Q2 2023 A10 Networks Inc Earnings Call
Gross margin for the first quarter was 83, 1%. This reflects strong execution overcoming input cost pressures and due to our product mix.
If you'd like to ask a question at the end of the presentation. You can press star followed by one on your telephone keypad, if you'd like to withdraw. Your question you May Press star followed by two.
We expect our revenue mix to normalize in future quarters.
I'll now hand over to Thomas Allen of F. N K L. Please go ahead.
We reported $13 4 million in non-GAAP operating income up 14, 3% compared with a $11 7 million in the year ago quarter.
Thank you. Thank you all for joining US today. This call is being recorded and webcast live and maybe accessed for at least 90 days via the Aten networks website.
<unk> EBITDA was $15 5 million for the quarter, reflecting 26, 8% of revenue.
Tim networks Dot com.
We were able to achieve our targeted adjusted EBITDA margins, even as revenue declined by nearly 8%.
Hosting the call today are Jupiter of Eddie <unk>, President and CEO and CFO , Brian Becker.
non-GAAP net income for the quarter was $9 9 million or <unk> 13 per share, which is relatively flat compared to 10 million or <unk> 13 per share in the year ago quarter.
Before we begin I would like to remind you that shortly after the market closed today.
Tim networks issued a press release announcing its first quarter 2023 financial results.
Maintaining our non-GAAP net income on 8% lower revenue is a significant accomplishment demonstrating the earnings power, we have built into the business.
Additionally, aten published a presentation and supplemental trended financial statements you may access the press release presentation and trended financial statements on the Investor Relations section of the company's website.
Diluted weighted shares used for computing non-GAAP EPS for the first quarter were approximately $75 5 million shares compared to $79 3 million shares in the year ago quarter.
During the course of today's call management will make forward looking statements, including statements regarding projections for future operating results, including our potential revenue growth industry.
On a GAAP basis net income for the quarter was 4 million or <unk> <unk> per share compared with net income of $6 3 million or eight cents per share in the year ago quarter.
Industry and customer trends, our capital allocation strategy.
Turning to the balance sheet as of March 31, 2023, we had $144 5 million in total cash and marketable securities compared to $150 9 million at the end of 2022.
Fly chain constraints and expectations.
Our positioning our repurchase and dividend programs in our market.
These statements are based on current expectations and beliefs as of today may four 2023.
During the quarter, we paid $4 4 million in cash dividends.
And we continue to carry no debt.
As Jeff had mentioned the board approved a quarterly cash dividend of <unk> <unk> per share to be paid on June one 2023 to shareholders of record on May 15th 2023.
These forward looking statements involve a number of risks and uncertainties some of which are beyond our control.
Such as the potential impact of the COVID-19 pandemic on our business and operations that could cause actual results to differ materially and you should not rely on them as predictions of future events.
As stupid indicated we believe the first quarter represents the floor for our financial results and we anticipate sequential improvements throughout the year.
<unk> does not intend to update the information contained in these forward looking statements.
I'll now turn the call back over to Jupiter for closing comments.
Thank you Brian .
As a result of new information future events or otherwise unless required by law.
There is no doubt this was a challenging start to the year.
But our team responded effectively delivering strong execution and solid profitability despite revenue headwinds.
For a more detailed description of these risks and uncertainties. Please refer to our most recent 10-Q.
Please note that with the exception of revenue financial measures discussed today are in a non-GAAP basis and have been adjusted to exclude certain charges.
Our security led solutions are in demand across all customer segments and in each of our target geographies.
And our solutions are aligned with durable secular catalyst.
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.
Operator, you can now open the call up for questions.
Thank you as a reminder to ask a question you can press star followed by one on your telephone keypad.
<unk> be different from non-GAAP financial measures presented by other companies a.
A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and on.
A lot to withdraw your question you May press Star followed by two please.
Please ensure you're on mute locally when asking your question.
On the trended quarterly financial statements posted on the company's website.
Now I would like to turn the call over to Jupiter already President and CEO of Aten networks.
Oh first question for today comes from Christian Schwab of Craig Hallum. Christian Your line is now open. Please go ahead.
Thank you Tom and thank you all for joining us today.
Great. Thank you Hey, guys.
Our first quarter results were in line with the estimate we shared on April color.
