Q4 2023 A10 Networks Inc Earnings Call
Okay.
Prika: Good afternoon, and thank you all for joining. I would like to welcome you all to the A10 Networks fourth quarter and full year 2023 financial results. My name is Prika, and I will be your moderator coordinating today's call.
Good afternoon, and thank you all for joining I would like to welcome you all to the Aten networks fourth quarter and full year 2023 find actual results my.
My name is breaker and I will be your motor breakout coordinating today's call.
After the Speakers' remarks, we will conduct a question and answer session.
Prika: After the speaker's remarks, we will conduct a question and answer session, and if you would like to ask a question during that time, you may do so at any time by pressing the star followed by the number one on your telephone keypad. Should you change your mind and wish to remove your request to speak, please press Star then. Thank you. I would now like to pass the conference over to your host, Tom Bowman, at SNK-IR. So Tom, please go ahead.
And if you would like to ask a question during that time you may do so at any point by pressing star followed by the number one on your telephone keypad.
Should you change your mind and wished to remove your request to speak. Please press Star then two.
Thank you I would now like to pass the conference over to your highest compounding at F. N K I ought to begin so Tom. Please go ahead.
Thank you all for joining US today. This call is being recorded and webcast live and may be accessed for at least 90 days via the Aten networks website.
Tom Constantino Executive: Thank you all for joining us today. This call is being recorded and broadcast live and may be accessed for at least 90 days via the A10 Networks website at a10networks.com. Hosting the call today are Drupa Trivedi, A10's President and CEO, and CFO, Brian Becker. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its fourth quarter 2023 financial results. Additionally, A10 published a presentation. Supplemental Trinit Financial, you may access the press release, presentation, and Trending Financial Statements in the Investor Relations Section. The company's website.
And that work's dotcom.
Hosting the call today are Jupiter of Eddie <unk>, President and CEO and CFO, Brian Becker.
Before we begin I would like to remind you that shortly after the market close today Aten networks issued a press release announcing its fourth quarter 2023 financial results.
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.
Tom Constantino Executive: During the course of today's call, management will make forward-looking statements, including statements regarding projections for future operating results, including timing, our potential revenue growth, industry, and customer trends, Capital Allocation Strategy, and Supply Chain Constraints and Expectations.
During the course of today's call management will make forward looking statements.
<unk> statements regarding projections for future operating results, including timing or potential revenue growth industry and customer trends our capital allocation strategy.
Apply chain constraints and expectations.
Tom Constantino Executive: Expenses and Investments. Our positioning, our repurchase and dividend programs, and our market. These statements are based on current expectations and beliefs as of today, February 6, 2024. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially, and you should not rely on them as predictions for future events.
Expenses and investments.
We're positioning our repurchase and dividend programs.
Our market share.
These statements are based on current expectations and beliefs as of today.
Six 2024.
These forward looking statements involve a number of risks and uncertainties some of which are beyond our control that could cause actual results to differ materially.
And you should not rely on them as predictions for the future events.
Tom Constantino Executive: A10 does not intend to update financial information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. For a more detailed description of these risks and uncertainties, please refer to our most recent 10K. Please note that 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 differ from non-GAAP financial measures presented by other companies.
And does not intend to update financial information contained in these forward looking statements, whether as a result of new information future events or otherwise unless required by law.
For a more detailed description of these risks and uncertainties. Please refer to our most recent 10-K.
Please note that 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 differ from non-GAAP financial measures presented by other companies.
Tom Constantino Executive: A reconciliation between Gap and Non-Gap Men can be found in the press release issued today and in the Trendit quarterly financial statement posted on the company's website. Now I'd like to turn the call over to Drupa Trivedi, President and CEO of A10. Thank you, Tom.
A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today.
And on the trended quarterly financial statements posted on the company's website.
Now I'd like to turn the call over to Jupiter Trivedi, President and CEO of Aten networks.
Thank you Tom and thank you all for joining us today.
Drupa Trivedi: And thank you all for joining us today. The fourth quarter demonstrates that we have taken the necessary steps to realign and efficiently allocate resources to find areas of growth and ensure solid profitability amidst revenue headwinds. The headwinds persist, but are largely related to a single region and a single customer type. Service providers, especially in North America, continue to delay CapEx investments, as broadly announced by others in the industry.
The fourth quarter demonstrate that we have taken the necessary steps to realign and efficiently allocate resources to find areas of growth and ensure solid profitability Amit revenue headwinds.
The headwinds persist, but are largely related to a single region in a single customer type.
Service providers, especially in North America.
<unk> delayed capex investments as broadly announced by others in the industry.
Drupa Trivedi: Simultaneously, enterprise customers are taking longer to make decisions, and their internal approval process has incremental layers due to the same economic headwinds. As discussed during the third quarter call, orders slipped from our third quarter into our fourth and reduced in size as parts of the project were pushed out into 2024. We are navigating these longer sales cycles and customer uncertainty, and I am encouraged by the sequential improvement in both revenue and profitability from the third quarter into the fourth quarter. We agree that service provider customers in particular could remain choppy for some time as a result of the macro environment.
