Q4 2022 A10 Networks Inc Earnings Call
the market closed today, A10 Networks issued a press release announcing its fourth quarter and full year 2022 financial results.
Additionally, A-10 published a presentation and supplemental trended financial statements.
You may act as the press release presentation and trended financial statement on the investor relations section of the company's website.
During the course of today's call, management will be making forward looking statements, including statements regarding projections for future operating results, including potential revenue growth, industry and customer trends, capital allocation strategy, supply chain constraints, expectations, companies positioning, and repurchase and dividend programs.
along with its market share.
These statements are based on current expectations and beliefs as of today, February 7, 2023.
These forward-looking statements involve a number of risks and uncertainties, some of which are beyond the company's control, such as the potential impact of COVID-19 on the business and operation that could cause actual results to different and materially, and you should not rely on them as predictions for future events.
A10 does not intend to update information contained in the forward-level statement whether it is a result of new information, future events, or otherwise, unless required by law.
For more detailed description of these risks and uncertainties, please refer to the company's most recent 10K.
Please note, with the exception of revenue, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain charges.
The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies.
A reconciliation between GAP and non- GAAP measures can be found and the press release issued today and on the trended quarterly financial statements posted on the company's website.
With all that said, I'd like to turn the call over to Dhruv Head Trivedi. Dhruv Head, the call is yours.
Thank you all for joining us today.
This was another record year for A10, the top and bottom line performance that validates
It has solid position in the marketplace and the earning power of our business.
We continue to deliver revenue growth that exceeds the growth rate of the industry.
as we gain market share with best in class for brighter ref inclusion
With strong growth margins and rigorous expense management, our bottom line grew faster than our top line.
and we utilized our robust gas generation to invest in technology for future growth and return capital to share on this.
Our management team has delivered consistent financial and operational results in spite of macro challenges.
This is a testament to our team.
our focus on execution, and our loyal global customer base that continues to embrace our solutions.
The part of our business related to cybersecurity and revenue generating solutions for customers is increasingly durable while we navigate increased volatility in areas of our business related to modernization.
Our focus on critical network infrastructure and security solutions continues to drive over grow.
Even when CapEx investments are moderated due to economy or interest rate, our solutions are prioritized.
This is evident in the 14% product revenue growth in the quarter and the fact that we deliver strong growth in key regions such as the Americas and Asia Pacific.
On a trailing 12-month basis, our product revenue is up 17%.
As we have said in the past and evidenced by performance in the fourth quarter, we are not reliant on any single geographic region and in fact, we are generating growth on a constant currency basis in nearly every region of the world where we operate.
We have done our best to build a risk-mitigated business model, which we believe is largely insulated from volatility in any specific region, product category, or customer type.
This diversification is evident in our top customers.
Looking at 10% customers by quarter, only three companies appeared on that list in 2022.
In fact, 22 different customers contributed revenue that put them in our top 10 at least once.
I'd like to highlight two wins that demonstrate A10's successful land and expand commercial strategy.
Rooted in our ability to capture market share through our technical superiority and performance criteria in head-to-head testing for critical customer needs.
we were able to displace a competitive security incumbent in Japan with our DDoS protection solution.
having a long proven track record with the customer with our ADC and CGN solutions.
A cloud service provider in Japan chose our DDoS protection to protect the environment.
Why providing?
significant zero day automated protection which was a differentiator for the sale.
We discussed last quarter a deal with one of the world's top digital advertising platform champions.
As a reminder, this customer had an urgent need.
to rapidly upgrade their infrastructure in order to support added features and enhance functionality, including efficient and rapid infrastructure build up.
As a result, our high throughput, low latency solution.
was chosen to help ensure the customers existing revenue streams while expanding their ability to generate new revenues.
These expansion orders are a reflection of our ability to continue growing with our large install base representing the most significant durable opportunity for continued growth.
Negotiations does not make us immune from economic challenge.
But we believe we are positioned to navigate these situations better than our peers.
Life many we are seeing extended cycle.
In addition, while many of our peers are reporting results that compared to no growth period last year.
Our team have continued to deliver several quarters consecutively.
in our several quarters consecutively robust growth.
Most importantly, we are increasingly confident.
in our ability to achieve our profitability targets.
Our EPS performance in the fourth quarter is also due in part to our ability to react quickly.
to increase volatility.
by managing expenses and allocating resources to ensure consistent and predictable profit.
Our differentiation and technical strength enables us to maintain non-GAAP gross margins exceeding 80%. For the full year, this was 80.3%.