So as we think about sequential revenue growth you know from here from the.
While revenue was impacted by the economy.
Rest of the year would you expect that to be kind of a linear event or how should we think about that.
Slowing purchasing decision.
The team moved quickly to respond to these changes and we maintained our profitability at historical levels.
Yeah, I think I'll.
I'll, let Brian add context to that right. So as we noted in the last call.
Better positioning us to achieve our full year targets for non-GAAP EPS.
Our normal seasonality is being impacted certainly by the economy and so I think our results for this year from first half to second half.
This was due in large part to the focus on driving a more resilient and durable business model.
As previously communicated we believe the first quarter.
Are likely to be more backend loaded so we certainly see that as well.
<unk> the floor, Florida later, this year and we expect sequential improvement as we move through the balance of 2023.
Reflecting some of the orders that we.
Our now scheduled our plan at least by the second half right if not earlier and so I would say from that perspective, we certainly expect sequential improvement into Q3 and beyond and probably sequential improvements that are in line or slightly better than historical season.
While large enterprises, and especially tier one service providers are more carefully considering investments due to the economy security solutions remain a priority and are increasingly not a discretionary concentration.
Seasonality.
Companies around the world.
I don't know Brian Yes.
Those with robust security processes and controls are experiencing an ever growing threat of cyber attack.
We've talked about 2021.
A pattern, where we had the pandemic was challenging our revenue growth in the first half of the year last year I think we saw 48, 52% mix first half the second half in terms of how much revenue was recognized first half the second half and we believe this year will be a similar pattern. We saw in 'twenty, one with a little bit of a slow start, but as Jeff had mentioned and as I said in the script we haven't.
During the first quarter before the augmented our already robust security infrastructure to enable us to better support our customers against these threats.
Hydro to attack are simply a business reality, while even the most prepared organization.
Seen any meaningful cancellations or or or pull back. So we think it'll be a sequential growth quarter.
And that deploying solutions to mitigate this risk and the associated disruption. They cause is a priority even during challenging times.
Okay, Great and then come with some of the things that you mentioned and highlighted partnerships you know Fastly and large partnership you know in Japan. You know is is that you know directionally helpful or.
Like others, we are seeing longer sales cycles.
Particularly among larger north American customers due to concerns about the economy.
We do not believe we've lost any meaningful forecasted deals to competitors.
Is that material revenue that could come this year.
They are taking longer to close impacting our normal revenue cadence.
Yes.
Good question first and I would think of it in two different ways one is.
Indeed, North America declined 9% in the first quarter compared to last year.
Obviously, we continue to maintain and invest in differentiating solutions for large service providers around the world.
And revenue in the rest of the world was down 7% year over year.
But at the same time.
As we see maybe more.
Effectively all of the revenue decline was due to tier one customers, who bought land buying in the quarter with expectations of resumption in the second half of the year.
Uncertainty or a pause in spending related to the economy.
We are also accelerating our efforts to be more relevant to larger enterprise customers right. So that's an example of where we are partnering so we have a compelling value proposition.
Our diversification both in terms of geography, and customers helped us mitigate the macro environment.
The typical sales cycle could be six months kind of timeframe and an enterprise a large enterprise sales. So we are certainly.
As we believe we are navigating the economy better than most but we were not immune from the conditions.
Proactively we have taken steps to align our cost structure we.
In the mode of building the pipeline and that certainly makes us optimistic to call that out as a meaningful partnership.
We deployed select austerity measures to reduce operating expenses by 10, 3% year over year in Q1 in light of these macro headwinds.
That gives us also more durability and broadening of the revenue, but in line with our differentiation and the.
I want to note that we were mindful of our long term goals.
The example related to Japan, a highlight that our progress in terms of supporting customers in hybrid environments, which could be.
Particularly related to growth as we reviewed our near term spending.
Over the long term I don't believe this effort will materially impact our business trajectory, our ability to achieve multiyear targets as market conditions normalize.
On Prem cloud any other mode of consumption and.
And that we are able to deliver kind of cloud leading applications as well right. So that's.
Our diversification by tenant that's sort of where do you feel a sense of where we are gaining more.
In reality, our ability to maintain solid profitability and cash generation, even during a quarter with significant revenue challenges speaks to the durability of our business model and execution.
Customers and partners and we expect again that to be.