Simultaneously enterprise customers are taking longer to make decisions and that internal approval process has incremental layers due to the same economic headwinds.
As discussed during the third quarter call.
Slipped from third quarter into our fourth and reduced in size as parts of the project were pushed out into 2024.
We are navigating these longer sales cycles.
And customer uncertainty.
And I'm encouraged by the sequential improvement in both revenue and profitability from the third quarter into the fourth quarter.
We agree that service provider customers.
In particular could remain choppy for some time related to the macro environment.
Drupa Trivedi: In the interim, our focus on revenue diversification continues to benefit our business. Enterprise revenue was up. 23% in the fourth quarter, partially mitigating the 24% decrease in service provider revenue and validating our strategy to increase our focus on enterprise customers in addition to our service provider customers, which will return to strength in the future. Once again, A10 is poised to navigate this challenging cycle better than others in the industry because we have reallocated resources.
In the interim our focus on revenue diversification continues to benefit our business.
Enterprise revenue was up 23% in the fourth quarter, partially mitigating the 24% decrease in service provider revenue.
And validating our strategy to increase our focus on enterprise customers. In addition to our service provider customers, which will return this trend in the future.
Once again eight.
Dennis voice to navigate this challenging cycle.
Better than others in the industry.
We have reallocated resources.
Drupa Trivedi: Increasing our concentration on enterprise customers globally, and this focus has already begun generating positive results, on a full year basis. Revenue from enterprise customers grew 9%, ahead of many of our peers, and offsetting a 20% decline from service providers. This represents an opportunity for us to deliver growth that is increasingly independent of the service provider CAPEX cycle. Cybersecurity solutions continue to be prioritized. Economic headwinds may mean these investments are delayed, but they are unlikely to be cancelled. The threats from hackers, malware, ransomware, and DDoS attacks are growing.
Increasing our concentration on enterprise customers globally, and this focus has already began generating positive results.
On a full year basis.
Revenue from enterprise customers grew 9% ahead.
Ahead of many of our peers.
And offsetting a 20% decline from service provider customers.
This represent an opportunity for us to deliver growth.
It is increasingly independent all service provider Capex cycles.
Okay.
Cyber security solutions continued to be prioritized.
Economic headwinds May mean, these investments are delayed but yes.
You are unlikely to be cancelled.
The threat from hackers malware ransomware and Ddos attacks are growing.
Drupa Trivedi: These are existential business risks, interrupting service, damaging customer trust, costing affected businesses millions, and increasingly causing regulatory issues. In response to this growing opportunity, we continue to expand our capabilities, as evidenced by some of our recent product and platform announcements. We maintain our profitability despite the revenue head, matching our long-term stated goals of 80 to 82% gross margin and 26 to 28% EBITDA margin. This achievement is a testament to our business model and operational rigor, as we have reallocated resources focusing on near-term opportunities and ensuring that we are customer-centric in our sales and support approach. On a constant currency basis, we delivered full-year EPS of $0.74, flat year-over-year in spite of a significant deterioration in the macro environment. We achieved this level of profitability due to a proactive decision to defer certain investments in light of deteriorating market conditions. These deferrals will push those expenses into 2024 and align them with business condition improvement.
These are existential business risks in dropping service damaging customer trust costing affected business millions.
And increasingly causing regulatory issues.
In response to this growing opportunity, we continue to expand our capabilities as evidenced by some of our recent product and platform announcement.
We maintained our profitability despite the revenue headwinds Matt.
Matching our long term stated goals of 80% to 82% gross margin and 26% to 28% EBITDA margins.
This achievement is a testament to our business model and operational rigor.
As we reallocated resources, focusing on near term opportunities and ensuring that we are customer centric in our sales and support approach.
On a constant currency basis, we delivered full year EPS of <unk> 74 flat year over year in spite of significant deterioration in the macro environment.
We achieved this level of profitability.
Due to a proactive decision to defer certain investments in light of deteriorating market conditions.
These deferrals will push those expenses into 2024 and align them with business condition improvements.
Drupa Trivedi: We still expect to achieve our profitability targets on an ongoing basis. We continue to expect to deliver on our business model objectives, including gross margins of 80 to 82 percent, adjusted EBITDA margins of 26-28%, and single-digit growth in our full-year non-GAAP EPS. We continue to buy back stock. We remain focused on preserving growth-oriented investments, including R&D, related to new and enhanced security solutions, while being cognizant of our overall spending. In December 2023, we released our A10 Detector, a new product that integrates our current capabilities and sets the stage to further expand our portfolio of security solutions for our customers.
We still expect to achieve our profitability targets on an ongoing basis.
We.