In addition, we are effectively allocating our operating expenses while continuing to invest in the business, especially in our technology.
In the fourth quarter, our operating expenses increased 7.7% compared to prior year, and for the full year, our operating expenses increased by $13.2 million or $9.2 million.
operating expenses increased 7.7% compared to prior year and for the full year our operating expenses increased by 13.2 million dollars or 9.1%.
against a 12.1% revenue growth.
The result is accelerating profitability and EPS growth.
Our adjusted EBITDA was a record 22.3 million for the fourth quarter and 75.1 million for the year.
Day 10, turning power is clear.
During 2022, we returned more than 95 million.
to shareholders in the form of cash dividends and stock repurchases, and ended the year with nearly $151 million in cash and no debt.
This is approximately $2.
in cash per share.
We continue to manage and maintain a four-dress balance sheet.
We also continue to maintain a discipline, flexible, and opportunistic capital allocation strategy.
Today, our board approved a quarterly dividend of 6 cents per share.
We enter 2023 expecting full year revenue growth that outpaces our peerset.
while still delivering on our profitability goals in terms of adjusted EBITDA and EPS.
With that, I'd like to turn the call over to Brian for a detailed review of the quarter and the year. Bye.
turn the call over to Brian for a detailed review of the quarter and the year. Brian ? Thank you, Dribin.
Fourth quarter revenue was a record $77.6 million, up 9.9% year over year.
Product revenue for the quarter was $49.6 million, representing 53.9% of total revenue, up 13.5% year over year.
Services revenue, which includes maintenance and support revenue.
with 28.1 million or 36.1% of total revenue.
Moving to our revenue from the geographic standpoint, revenue from North America was 41.2, that's 21.8%. On a constant currency basis, revenue in Japan increased approximately 8% year over year in Q4.
As you can see on our balance sheet, our deferred revenue is $127 million as of December 31, 2022, a 4% year over year.
On a constant currency basis, deferred revenue would have increased 8% year over year.
This is a result of the geographic mix and the alignment with our global code targets.
With the exception of revenue, all the metrics discussed on this call on a non-gap basis, and thus otherwise stated.
Full reconciliation of gap and non-gap results are provided in our press release and on our website.
The gross margin in the fourth quarter was 80.3 percent. As Drupad mentioned, we believe we successfully mitigated the impact of industry-wide global supply chain constraints and input cost increases during Q4.
He reported 19.8 million in non-GAAP operating income. A record result of 13% compared with a 17.6 million in the year of Oakward.
Adjusted either that was 22.3 million for the quarter, also a record reflecting 28.7% of comat.
Non-Gap net income for the quarter was up 12% year over year to 18.4 million or 24% on a per share basis.
from mid income of $16.4 million for 20 cents per share in the fourth quarter last year.
The weighted shares used for computing non-GAAP EPS for the fourth quarter were approximately 75.4 million shares compared to 80.3 million shares in the year ago quarter.
on a gap basis.
Net income for the quarter was 18 million or 24 cents per share compared with net income of 10.7 million or 13 percent 13 cents per share in the year of the quarter
Turning to the four year results.
Revenue was a record 280.3 million.
Up 12.1% year over year.
Product revenue for the year was $173.2 million, representing 61.8% of total revenue.
Services revenue, which includes maintenance and support revenue.
was 107.1 million for 38.2% of total revenue.
non-GAAP gross margins for the year was 80.3%.
We reported $67 million in non-GAAP operating income.
compared to $54 million last year.
Adjusted EVA was $75.1 million for the year compared to $62.4 million last year.
Non-gaff net income for the year was $57.7 million or 74 cents per share basis.
compared to net income of $50.1 million, with $0.63 per share, last year.
With Q3 2022 non-GAAP EPS of $0.20, the total cost of the project is $0.20.
and Q4 2022 non-DAP EPS of 24 cents.
810 generated 42 cents of non-depth UPS in the second half of 2022. Up from 37 cents in the second half of 2021.
Non-GAP EPS exceeded consensus in all fourth quarters of 2022.
Full year 2022 non-GAAP PPS was $0.74 versus $0.63 last year.
The exceeding the nonrecurring income tax benefit of 65.4 million, which represented approximately 82 cents per share basis for non-get.
On a GAAP basis, net income for the year was $46.9 million or 60 cents per share, compared with net income of $94.9 million or $1.19 per share last year.