More relevant and pipeline generation in the next in the near term, but certainly not irrelevant on revenue either for the year.
As a result, we maintained our gross margin in excess of 80%.
Okay, Great and then just one last question you know the the tight controls on operating expenses. You know would you should we should we anticipate that operating expenses will grow with revenue on a sequential basis.
And significantly expanded our adjusted EBITDA margin.
The 26, 8%.
What is 21, 6% in last year's first quarter.
How should we be thinking about either the operating expenses you know to revenue growth on a sequential.
This is in line with our business model goals of achieving 26 or 28% EBITDA at 80% gross margin.
Basis, you know going up or do you have a level of operating expenses you're targeting here.
As we have previously communicated our ability to proactively manage investment and certain expenses enabled us to maintain robust profitability, even when revenues are under an external pressure.
Yeah, So I think that's too.
Two reasons right. So one is obviously with our shortfall in revenue, there's a natural reduction in commission expenses and partner costs and things like that right on the sales and marketing side.
We have continued to methodically planned these actions, including supply chain sales and marketing investment and selected strategic investments in R&D.
Secondly, we are able to adjust discretionary spending more to be in line with revenue and pipeline.
In an effort to improve the security and resiliency of our hybrid cloud offering.
Potential versus just kind of doing it linearly spreading it equally.
We recently announced a strategic partnership with Fastly and industry leader in next generation web.
And it started I think the decisions, we are making as it relates to investment in product.
<unk> firewall all of that.
Is more driven by ensuring that we are protecting our long term growth and security portfolio and hybrid solutions.
By combining our leading ADC solution with their next generation lap. This first to market integrated solution can provide our large enterprise customers a single solution to enhance web defenses across software.
Completely and maybe being a little bit more prudent on how much we spend and how on some of the older products side. So so be.
And hardware appliances within that hybrid cloud environment.
We're doing it in a way that we think flex is and our business model philosophy daily right is.
We believe this partnership strengthens our portfolio and unlock further diversification of our revenue stream.
When revenue grows.
Certain percentage, our opex growth slower than that.
Additionally, our collaboration should broaden our go to market strategy for this type of solution as we leverage the reach and capability of both aten and partly teams.
And do you know.
In the opposite direction. Unfortunately, when revenue drops a certain percent of our opex went lower than that too right. So I think.
We still are focused on delivering an 80% gross margin 26 or 28% EBITDA.
Additionally, in Q1 and in line with these diversification efforts.
And flexing our cost structure with those kind of business model.
Large partner in Japan introduced <unk> cloud access controller into into the security Operation Center service package.
Great perfect no other questions. Thank you.
Thank you Chris.
Thank you. Our next question comes from Gray Powell of B T. J Craig. Your line is now open. Please go ahead.
Aten networks cloud access proxy is a complete enterprise solution designed specifically to help organizations optimize the performance and security of their SaaS applications.
Okay, great. Thank you. Thank you very much for taking the questions just a couple on my side.
So I think you've hit on this already but can you maybe talk about the linearity you saw throughout Q1 and did you see any material improvement.
Enhance user experience.
And provide comprehensive visibility into branch offices and the cloud.
In activity over the course of April or or any deals that slipped from March into April that have since closed.
With a partner, enabling this as a service. It is further proof that we continue to invest and comprehensive security solutions delivered through multiple form factors for our customers.
Yeah. Good question I think so.
In terms of linearity in Q1, what.
In the first quarter, our revenue was negatively impacted by the combination of macro economic headwinds and internal company priorities.
What we saw was probably slower January than we expected right, which we had been worried about in Q4, and probably by March and being more in line with what we would have expected. So I would say as we exited the quarter certainly from a linearity order rate.
Strengthen our security posture.
But our business model and focus on execution.
Table that.
To preserve our profitability.
We are confident that we will show improvement as we move through the year and we continue to expect full year EPS expansion.
Perspective, etcetera things were better than beginning of the quarter.
Which it's.
It's not that the death everything is completely normal, but certainly we saw that trend where at from what we would've expected January start to linearity was a little worse and module is probably in line. So.
We also continue to maintain a disciplined flexible and opportunistic capital allocation strategy.
Today, our board approved a quarterly dividend of <unk> per share.
Kind of entering into the quarter, we certainly you know as we.