We expect to deliver on our business model objectives, including gross margins of 80% to 82%.
Adjusted EBITDA margins of 26% to 28% and single digit growth in our full year non-GAAP EPS.
We continue to buyback stock.
We remain focused on preserving growth oriented investments, including R&D related to new and enhanced security solutions, while being cognizant of our overall spending.
In December 2023, we released our Ada and defend detector, a new product, which integrates our current capabilities and sets the stage to further expand our portfolio of security solutions for our customers.
Okay.
Brian Becker: In January this year, we completed our annual sales kickoff event. This intensive multi-day gathering is designed to align our sales team, discuss our strategy, and further strengthen commercial execution. Based on our experience and learnings from 2023, we have made further adjustments to capitalize on key strategic priorities that enable us to maintain strength with service provider customers while growing faster with security and enterprise solutions. The teams remain very excited about the new solutions that drive an even deeper customer-centric approach and one that aligns with their dynamic economic environment. With that, I'd like to turn the call over to Brian for a detailed review of the quarter and the year, okay? Thank you, Drupal.
In January of this year, we completed our annual sales kickoff event.
This intensive multi day gathering is designed to align our sales team discuss our strategy and further strengthened commercial execution.
Based on our experience and learnings from 2023.
We've made further adjustments to capitalize on key strategic priorities.
That enabled us to maintain strength with service provider customers, while growing faster with security and enterprise solutions.
The teams remain very excited about the new solutions that drive and even deeper customer centric approach and one that aligns with that dynamic economic environment.
With that I'd like to turn the call over to Brian for a detailed review of the quarter and the year Brian.
Thank you Joseph.
Brian Becker: Fourth quarter revenue was $70.4 million, a decrease of 9.3% year over year, reflecting the headwinds that Drew described earlier. However, sequentially, revenue increased 22% compared to $57.8 million in the third quarter. This reflects some orders that were delayed right at the end of the third quarter and recognized during the fourth quarter, though we continue to see longer than normal sales cycles during the fourth quarter due to CapEx constraints, particularly with service provider customers. As a result, a number of orders we expected to close during the quarter slipped into 2020. Product revenue for the quarter was $40.6 million, representing 57.6% of total revenue. Services revenue, which includes maintenance and support revenue, was $29.9 million, or 42.4% of total revenue.
Fourth quarter revenue was $70 4 million a decrease of nine 3% year over year, reflecting the headwinds described earlier.
Sequentially revenue increased 22% compared to $57 8 million in the third quarter.
This reflects some orders that were delayed right at the end of the third quarter and recognized during the fourth quarter, though we continue to see longer than normal sales cycles during the fourth quarter.
Due to Capex constraints, particularly with service provider customers.
As a result, a number of orders we expected to close during the quarter slipped into 2024.
Product revenue for the quarter was $40 6 million, representing 57, 6% of total revenue services revenue, which includes maintenance and support revenue was $29 9 million or 42, 4% of total revenue.
Brian Becker: Lower product revenue throughout the year continues to impact recurring revenue, but in the fourth quarter, recurring revenue increased 8% year-over-year, and also deferred revenue increased 11%, demonstrating the continued demand for our solutions and validating our confidence that we are not losing opportunities to competitors. As Drupid mentioned, for the full year, enterprise revenue was up 9% while service provider revenue was down. Turning to our balance sheet, as you can see, deferred revenue was 141.3 million as of December 31st, 2023, up 11.3% year over year. With the exception of revenue, all of the metrics discussed on this call are on a non-GAAP basis and are otherwise stated. Full reconciliation of GAAP and non-GAAP results is provided in our press release and on our website.
Lower product revenue throughout the year continues to impact recurring revenue, but in the fourth quarter recovery recurring revenue increased 8% year over year and also deferred revenue increased 11% demonstrating the continued demand for our solutions and validating our confidence that we are not losing opportunities to competitors.
As <unk> mentioned for the full year enterprise revenue was up 9% while service provider revenue was down 20%.
Turning to our balance sheet as you can see deferred revenue was $141 3 million as of December 31, 2023 up 11, 3% year over year.
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.
Brian Becker: Gross margin in the fourth quarter was 81.8%, in line with our stated goals of 80-82% and especially unchanged from the third quarter of 2020. The adjusted EBITDA was $23.9 million for the quarter, reflecting 34% of total revenue. On a full year basis, our adjusted EBITDA margin was in line with our stated goals of 26 to 28% of revenue. And since 2021, we have delivered adjusted EBITDA growth of 14%. Non-GAAP net income for the quarter was $18.5 million, or $0.25 per diluted share, compared to $18.4 million, or $0.24 per diluted share in the year-ago quarter. Maintaining our non-GAAP net income on lower revenue is a significant accomplishment, demonstrating the earnings power we have built with A10. The diluted-weighted shares used for computing non-GAAP PPS for the fourth quarter were approximately 74.9 million shares, compared to 75.4 million shares in the year-ago quarter.