Turning to the balance sheet, as of December 31, 2022, we had $151 million in total cash and cash equivalents compared to $185 million at the end of 2021.
During the year we repurpose to 6.1 million shares at an average price of $13.01 for a total of $79.3 million and we pay $15.9 million in cash dividends.
We continue to carry no tests.
The Board has approved the quarterly cash given of 6 cents per share to be paid on March 1, 2023. The shareholders are on record as of February 17, 2023.
As Rupert mentioned, we expect full year 2023 revenue growth to be faster than our peer set average. We expect full year 2023 revenue growth to be faster than our peer set average.
and that we would deliver on our profitability target.
I'll now turn the call back over to Joseph, the closing comment.
Thank you Brian .
A10 is a diversified differentiated company with significant earnings power.
Our revenue growth outfaces that of our market.
Remedies growth also significantly exceeds expense growth leading to acceleration of EBITDA on letting comment cash growth.
We continue to navigate economic headwinds and supply chain constraints.
Our highly differentiated technical platform combined with our ability to achieve diversification in all aspects of our business has mitigated these impacts on our business, enabling us to deliver consistent performance.
Our solutions are exceedingly well aligned with durable secular catalysts which result in sustainable performance.
I am excited about it in future and want to thank all of our investors, customers and employees for their support.
Operator, you can now open the call up for questions. Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two.
Again, to ask a question, please press star 1. As a quick reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.
Our first question comes from Pamette Corsan with BWS Financial. You may proceed.
Hi, so first off, I just want to get a good understanding of.
What are you seeing as far as these extended cycles that is causing you to deviate from actually providing a target range for revenue beyond just the commentary?
Yeah, no, good question, Hamid. So I think what we, I would say, are seeing varies a little bit by regions, right? So as you can see in the numbers, we have seen improvement in the backdrop and the macro environment, certainly in Asia, Japan and...
a little bit in Europe as well. I think where we are seeing that extended cycle probably is most specifically applicable to North America.
customers who continue to remain a little bit concerned whether it's due to economy, interest rate, capital costs and I'm not canceling any project or planned investment but we are seeing them be less visible than we are used to.
So I would say that's how I would characterize it. They still plan to do that, but what is extending the cycle is there's a little bit more extra process and a little bit more concern around moving faster, if you will. So I think that's probably the most specific connection point.
Are you seeing increased competition that's creating some of this hesitation on customers' ends? Are you seeing pricing pressure as well?
Yeah, so good question. So it's not pricing, pressure, per se, and I think our customers typically look at us from a total cost of ownership perspective and economically, we are pretty well aligned and compelling for them.
We are not necessarily also seeing a change in the competitive landscape because in many of these cases, we don't.
not necessarily also seeing a change in the competitive landscape because in many of these cases, right, we don't typically...
go after SMB segment, which has a lot of qualified suppliers who are constantly adjusting share position. In many of our cases the customer spends
6 to 9 months plus integrating us into their operating system and their procedures and so forth. So I think that's not necessarily what is changing that pattern. It's more around they have a gap x-biming cycle that can fluctuate on timing.
and their own risk perception and you know we are seeing companies doing layoffs and trimming their cost position to be more conservative right so it's more to do with navigating through that uncertain period it certainly we are not seeing any increase in losses or any of those providers.
You were able to post revenue, at least from my perspective, that was a little bit higher than what I was projecting. So when did you see this slow down or extended cycles developing for you?
Yeah, so I think we started seeing it probably towards the end of December going into January period and I would say that's why I was connecting it more so to North America customer base more than anything else. And I think that little bit coincident with right lot of companies trimming position.
calling inflation, calling interest rate concerns, and so forth. So I think it's, you know, we haven't had to do anything along those lines, but obviously a lot of our peers and larger companies have made those adjustments typically end of December or in January timeframe.
Okay, thank you.
Okay, thank you. Thank you. Appreciate it.
Our next question comes from Anja Sauterstrom with S
Thank you. Our next question comes from Anja Soderstrom with Sdodi. You may proceed.
All right, can you guys hear me? Yeah, we can hear you. All right, this is the fun you'll mean for Ania Sotistone. My first question is on.
How much of the expenses are within your control and how does that affect your ability to control your margins?
So, I think you know, if you look at the last 10 or 12 quarters of our business, we are able to flex our cost structure where the expense growth or off-ex growth is always lower than the top line growth. So, even when the revenue is over.
growth is lower, often even lower. And I think that has what has enabled us to deliver consistently expanding even how much is right. And if you think of the variables of a growth margin is pretty stable, and so we take action to make sure we are offsetting costs and price. But beyond that, I'm a...
into our operating cost, whether it's in R&D, sales and marketing, or G&A, that enables us to flex it the better. Thank you. And my second question is, have you seen any changes in your customer's decision-making process given the uncertain microenvironment?