With that I'd like to turn the call over to Brian for a detailed review of the quarter Brian .
Have gone through the quarter so far.
We have been in line with what we are expecting and not seeing a worsening versus that expectation right. So.
Thank you drip at.
First quarter revenue was $57 7 million a decrease of seven 9% year over year, reflecting the headwinds dripping described earlier.
And we'll continue to monitor it obviously as the quarter goes on.
Okay really helpful and then just.
Product revenue for the quarter was $31 2 million, representing 54% of total revenue.
High level you've.
As you've heard it takes sort of a blended average across your primary target markets. What do you think the growth is this year and then and then how should we think how should it shake out once things normalize.
Services revenue, which includes maintenance and support revenue was $26 5 million or 46% of total revenue.
Moving to revenue from a geographic standpoint revenue from the Americas was $30 million down nine 1%, Austria, but described this reflects slowing purchasing for larger customers primarily service providers due to the economic concerns.
Uh huh.
Yeah, So I think gray.
So I am clear on the question you are thinking of that relative to our infrastructure market in cyber security markets are geographically yeah, yeah yeah.
As you can see on our balance sheet, our deferred revenue was $128 5 million as of March 31, 2023 up five 9% year over year on a constant currency basis deferred revenue would have increased eight 3% year over year.
Right.
Okay. Okay.
So I think certainly what we're seeing now is.
Our security driven portfolio continues to be the lead for conversations right now and that is where we are seeing probably some adjustment of budget, but much more resilient than the rest of the portfolio.
With the exception of revenue all of the metrics discussed on this call are on a non-GAAP basis, unless otherwise stated a full reconciliation of GAAP to non-GAAP results are provided in our press release and on our website.
Gross margin for the first quarter was 83, 1%. This reflects strong execution overcoming input cost pressures and due to our product mix.
Where that discretionary is not sort of the approach that it's more of we need to do X and maybe we can push it a month or two right, but it's not being to the school significantly are canceled.
We expect our revenue mix to normalize in future quarters.
We reported $13 4 million in non-GAAP operating income up 14, 3% compared with a $11 7 million in the year ago quarter adjusted.
On the infrastructure side.
Projects that tie into customer revenue generation I think are moving alone a slightly slower and you know a little bit more scrutiny around them, but still moving along and I would say the most.
Adjusted EBITDA was $15 5 million for the quarter, reflecting 26, 8% of revenue.
We were able to achieve our targeted adjusted EBITDA margins, even as revenue declined by nearly 8%.
Effective category negatively.
non-GAAP net income for the quarter was $9 9 million or <unk> 13 per share, which is relatively flat compared to 10 million or <unk> 13 per share in the year ago quarter.
Related to new projects to replace and prospector in wood.
Nice to have projects and so relative to those when I look at the growth rates in the near term and long term I think on the securities portfolio, we still expect that to be unchanged at slightly shifting from first half second half, maybe but on an annual basis still supporting low single digits or better and.
Maintaining our non-GAAP net income on 8% lower revenue is a significant accomplishment demonstrating the earnings power, we have built into the business.
Diluted weighted shares used for computing non-GAAP EPS for the first quarter were approximately $75 5 million shares compared to $79 3 million shares in the year ago quarter.
On our infrastructure side I think the first half look challenging more so rehab project, where we have line of sight to the second half of the year.
On a GAAP basis net income for the quarter was 4 million or <unk> <unk> per share compared with net income of $6 3 million or eight cents per share in the year ago quarter.
But certainly with inflation.
Turning to the balance sheet as of March 31, 2023, we had $144 5 million in total cash and marketable securities compared to $150 9 million at the end of 2022.
Tons of recession cost of capital all of that North America infrastructure is where we see the most impact right. So our projects in EMEA and Asia less impacted by that phenomenon. So that's an area, where we certainly expect it to resume too.
During the quarter, we paid $4 4 million in cash dividend.
And we continue to carry no debt.
As Jeff had mentioned the board approved a quarterly cash dividend of <unk> <unk> per share to be paid on June one 2023 to shareholders of record on May 15 2023.
Mid single digit or better growth, but that's the one where we would say that's probably.
Second half phenomenon at this point.
And then gets us back to kind of a long term perspective on the blended market.