Gross margin in the fourth quarter was 81, 8% in line with our stated goals of 80% to 82% and especially unchanged from the third quarter of 2023.
Adjusted EBITDA was $23 9 million for the quarter, reflecting 34% of total revenue on a full year basis. Our adjusted EBITDA margin was in line with our stated goals of 26% to 8% of revenue and since 2021, we have delivered adjusted EBITDA growth of 14%.
non-GAAP net income for the quarter was $18 5 million or 25 per diluted share compared to $18 4 million or 24 cents per diluted share in the year ago quarter.
Maintaining our non-GAAP net income on lower revenue is a significant accomplishment demonstrating the earnings power we have built through the ATM.
Diluted weighted shares used for computing non-GAAP EPS for the fourth quarter were approximately $74 9 million shares compared to <unk> $75 4 million shares on a year ago quarter.
Brian Becker: On a gap basis, net income for the quarter was $17.9 million, or $0.24 per Deluded Chair, compared with net income of $18 million, or $0.24 per Deluded Chair in the year-ago quarter. Turning to full year results, revenue was $251.7 million, down 10.2% year over year. Product revenue was $141.1 million, representing approximately 56% of total revenue, and service revenue was $110.6 million, representing about 44% of total revenue. Full year non-GAAP gross margin was $81.75.
On a GAAP basis net income for the quarter was $17 9 million or 24 cents.
Per diluted share compared with net income of $18 million or <unk> 24 per diluted share in the year ago quarter.
Turning to full year results revenue was $251 7 million down 10, 2% year over year product revenue was $141 1 million, representing approximately 50, 56% of total revenue and service revenue was $110 6 million representing about 44% of total revenue.
Full year non-GAAP gross margin was 81, 7%.
Brian Becker: We suggested EBITDA of $71.2 million, reflecting 28.3% of total revenue, in line with our stated, Non-GAAP net income for the year was $54.9 million, or $0.73 per diluted share, compared to $57.7 million, or $0.74 per diluted share, in the year-ago period, on a constant currency basis. Our non-GAAP EPO was flat year-over-year. On a gap basis, net income for the year was $40 million, or $0.53 per diluted share, compared with net income of $46.9 million, or $0.60 per diluted share, in 2012. During the year, we generated $43.8 million in cash from operations.
Adjusted EBITDA was $71 2 million, reflecting 28, 3% of total revenue in line with our stated goals.
non-GAAP net income for the year was $54 9 million or <unk> 73 per diluted share compared to 50, $57 7 million or <unk> 74 per diluted share in the year ago period on.
On a constant currency basis, our non-GAAP EPS was flat year over year on a GAAP basis net income for the year was $40 million or <unk> 53 per diluted share compared with net income of $46 9 million or <unk> 60 per diluted share in 2022.
During the year, we generated $43 8 million in cash from operations, we expect 2024 cash flow from operations to return to historical levels as the market normalizes.
Brian Becker: We expect 2024 cash flow from operations to return to historical levels as the market normal. Turning back to the balance sheet, as of December 31, 2023, we had $159.3 million in total cash, cash equivalents, and marketable securities, compared to $150.9 million at the end of 2020. During the quarter, we paid $4.4 million in cash dividends.
Turning back to the balance sheet as of December 31, 2023, we had $159 3 million in total cash cash equivalents marketable securities compared to $150 9 million at the end of 2022 <unk>.
During the quarter, we paid $4 4 million in cash dividend.
We also continue to carry no debt.
The board has approved a quarterly cash dividend of <unk> <unk> per share to be paid on March one 2024 to shareholders of record on February 16 2024.
Brian Becker: We also continue to carry note that the board has approved a quarterly cash dividend of $0.06 per share to be paid on March 1st, 2024 to shareholders of record on February 16th, 2021. As discussed during our last call, the board approved a new $50 million share purchase plan in November. Turning to our 2024 outlook, based on current market conditions and in line with our broader peer group, we expect 2024 revenue and EPS growth of a single digit. We continue to target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28%. We expect to see revenue growth weighted to the second half of 2024 as the market normal. I'll now turn the call back over to Drupid for closing comments. Thank you, Brian.
As discussed during our last call the board approved a new $50 million.
Share repurchase plan in November.
Turning to our 2024 outlook based on current market conditions and in line with our broader peer group, we expect 2020 for revenue and EPS growth of a single digits.
We continue to target gross margins of 80% to 82% and adjusted EBITDA margins of 26% to 28%.
We expect to see revenue growth weighted to the second half of 2024 as the markets normalize.
I'll now turn the call back over to <unk> for closing comments.
Thank you Brian.
<unk> domain.
Well position operating a business critical solution with a customer centric approach.
Our solutions will be prioritized over other investments as they are key to our customers generating revenue in navigating challenging economic environment.
