revenue 61,825   55,517   232,223   235,429  
Cost of revenue:
Products 9,087 8,145 34,066 36,269
Services 4,724   3,763   17,830   17,049  
Total cost of revenue 13,811   11,908   51,896   53,318  
Gross profit 48,014   43,609   180,327   182,111  
Operating expenses:
Sales and marketing 25,983 22,606 103,214 101,360
Research and development 15,283 13,462 65,157 62,991
General and administrative 9,171   6,688   39,635   28,132  
Total operating expenses 50,437   42,756   208,006   192,483  
Income (loss) from operations (2,423 ) 853   (27,679 ) (10,372 )
Non-operating income (expense):
Interest expense (30 ) (34 ) (129 ) (162 )
Interest and other income (expense), net 1,267   210   1,273   989  
Total non-operating income (expense), net 1,237   176   1,144   827  
Income (loss) before income taxes (1,186 ) 1,029 (26,535 ) (9,545 )
Provision for income taxes 422   243   1,082   1,206  
Net income (loss) $ (1,608 ) $ 786   $ (27,617 ) $ (10,751 )
Net income (loss) per share:
Basic $ (0.02 ) $ 0.01   $ (0.38 ) $ (0.15 )
Diluted $ (0.02 ) $ 0.01   $ (0.38 ) $ (0.15 )
Weighted-average shares used in computing net income (loss) per
share:
Basic 73,865   71,145   72,882   70,053  
Diluted 73,865   74,559   72,882   70,053  
 
A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(unaudited, in thousands, except per share amounts)
   
Three Months Ended
December 31,
Years Ended
December 31,
2018   2017 2018   2017
GAAP net income (loss) $ (1,608 ) $ 786 $ (27,617 ) $ (10,751 )
Stock-based compensation 3,983 3,379 17,038 17,203
Amortization expense related to acquisition 252 252 1,010 1,010
Litigation and investigation expense 1,465     10,496    
Non-GAAP net income $ 4,092   $ 4,417   $ 927   $ 7,462  
Non-GAAP net income per share:
Basic $ 0.06   $ 0.06   $ 0.01   $ 0.11  
Diluted $ 0.05   $ 0.06   $ 0.01   $ 0.10  
Weighted average shares used in computing non-GAAP net income per
share:
Basic 73,865   71,145   72,882   70,053  
Diluted 75,737   74,559   75,222   74,270  
 
A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)
   

December 31,
2018

December 31,
2017

ASSETS
Current Assets:
Cash and cash equivalents $ 40,621 $ 46,567
Marketable securities 87,754 84,567
Accounts receivable, net of allowances 53,972 48,266
Inventory 17,930 17,577
Prepaid expenses and other current assets 14,662   6,825  
Total current assets 214,939 203,802
Property and equipment, net 7,262 9,913
Goodwill 1,307 1,307
Intangible assets 3,748 5,190
Other non-current assets 8,620   4,646  
Total Assets $ 235,876   $ 224,858  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 8,202 $ 9,033
Accrued liabilities 25,291 21,835
Deferred revenue 63,874   61,858  
Total current liabilities 97,367 92,726
Deferred revenue, non-current 34,092 32,779
Other non-current liabilities 534   967  
Total liabilities 131,993   126,472  
Stockholders’ Equity:
Common stock and additional paid-in-capital 376,273 355,534
Accumulated other comprehensive loss (144 ) (123 )
Accumulated deficit (1) (272,246 ) (257,025 )
Total Stockholders’ Equity 103,883   98,386  
Total Liabilities and Stockholders’ Equity $ 235,876   $ 224,858  
 
(1)   The adoption of ASU 2014-09, Revenue from Contracts with Customers
(Topic 606) in the first quarter of 2018 resulted in a reduction to
the accumulated deficit balance of $12.4 million as of January 1,
2018.
 
A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)
 
Years Ended December 31,
2018   2017
Cash flows from operating activities:
Net loss $ (27,617 ) $ (10,751 )
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 7,880 8,511
Stock-based compensation 17,038 17,203
Provision for doubtful accounts and sales returns 212 1,147
Other non-cash items (68 ) (422 )
Changes in operating assets and liabilities:
Accounts receivable (6,119 ) 12,362
Inventory (1,529 ) (4,669 )
Prepaid expenses and other assets (2,434 ) (2,399 )
Accounts payable (603 ) (942 )
Accrued and other liabilities 3,116 (8,868 )
Deferred revenue 7,331 3,018
Other 99   124  
Net cash (used in) provided by operating activities (2,694 ) 14,314  
Cash flows from investing activities:
Proceeds from sales of marketable securities 32,720 27,901
Proceeds from maturities of marketable securities 51,024 60,138
Purchases of marketable securities (86,823 ) (87,447 )
Purchase of investment (1,000 )
Purchases of property and equipment (2,797 ) (5,734 )
Net cash used in investing activities (6,876 ) (5,142 )
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity
incentive plans
3,701 12,244
Repurchases and retirement of common stock (3,071 )
Payment of contingent consideration (650 )
Other (77 ) (103 )
Net cash provided by financing activities 3,624   8,420  
Net (decrease) increase in cash and cash equivalents (5,946 ) 17,592
Cash and cash equivalents – beginning of period 46,567   28,975  
Cash and cash equivalents – end of period $ 40,621   $ 46,567  
 
A10 NETWORKS, INC.
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
(unaudited, in thousands, except percentages)
   
Three Months Ended
December 31,
Years Ended
December 31,
2018   2017 2018   2017
GAAP gross profit $ 48,014 $ 43,609 $ 180,327 $ 182,111
GAAP gross margin 77.7

 %

78.6

 %

77.7

 %

77.4

 %

Non-GAAP adjustments:
Stock-based compensation 325   294   1,602   1,362  
Non-GAAP gross profit $ 48,339   $ 43,903   $ 181,929   $ 183,473  
Non-GAAP gross margin 78.2

 %

79.1

 

78.3

 %

77.9

 %

 
 
RECONCILIATION OF GAAP OPERATING INCOME (LOSS) TO NON-GAAP
OPERATING INCOME
(unaudited, in thousands, except percentages)
 
Three Months Ended
December 31,
Years Ended
December 31,
2018 2017 2018 2017
GAAP income (loss) from operations $ (2,423 ) $ 853 $ (27,679 ) $ (10,372 )
GAAP operating margin (3.9 )% 1.5

 %

(11.9 )% (4.4 )%
Non-GAAP adjustments:
Stock-based compensation 3,983 3,379 17,038 17,203
Amortization expense related to acquisition 252 252 1,010 1,010
Litigation and investigation expense 1,465     10,496    
Non-GAAP operating income $ 3,277   $ 4,484   $ 865   $ 7,841  
Non-GAAP operating margin 5.3

 %

8.1

 %

0.4

 %

3.3

 %

 

Contacts

Investor Contact:
Maria Riley & Chelsea Lish
The
Blueshirt Group
415-217-7722
investors@a10networks.com