As stupid indicated we believe the first quarter represents the floor for our financial results and we anticipate sequential improvements throughout the year.
Okay.
Any color.
Yeah.
I'll now turn the call back over to Jupiter for closing comments.
Yeah, and Chris Sorry, just one last thing to add obviously when you look at those as the market growth rate, but expect to do a little better I could commercial execution, so slightly better than those.
Thank you Brian .
There is no doubt this was a challenging start to the year.
But our team responded effectively delivering strong execution and solid profitability despite revenue headwinds.
Understood. Okay, a lot of great color there. Thank you.
Yep.
Thank you.
Our security led solutions are in demand across all customer segments and in each of our target geographies.
Keith.
Our next question comes from Amit <unk> from BW as financial your line is now open. Please go ahead.
<unk> solutions are aligned with durable secular catalyst.
Hi, could you just be a little bit more specific as to your the cost levers that you've pulled in the quarter and why is it that you you waited until you know revenue was starting to slow to pull those levers instead of in a good environment.
Operator, you can now open the call up for questions.
Thank you as a reminder to.
I'll ask a question you can press star followed by one on your telephone keypad.
Yeah.
There's a lot to withdraw your question you May press star followed by two.
Good question <unk>, and obviously I would say if you look at our trajectory for the last 12 quarters. We certainly have improved EBITDA continuously right. So it's not a.
Please ensure you're on mute locally when asking your question.
Oh first question for today comes from Christian Schwab of Craig Hallum. Christian Your line is now open. Please go ahead.
It's not a matter of not I think the way to think about it really is.
We are responding to a changing market environment right. So.
Great. Thank you Hey, guys.
One year ago, our spending profile was linked to.
So as we think about sequential revenue growth you know from here from the rest of the year would you expect that to be kind of a linear event or how should we think about that.
The market environment that supported a certain growth rate and to reflect our spending to grow slower than that but help us continue to support that growth rate. When we are faced with a change in external circumstance on market and customer spending.
Yeah I think.
I'll, let Brian add context to that right. So as we noted in the last call.
I think you know it's.
Responsible for us to respond to maintain our commitment on profitability and EBITDA until.
Our normal seasonality is being impacted certainly by the economy and so I think our results for this year from top to second half.
The nature of reductions I think you know obviously.
If revenue is less it saved us on emissions and partners and rebates and all of that.
Are likely to be more backend loaded so we certainly see that and reflecting some of the orders that.
Discretionary events and marketing and other spending are we there.
Our now scheduled our plan at least by the second half right if not earlier and so I would say from that perspective, we certainly expect sequential improvement into Q3 and beyond and probably sequential improvements that are in line or slightly better than historic.
Basically.
408, two outer quarters when it is more in line with where we see growth and.
Actually customer receptivity to that translating into pipeline and spending.
And I think on the R&D side, it's more continuing to be more and more sharper on whatever.
Seasonality.
I don't know Brian anything yeah.
We've talked about 2021.
Our focus is and I fully expect that as revenue improves.
<unk> pattern, where we had the pandemic was challenging our revenue growth in the first half of the year last year I think we saw 48, 52% mix first half the second half in terms of how much revenue was recognized first half the second half and we believe this year will be a similar pattern. We saw in 'twenty, one with a little bit of a slow start, but as Jeff had mentioned and as I said in the script we haven't.
Will.
Continue investing in those priorities, but now they will be even more aligned with long term.
Goals for us.
Okay, and then how does he.
Average sales or.
Requests for quote declined in the quarter.
Seen any meaningful cancellations or or or pullback. So we think it'll be a sequential growth quarter.
Yeah.
I'm sorry.
Okay, Great and then come with some of the things that you mentioned and highlighted partnerships you know Fastly and large partnership you know in Japan. You know is is that you know directionally helpful or if it is is that material revenue that could come this year.
No if anything its improved I mean, theyre going to do that in our margins, but it's not a meaningful improvement I think it does expect it it's not that it's not a deterioration in the packet size are sales like that that we weren't getting pressure and competitive situations. We we're just seeing delays.
And the size of the spend is not really declining either from our customers, they're still spending the same amount just taken longer.
Yes.
Good question first and I would think of it in two different ways one is.
Yep Yep Yep.
Obviously, we continue to maintain and invest in differentiating solutions for large service providers around the world.
Okay.