And we continue to achieve our business model goals in terms of profitability. Despite the revenue headwinds.
Operator, you can now open the call up for questions.
Thank you.
Drupa Trivedi: A10 remains well-positioned, offering a business-critical solution with a customer-centric approach. Our solutions will be prioritized over other investments as they are key to our customers generating revenue and navigating challenging economic environments. And we continue to achieve our business model goals in terms of profitability, despite the revenue head. Operator, you can now open the call up for questions. Thank you. If you would like to ask a question during this time, please press star followed by 1 on your telephone keypad.
You would like to ask a question. During this time. Please press star followed by one on your telephone keypad.
Should you wish to remove your question. Please press star from T.
As a reminder, at star one to ask a question and we will pause for a moment just to order to Q&A.
The first question, we have comes from Kristine Schwab.
Craig Hallum You May proceed with your question.
Hey, Guy.
Justin just a few quick questions.
On the service provider level.
I think in the prepared comments.
Christian David Schwab: If you wish to remove your question, please press start and... As a reminder, it's star number one to ask a question, and we will pause for a moment to order today. The first question we have comes from Christian Schwab, of Craig, you may press. Hey, guys, this is just a few quick questions on the service provider level. You know, I think in the prepared comments, you know, you know, I think you said future and then second half. Would you expect service provider revenue to improve in the second half of the year? Or is the majority of the single-digit growth going to be, you know, driven by enterprises? Yeah, Christian. Good question.
You know I think you said future and then second half weighted.
You expect the service provider revenue to improve in the second half of the year or is the majority of the single digit growth is going to be driven by enterprise.
Yes Christian good question, So I think I would say.
The popular belief and expectation in the market is that.
Certainly service provider spending normalizes out in the second half of the year.
And we expect seasonality to be returning to our normal seasonality of $47 53, first half second half, but beyond that I think our expectation of growth is not based on an assumption that SP spending sharply picks up in the second half I think we look at it as a more balance.
Drupa Trivedi: So I think I would say the popular belief and expectation in the market is that, certainly, service provider spending normalizes out in the second half of the year, and we expect seasonality to be returning to our normal seasonality of $47.53 first half, second half. But beyond that, I think our expectation of growth is not based on an assumption that SP spending sharply picks up in the second half. I think we look at it as a more balanced way of saying we expect to continue progress in enterprise and security solutions. And as SP spending picks up, maybe in the second half, right, it should help us with that seasonality and beyond. So that's maybe the best way to think of it is it's not purely based on hoping that SP spending comes back in the second half. And then as we look further out into 24, then would you expect, you know, a snapback in service provider revenue after kind of a difficult long period? Or would you anticipate that business to return to, like, flattish, plus or minus? Yeah, no. That's a good question.
Do we are saying.
We expect continued progress in enterprise and security solutions and as SP spending picks up maybe in the second half.
Help us with that seasonality and beyond until.
That's maybe the best way to think of it as it's not purely based on hoping that SP spending comes back in the second half.
Yeah.
And then as well.
Looking further out into 'twenty four then.
So would you expect a snapback in service provider revenue after kind of a difficult long period.
Would you anticipate that business to return to like flattish plus or minus.
Yeah, no. It's a good question, so I would say that it would normalize to that historical levels.
Which would mean that given how much it has been in a depressed cycle that in 2025.
It could be in a positive cycle.
The difficult thing for US obviously is given sort of the movement, we see in terms of.
Drupa Trivedi: So I would say, you know, that it would normalize to its historical levels, which would mean that given how much it has been in a depressed cycle, that in 2025, it could be in a positive cycle. The difficult thing for us, obviously, is a given sort of the movements we see in terms of interest rate actions, particularly affected by the fact that there's some election year and political influences and all of that. It's difficult for us to project, but if you look at it long term, we expect that market to be at least growing in the high single digits, and security in the mid teens, if you will. And so, certainly, from a depressed base, we should see a positive cycle on SP spending come back. And particularly because our products go into sort of the core of what they need to deliver new services and maintain customer experience, right, as opposed to a dramatic reinvention of the network. So we do expect that, as it ramps up in 2024, we could see a more positive cycle in 2025, right, and beyond. Great, no other questions.
Interest rate actions and.
Particularly then affected by the fact that there's some election year political influences and all of that.
Difficult for us to project.
But if you look at it as long term, we expect that market to be at least growing in high single digits and security in.
Mid mid teens, if you will and so certainly from a depressed base we could see.
See a positive cycle on SP spending come back.
And particularly because our products go into sort of the core of what they need to deliver new services and maintain customer expedience right as opposed to.
Dramatic reinvention of the network. So we do expect that as it ramps up in 2024, we could see a more positive cycle in 2025 and beyond.
Great no other questions. Thank you.
Thank you Christian.
Your next question comes from Andrea.
Scott from Stephens.