So I think what we are seeing is that the fiscal cycle in the process behavior change is there is a little bit more scrutiny or investment if you will. And I think it's typically means that you know a little bit longer.
But as I was saying before, where it's related to modernizing their digital infrastructure, they are maybe more cautious, where it's related to we are helping them generate more or new type of revenue, obviously they are moving as fast as before. So I think I would say in the part of the business that is more related to just modernization and
transforming their IT, that's probably what is being scrutinized the most. For me, are you actively looking for any M&A opportunities? How is the M&A landscape?
Yeah, no good question step answer you know as we as we mentioned before we continue to evaluate opportunities and then all kinds that come across the wire we are pretty well understood in the industry in terms of what is our profile what we are looking for.
But we look for two factors. One is does this accelerate our growth in terms of our strategic areas of growth? And second is right, can we make the financials work consistent with our business model and long-term goals as well? So we continue to evaluate it, but our primary focus is investing in the business for organic growth first.
and will be opportunistic if there are opportunities to do anything in organic core time.
Thank you so much for taking my questions.
Thank you, sir.
Thank you. Our next question comes from Tyler Brumeister with Craig Hallam Capital. You may proceed. Val, please.
Hey guys, thanks for letting us ask a couple questions. So first I guess, you know, if you guys could provide any additional color, I understand not given a number for revenue growth next year, but just some maybe, you know, seasonality or linearity through the year, I would suspect maybe the first time you're going to be even softer than it typically is and you talked about kind of a six months.
sales process with some customers. So do you have pretty good visibility in the first half and just maybe lacking visibility in the second half? Is that some of the uncertainty or a round-up for the number?
Yeah, yeah, no good question Tyler and I'll jump in and then Brian can add to that. So I think I think you are right Because the dynamic we are seeing is more around customer deferral of spending versus competitive loss That's why even in our own pipeline and funnel what we see is
certainly maybe seasonality being stronger. Our normal seasonality is $48.52, but we think based on the pipeline movement we see with some of these larger deals, we certainly think that it looks like some of it will differ into the later part of the year. So, we think net.
So, there when you why we understand kind of where we look for the year, but we certainly see shift where things move. And it's a committed project. We wanted no competition, right? It's purely a deployment decision. But we are certainly seeing that moving a little bit more to the back half than the front 10.
Brian , I don't know anything you want to add to that. Yeah, I mean, we typically see a 50, 52-48 mix being 48 first half, 52% second half. I think what we're seeing is some similar behavior that we saw in 2021. There was a lot of uncertainty, a lot of closures from the pandemic.
I think not related to closures, but related more to FX and interest rates, we're seeing it's just a similar pattern or a little slower outlook to the year that I think we saw this past year, 2022, similar to 2021, but we don't think we're seeing a loss of the opportunities. It's just simply a timing issue. So it's looking more like 2021 than 2022.
I appreciate that color. That's very helpful. And then last, I just wanted to give you guys an opportunity. You announced a security breach internally. I just want to give you an opportunity to comment on that. I think it said it was internal. It wasn't your products. It wasn't with customers. Just any other color you'd like to give there.
Sure, sure. Yeah, so I think that is a good point, Tyler. And I think, you know, obviously, the first point is, as a company that is involved with customers and doing security, we felt it appropriate to be transparent and open with our investors, customers and employees. And what, as we said, right, what we do know is.
Like many, many other companies, we had some kind of a cyber incident and we use external experts. And this was obviously subsequent to end of the year. And so we use experts. And what we know based on all of that analysis is this is not related to any of the products or solutions that our customers use for security.
It was related to more of something within our corporate IT infrastructure. And so we launched the investigation, engaged experts and advisors, and obviously we are working with the right authority. But we felt it also critical to...
inform in a transparent way all of our stakeholders as we navigate this. So the issue as far as we understand is contained, but we obviously are going to learn to continue to strengthen our own security posture while we engage our customers deeply to do more things for them. Not towards our limitation, but towards some level and the
waiting at this time. I will now pass it back to Drew Pat for closing remarks. Thank you. Thanks to all of our shareholders for joining us today and for your continued support. Thank you.
Thank you for your participation. You may now disconnect your line.