As far as the your commentary about the sequential improvement what gives you the confidence that you could see.
But at the same time.
See that further and into Q3 and Q4.
As we see maybe more.
Uncertainty or a pause in spending related to the economy.
Given the other the hiccup that happened in January .
We are also accelerating our efforts to be more relevant to larger enterprise customers right. So that's an example of where we are partnering so we have a compelling value.
Yeah. So I mean, I think that's a good question and we I think if you connect back right. Our sales cycle is six to eight months typically in big deals on the longer side and that is the reason why when we were looking at Q4.
<unk>.
Typical sales cycle could be.
Six months kind of timeframe and an enterprise a large enterprise sales though.
Pipeline and project debt like deals coming out and when and which customers in region that is when we had started seeing concern about Q1.
We are certainly.
In the mode of building the pipeline and that certainly makes us optimistic.
And the environment right so right now.
Call that out as a meaningful partnership that.
When we look at our customer mix and pipeline as it is projected out into Q3 Q4, certainly Q3.
That gives us also more durability and broadening of the revenue, but in line with our differentiation and.
We have higher confidence that that is based on a broad.
The example related to Japan, a highlight that our progress in terms of supporting customers in hybrid environments, which could be.
Set of customers and solutions and not.
Driven by one region or one product per se right. So I think.
On Prem cloud any other mode of consumption.
As we have continued to diversify with more security led sales, we think that that continues to add to our confidence there a lot of the wins could be in EMEA and Asia, Japan, right as well.
And that we are able to deliver.
Cloud, leading applications as well right so that.
Diversification, but in that sort of vertical sense of where we are gaining more.
Customers and partners and we expect again that to be.
Okay, great. Thank you.
Thank you.
More relevant and pipeline generation in the next in the near term, but certainly not irrelevant on revenue either for the year.
Thank you. Our next question comes from and so just from from Sidoti.
Your line is now open. Please go ahead.
Okay, Great and then just one last question you know the the tight controls on operating expenses. You know would you should we should we anticipate that operating expenses will grow with revenue on a sequential basis.
Alright. Good afternoon. This is from Dearborn for honest sort of strong.
Hum.
Very good.
Very well Yep Hello, Alright.
How should we be thinking about either the operating expenses you know to revenue growth on a sequential.
Alright. Thank you. My first question is has the customer sensors image sensor, but over the past couple of bricks.
Basis, you know going up or do you have a level of operating expenses you're targeting here.
So yeah, let me see if I can answer the question with customer sentiment behavior over the last number of weeks. So entering into Q2 have we seen a change.
Yeah, So I think that's too.
Two reasons vital one is obviously with our shortfall in revenue.
I'd say, what we have seen is a little bit more clarity around budget cycles, and I think as we walk through Q1, we were having a difficult time on visibility into customers' budgeting cycles, just because of delays in their own processes.
Nashville reduction in commission expenses and partner costs and things like that right on the sales and marketing side.
Secondly, we are able to adjust discretionary spending more to be in line with revenue and pipeline.
Now, we're seeing a lot more clarity and visibility also to <unk> point, you know whats different now versus last quarter. I think we have a little bit better visibility. We think the pipeline is shaping up pretty nicely to deliver on expect on our internal plans over the next few quarters, but that's really the biggest shift that we've seen this quarter is just a little bit more visibility and clarity coming up.
Potential versus just kind of doing it linearly spreading it equally.
And it started I think the decisions we are making as it relates to investment in product is more draw.
Out of the budget cycles, our customers have gone through.
And I think Bryan good point and just to add typically we would have had that clarity in January or February .
And by ensuring that we are protecting our long term growth and securities portfolio and hybrid solution completely and maybe being a little bit more prudent on how much we spend and how on some of the older products side. So so we're doing it in a way that we think.
With a lot of the customers themselves going through.
Size reduction than others.
Event.
Got pushed out to where there was not clarity at that all the time right and we're seeing a little more of that now.
Flex is and our business model philosophy really right is.
Thank you and can you speak about your capital allocation priorities.
When revenue grows a certain percentage, our opex growth slower than that.
Sure unchanged really largely we continue to look at our priorities, we want to fund organic growth first and foremost we're looking long term to ensure that we continue to hit the growth targets that we've outlined in our Investor day presentation back in February of 2022, obviously.