Operator: Your next question comes from Andy, from Hi, and thank you for taking my questions. First of all, is there anything to call out geographically in terms of revenue? Yeah, good question.
You may begin.
Hi, and thank you for taking my questions first of all is there anything to call out geographically in terms on that.
Revenue.
Yes, good question and yes, so I think nothing.
Drupa Trivedi: And yeah, so I think nothing very unusual for us as expected. Certainly, we saw weakness on the North America service provider side. We certainly also saw positive momentum for enterprise growth in North America, right, where we invested in resources and in some of the new products we released last year. So from that perspective, North America: enterprise positive, service provider negative. When I look at our theaters in Japan and Europe, not a significant change versus what we were expecting for the year, a little bit of FX pressure in Japan. And I think, you know, we continue in EMEA to find pockets of strength and continue to deliver on that.
Nothing very unusual for us as expected certainly we saw weakness in North American service provider side.
We certainly also saw positive momentum on enterprise growth in North America, where we have invested in resources and in some of the new product, we released last year.
So I would say from that perspective, North America enterprise positive service provider negative when I look at our theaters in Japan in Europe, not a significant change versus what we were expecting for the year, a little bit of FX pressure in Japan, and I think.
We continue in EMEA to find pockets of strength.
We continue to deliver on that so I would say that's nothing unusual relative to what we have mentioned before.
Drupa Trivedi: So I would say that's nothing unusual relative to what we have mentioned. Okay, thank you. And this reminds me, last year, in the past year, 2023, product revenue was a little bit lumpy, and second and fourth quarters were a lot stronger. And I remember some of it was pulled in from the third quarter to the fourth quarter. Did we have the same happening in the second quarter?
Okay. Thank you.
Can you just wouldn't mind me in.
And this year.
Pattern 2023.
Products revenue was a little bit lumpy and second and fourth quarter looks a lot stronger.
I know some I remember some of it was pulled in from the third quarter to the fourth quarter, we'll have to see.
Same is happening in the second quarter, how should we think about.
Drupa Trivedi: Now, should we think about the quarterly cadence for next year or this year? Yeah, so I, you know, I would say that certainly we saw some movement from third quarter to fourth quarter, and you can see it really in our sequential product revenue growth from that, particularly in the service provider segment information that we publish. The first quarter, I think, for us was a little bit unusual because, in addition to the macro environment, we also were focusing on strengthening our own cyber security posture and our own position on that. Going into 24 and beyond, I would say we expect to return to our normal seasonality of 47, 53, first half, second half, right, and that should, obviously, to the best of our ability, one-time events to affect that.
The quarterly cadence for next year or this year.
Yes.
<unk>.
I would say that certainly we saw some movement from third quarter to fourth quarter and you can see it really in our sequential product revenue growth from that.
Particularly in service provider segment information that we published.
First quarter I think for us was a little bit unusual.
Because in addition to the macro environment like we also were focusing on strengthening our own cyber security posture and our own position on that.
Going into 'twenty, four and beyond I would say we expect to.
Return to our normal seasonality of 47, 53 first half second half right.
We don't expect obviously.
To the best of our ability one time events to affect that that much.
Okay. Thank you.
The.
Longer sales cycles.
Drupa Trivedi: Okay, thank you. And in terms of the longer sales cycles that you've been citing, how are they trending now? Are they coming in longer? Are they improving? I don't think they're becoming longer.
<unk> been signing one of you.
How that's trending now are they.
Okay.
The comment even longer alrighty improve them.
I don't think theyre, becoming longer I think what we have seen is even an enterprise segment.
Drupa Trivedi: I think what we have seen is, even in the enterprise segment, generally something that needed, you know, a five-step, six-step process in sales, signature, and approval. In 2023, we saw typically customers adding one or two more steps in that process, right, whether they were finance-related or company capex or cash management-related. And we don't see it getting worse. And I would say, you know, it probably takes a couple of quarters before we see it getting better. But we don't see it getting any worse than it was in 2023.
Generally something that needed.
<unk> step six step process and sales in signature and approval in 2023. These are typically.
Customers, adding one or two more steps in that process right, whether they were financial related.
Any capex or cash management related and.
We don't see it getting worse.
And I would say.
It probably takes a couple of quarters before we see it getting better, but we don't see getting any worse than it was in 2023.
But the focus really was on.
Drupa Trivedi: But the focus really was on many of our customers adding incremental layers of approvals to make sure that they are doing what they can to navigate an complex and uncertain macro environment just like we would have done. Okay, thank you. That was all for me.
Many of our customers, adding incremental layers of approvals to make sure that they are.
Doing what they can do navigate the complex and uncertain macro environment, just like we would have done ourselves.
Okay. Thank you that was all information.
Yes.
Operator: Thank you. Thank you, Anya. As a reminder, to ask any further questions, please press star followed by 1 on your telephone dial. We have the next question from Hamed Khorsand, from BWS Finance.
Thank you Tanya.