And do you know.
In the opposite direction. Unfortunately, when revenue dropped 13%, our opex went lower than that too right. So I think we still are focused on delivering an 80% gross margin 26 or 28% EBITDA.
Things are shaping up a little bit differently than this year, but again investing in organic growth is first priority second is to return value to shareholders and employees through repurchases and dividends, which continues to which continues as I mentioned board approved another six cent dividend for this quarter.
And flexing our cost structure with those kind of business model.
Great perfect no other questions. Thank you.
Thank you Chris.
Thank you.
Next question comes from Gray Powell of B T O G. Graham Your line is now open. Please go ahead.
And then lastly, you know we're always being opportunistic about what we do with our cash on hand.
Okay, great. Thank you. Thank you very much for taking the questions just a couple on my side.
Thank you very much for taking my questions.
So I think you hit on this already but can you maybe talk about the linearity you saw throughout Q1 and did you see any material improvement.
Of course, thank you.
Thank you at this time, we have no further questions. So I'll hand, it back to drew petrified to eat for any further remarks.
In activity over the course of April or or any deals that slipped from March into April that have since closed.
Right.
Thank you and thank you to all of our shareholders for joining us today and for your ongoing support.
Yeah. Good question I think so.
In terms of linearity in Q1, what we saw was probably slower January than we expected right, which we had been worried about in Q4, and probably by March and being more in line right with what we would have expected so I would say.
Thank you for joining today's call you may now disconnect your lines.
The existing debt.
Quarter, certainly from a linearity order rate.
Perspective, et cetera, things were better than beginning of the quarter.
Rich.
Not that the death everything is completely normal, but certainly we saw that trend where from.
From what we would've expected January start to linearity was a little worse and module is probably in line. So.
So that kind of entering into the quarter, we certainly as we have gone through the quarter so far.
We have been in line with what we are expecting and not seeing a worsening versus that expectation right. So anvil.
And we'll continue to monitor it obviously as the quarter goes on.
Okay really helpful and then just.
High level you've.
You've heard it takes sort of a blended average across your primary target markets. What do you think the growth is this year and then and then how should we think.
How should it shake out once things normalize.
So I think gray.
So I am clear on the question you are thinking of that relative to our infrastructure market in cyber security markets are geographically yeah, yeah yeah.
Exactly okay.
Okay. Okay.
So I think certainly you know what what we are seeing now is.
Our security driven portfolio continues to be the lead for conversations right now and that is where we are seeing probably some adjustment of budget, but much more resilient than the rest of the portfolio.
Where that discretionary is not sort of the approach that it's more of we need to do X and maybe we can push it a month or two right, but it's not being to the school significantly are canceled.
On the infrastructure side.
Projects that tie into customer revenue generation I think are moving alone.
Slightly slower and you know a little bit more scrutiny around them, but still moving along and I would say the most.
Effective category negatively.
Related to new projects to replace and prospector and wood.
Nice to have projects and so relative to those when I look at the growth rates in the near term and long term I think on the securities portfolio, we still expect that to be unchanged.
Lately shifting from first half second half, maybe but on an annual basis still supporting low single digits or better and on our infrastructure side I think the first half look challenging more so.
<unk> project, where we have line of sight to the second half of the year.
But certainly with inflation.
Signs of recession cost of capital all of that North America infrastructure is where we see the most impact rights or projects in EMEA and Asia less impacted by that phenomenon. So that's an area, where we certainly expect it to resume too.
Mid single digit or better growth, but that's the one where we would say that's probably.
Second half phenomenon at this point.
And then it gets us back to kind of a long term perspective on the blended market.
Okay.
On a color.
[laughter].
Yeah, and Chris Sorry, just one last thing to add obviously when you look at those as the market growth rate, but expect to do a little better I could commercial execution, so slightly better than those right.
Understood. Okay, a lot of great color there. Thank you.
Yep.
Thank you.
Keith.
Our next question comes from a whole med colson from BW as financial your line is now open. Please go ahead.
Hi, could you just be a little bit more specific as to your the cost levers that you've pulled in the quarter and why is it that you waited until you know revenue was starting to slow to pull those levers instead of an it and a good environment.
Yeah.