Thank you Ranya as a reminder to ask any further questions. Please press star followed by one on your telephone keypad now.
We have the next question from Mike Kozak from CW Financial Panic you May proceed with your question.
Hi.
Hamed Khorsand: Thank you for joining us. Thank you. Thank you. Hi, question If I look at just revenue on a, is that 30 million a loss? It gets pushed down 24. It seems like it's never.
First question is.
I look at just revenue on a just simple basis.
You were down something like $30 million year over year.
Is that $30 million of lost.
Youre, saying that it gets pushed out in 'twenty four but it just seems like it's never being recouped.
Drupa Trivedi: Yeah, so I would say to Hamid that, you know, I would probably separate service provider and enterprise in that segment. As, if you look at sort of historical cycles for service provider spending, that capex is cyclic, and you know, enterprise revenue has grown every year, right? So that's not a factor here.
Yes, so I would say that I would probably separate service provider and enterprise in that segment.
As.
If you look at sort of historical cycles for service provider spending that capex is cyclic.
Enterprise revenue has grown every year right. So that's not a factor here and on the service provider side, what we saw was pulled.
Drupa Trivedi: And on the service provider side, what we saw was pullbacks from a handful of large SP customers who had projected plans to add capacity on new services but have subsequently, you know, recut those plans to be over longer periods of time or reduced them. And this is very consistent with all the 5G data or reports you will see from many of our peers, partners, and customers that, in general, their projected incremental investments are now slower or deferred over a longer period of time. So now when we say we don't think we lost, the reality is what we are looking at is, There was not a project where we were the chosen provider, and the customer made a decision to go with someone else, which we would call a competitive loss, right? So it's more that the customer was spending, planning to spend X million dollars and ended up ultimately spending half of that, right? Or saying, we'll do half this year and a little bit next year, a little bit next year.
Pullbacks from handful of large SP customers, who had projected plans to add capacity on new services and have subsequently re cut those plants to be over longer periods of time or reduce them and.
This is very consistent with all the <unk> data. Our report you will see from many of our peers partners and customers that.
In general that projected incremental investments are now slower are deferred over a longer period of time. So now when we say we don't think we lost.
It is what we're looking at is.
There was not a project, where we were the chosen provider.
And the customer made a decision to go with someone else, which we would call as a competitive loss right. So it's more that the customer was spending planning to spend X million dollars.
And ended up ultimately spending hop off that are.
<unk> will go off this year.
And little bit next year, a little bit next year and the difficult thing is it's hard for me to say, 100% of that re appears in 2024.
Drupa Trivedi: And the difficult thing is it's hard for me to say 100% of that will reappears in 2024. And I think I'll leave that to the economists and our analysts to figure that out. But I think to our ability, what we can do is make sure we are aligned with those customers so we are not losing to competitors. And as they gain confidence to invest, we feel that we are in a good position to get there.
And.
I think I'll leave that to the economics, and our analyst to figure that out, but I think to our ability.
What we can do is make sure we are aligned with those customers, we are not losing to competitors and as they gain confidence to invest.
We are in a good position to get that.
Okay could you just talk about the.
Brian Becker: Okay, could you just talk about the sales timing within the quarter? Did it all happen towards the very end of the quarter? No, actually no, it was better than what we saw in the Q3 phenomenon, and you know, generally, obviously, we hope the quarter is more balanced just because it reduces the risk and volatility for us on execution as well, as well as cost. And so the fourth quarter, I would say, definitely improved from the second and third quarter in terms of what we were able to book and ship in month one, month two, and month three. Do you still have a large accounts receivable with one customer, or is that more diverse? It's fairly diversified, but I don't know, Brian; you can add to that.
Sales timing within the quarter all happen towards the very end of the quarter.
No actually no it was better than what we saw in Q3 phenomenon.
And generally obviously, we hope.
The quarter is more balanced just because it reduces the risk and volatility for us on execution as well as well as cost and so the fourth quarter I would say.
Currently improve from second and third quarter.
In terms of what we were able to book and ship in month, one month, two and month three.
Do you still have.
Large accounts receivable with one customer or is that more.
Diversified.
Yeah.
It's fairly diversified, but I don't Brian you can add to that.
We did have two large customers and they are but its normal cycle I think as group as mentioned in the past it does change.
Brian Becker: Yeah, no, we did have two large customers in AR, but it's a normal cycle. I think, as Drupid mentioned in the past, it does change, quarter to quarter, and the two that we had this quarter, I think, did not appear to be the same customers. Okay, thank you. Thank y'all. As a reminder, to ask any further questions, please press star followed by 1 on your dial. We now have Andy Sosanto from GoBellyFund. Your line is open.
Order to quarter.
Two that we had this quarter I think did not appear as the same customers in previous quarters.
Okay. Thank you.
Thank you Alan.
Thank you.
As a reminder to ask any further question. Please ask please please press star followed by one on your telephone keypad.
We now have Andy Disanto from Gabelli funds. Your line is open.
Operator: Good afternoon, Drupad, and Brian. My first question, so Drupal, if we see the cells, like service providers from one quarter to another, I saw some sequential improvement in Q4 from Q3. Do you have any?
Good afternoon, Brian.
My first questions.
If we see the cells.
To like service providers from one quarter to another I saw some sequential improvement in Q4 from Q3.
Do you have any.
Drupa Trivedi: site whether the service provider's segment has seen its bottom, or is there still any risk that it could be? Slide down sequentially. So Henry, if you remember in the third quarter, what we had talked about was the fact that as we had entered even the third month of that quarter, we had seen a few significant deals that were projected for Q3 move into Q4. And I think the Q4 results really show that when they materialized in Q4, in some cases, they were slightly smaller than what we originally thought in Q3. But in general, you can see a fairly significant step up, but it's related to that timing between the two quarters. As far as thinking about calling a bottom, again, as I said, I would leave that to the economists and the federal board and analysts to figure that out.
Syed winter.
The service providers.
Segment has seen its bottom.
Or is there still any of risk that it may continue to slide down sequentially.
So hendi if you remember in the third quarter, what we had talked about was the fact that.
As of yet and even the third month of the quarter, we had seen.
<unk> significant deals that were projected for Q3 more into Q4.
And I think the Q4 results.
Really sure that that materialized in Q4.
In some cases they.
<unk> was slightly smaller than what we originally thought in Q3, but in general you can see.
Fairly significant step up but it's related to that timing between the two quarters.
<unk>.
As far as you know thinking about calling a bottom again as I said I would leave that to the economics and the federal board and analysts to figure that out from our perspective.
Drupa Trivedi: From our perspective, certainly, we are very closely aligned with our customers and making sure we are designing in even more products that, as their confidence in spending resumes, we will be a key part of that strategy going forward, right? But it's hard for us to say, and as I said before, particularly in a year that could be influenced by political factors, it's even more difficult than just purely economic factors. And then, since we have the full year revenue, can you share what percentage of the securities was? Yeah, I believe it was around 50%, just below that. So in line with our goal of achieving 65%, which we announced in 2022. In three years.
Finally, we are very close Lee align with our customers.
And.
Making sure we are designing into even more products that as their confidence in spending resumes that we will be a key part of that strategy going forward right.
It's hard for us to say and as I said before.
Equally in a year that could be influenced by political factors, it's even more difficult than just purely economic factors.
Okay, and then since we have the full year ramp of new can you share.
What percentage of the security solutions.
Yes, I believe it was around 50% just below that so in line with our goal of achieving 65%, which we announced 2022 into USAF. So it's steadily growing and we're tracking to plan.
Drupa Trivedi: Yeah, so it's it's steadily growing. And we're tracking it. And then the last question for me of... Brian, if I look at OPEX, is $35 to $36 million a good baseline for the quarterly run rate of OPEX? Good question, Hendy. There are a few factors.
Okay, and then last question for me.
Brian if I look at the Opex is 35% to $36 million a good baseline for a quarterly run rate of the Opex.
Good question Hendi Theres, a few factors, obviously variable comp was lower than expected.
Brian Becker: Obviously, variable comp is lower than expected, you know, not only because of Rod Hall, Samik Chatterjee, Ittai Kidron, Rob Fink, James Faucette, Alex Kurtz, Gray, you know, maybe like a third of that cost back. Thank you, Brian. Thank you. No problem. Thank you. Thank you. If you would like to ask any further questions, please press star followed by one on your telephone keypad now. We currently have no further questions registered, so I'd like to hand it back to Shreepa Thareddy for any final remarks. Thank you and thank you all of our shareholders for joining us today and for your continued support. I also want to thank all our employees around the world for driving this performance in a very challenging market environment. Thank you. Thank you all for joining today's conference call with A10 Networks. Today's call has now concluded, and you may now disconnect your lines and please enjoy the rest of your day.
Not only because of the.
Changes or at least the misses that we saw in Q3 and.
And then overall, we were projecting a little a little bit better result in Q4.
But I would say that there is variable comp that's missing from Opex, both in Q4 as well as the full year results as.
As we turn to 'twenty four.
Expecting to add back that variable comp.
Maybe like a third of that cost back as a result.
Okay. Thank you Brian Thank you.
No Brian Thank you Andy.
Thank you David.
You ask any further question. Please press star followed by one on your telephone keypad now.
We currently have no further questions registered.
Can you Pat <unk> for any final remarks.
Thanks.
Thank you and thank you all all of our shareholders for joining us today and for your continued support.
I also want to thank all our employees around the world.
Driving this performance in a very challenging market environment. Thank you.
Thank you all for joining today's conference call with Aten networks.
Today's call has now concluded and you may now disconnect your lines and please enjoy the rest of your call.
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