Good question, Amit and obviously right I would say if you look at our trajectory for the last 12 quarters. We certainly have improved EBITDA continuously right. So it's not a it's not a matter of not I think the way to think about it really is b are responding to a changing market environment right. So.
One year ago, our spending profile was linked to.
The market environment that supported a certain growth rate and to reflect our spending to grow slower than that but help us continue to support that growth rate.
We are faced with a change in external circumstance on market and customer spending.
I think you know it's.
Responsible for us to respond to maintain our commitment on profitability and EBITDA. So.
The nature of reductions I think you know obviously.
If revenue is less it saved us on commissions and partner, then rebates and all of that discretionary events and marketing and other spending.
We basically.
Deferred it to outer quarters when it is more in line with where we see growth and actually.
Actually customer receptivity to that translating into pipeline and spending.
And I think on the R&D side, it's more continuing to be more and more sharper on what our portfolio focus is and I fully expect that as revenue improves we will continue investing in those priorities, but now they will be even more.
We're aligned with long term goals for us.
Okay, and then how does the.
Average sales or.
Requests for quote declined in the quarter.
I'm sorry.
Average no if anything its improved I mean, theyre going to do that.
Margins, but it's not a meaningful improvement I think it does expect it but it's not a it's not a deterioration in the packet size our sales price that we werent getting pressure and competitive situations, we were just saying.
And the size of the spend is not really declining either from our customers.
Spending the same amount just taken longer.
Yep.
Okay.
Then as far as the your commentary about the sequential improvement what gives you the confidence that you could see that further into Q3 and Q4.
Given the hiccup that happened in January .
Yeah. So I mean, I think that's a good question and I think if you connect back right. Our sales cycle is six to eight months typically in big deals on the longer side and that is the reason why when we were looking at Q4.
Pipeline and project debt like deals coming out and when and which customers in region that is when we had started seeing concern about Q1 and.
And the environment right so right now.
When we look at our customer mix and pipeline as it is projected out into Q3 Q4, certainly Q3.
We have higher confidence that that is based on a broad.
Set of customers and solutions and not.
Driven by one region or one product, let's say right. So I think.
As we have continued to diversify with more security led sales, we think that that continues to add to our confidence. There is a lot of the wins could be in EMEA and Asia, Japan, right as well.
Okay, great. Thank you.
Thank you.
Thank you.
Next question comes from and so just from from Sidoti.
Your line is now open. Please go ahead.
Alright. Good afternoon. This is from Dearborn for honest sort of strong.
Hmm.
Very well Yep Hello, Alright.
Alright, thank you.
My first question is about the customer sensors image sensor, but over the past couple of weeks.
So yeah, let me see if I can answer the question on customer sentiment behavior over the last number of weeks. So entering into Q2 have you seen a change I'd.
I'd say, what we have seen is a little bit more clarity around budget cycles, and I think as we walk through Q1, we were having a difficult time on visibility into customers' budgeting cycles, just because of delays in their own processes. I think now we're seeing a lot more clarity and visibility also to <unk> point, you know whats different now versus last quarter, I think we have a little bit there.
Better visibility, we think the pipeline is shaping up pretty nicely to deliver on expect on our internal plans over the next few quarters, but that's really the biggest shift that we've seen this quarter is just a little bit more visibility and clarity coming out of the budget cycles of our customers have gone through.
And I think Bryan good point and just to add typically if you would have had that clarity in January or February , but with a lot of the customers themselves going through.
Size reduction than others.
Event, those got pushed out to where there was not that clarity of that in all my time, right and we're seeing a little more of that now.
Thank you and can you speak about your capital allocation priorities.
Sure unchanged really largely.
We continue to look at our priorities, we want to fund organic growth first and foremost we're looking long term to ensure that we continue to hit the growth targets that we've we've outlined in our Investor day presentation back in February of 2022, obviously things are shaping up a little bit differently than this year, but again investing in organic growth.
His first priority second is to return value to shareholders and employees through repurchases and dividends, which continues to which continues as I mentioned board approved another six that dividend for this quarter.
And then lastly, you know we're always being opportunistic about what we do with our cash on hand.
Thank you very much for taking my questions.
Of course, thank you.
Thank you at this time, we have no further questions.
And back to drew petrified to eat for any further remarks.
Great.
Thank you and thank you to all of our shareholders for joining us today and for your ongoing support.
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