Q1 2025 A10 Networks Inc Earnings Call

Operator: Good day, everyone, and welcome to the A10 Networks first quarter 2025 financial results. At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation.

Good day, everyone and welcome to the Aten networks first quarter 2025 financial results.

At this time all participants have been placed on a listen only mode. If you have any questions or comments. During the presentation. You May press star one on your phone to enter the question queue at any time and we will open the floor for your questions and comments after the presentation.

Tom Baumann: It is now my pleasure to turn the floor over to your host, Tom Baumann. Sir, the floor is yours.

Tom bounded: It is now my pleasure to turn the floor over to your host Tom bounded Sir the floor is yours.

Tom Baumann: Thank you all for joining us today.

Speaker Change: Thank you all for joining US today. This call is being recorded and webcast live and may be accessed for at least one year via the Aten networks website Aten networks Dot com.

Tom Baumann: This call is being recorded and webcast live and may be accessed for at least one year via the A10 Networks website at a10networks.com.

Tom Baumann: Hosting the call today are Dhrupad 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 first quarter 2025 financial year. Additionally, A10 published a presentation in Supplemental Trended Financial . You may access the press release, presentation, and trend of financial statements on the investor relations section.

Speaker Change: Hosting the call today are Jupiter of Eddie <unk>, President and CEO and CFO, Brian Becker.

Speaker Change: Before we begin I would like to remind you that shortly after the market close today Aten networks issued a press release announcing its first quarter 2025 financial results.

Speaker Change: 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 Baumann: During the course of today's call, management will make forward-looking statements, including statements regarding projections for future operating results, demand, industry and customer trends, strategy, potential new products and solutions. Capital Allocation Strategy, Profitability, Expenses, and Investments. positioning in our dividend program. These statements are based on current expectations and beliefs as of today, May 1st, 2021. These forward-looking statements involve a number of risks and... Some of which are beyond our control and could cause actual results to differ materially, and you should not rely on them as a prediction of future events. A10 does not intend to update information contained in these forward-looking...

Speaker Change: During the course of today's call management will make forward looking statements, including statements regarding projections for future operating results demand industry and customer trends strategy potential new products and solutions our capital allocation strategy.

Speaker Change: The ability of expenses and investments positioning in our dividend program.

Speaker Change: These statements are based on current expectations and beliefs as of today may one 2025 each.

Speaker Change: 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 a prediction of future events Aten.

Speaker Change: <unk> does not intend to update information contained in these forward looking statements, whether as a result of new information future events or otherwise unless required by law.

Tom Baumann: 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.

Speaker Change: For a more detailed description of these risks and uncertainties. Please refer to our most recent 10-K and quarterly report on Form 10-Q.

Tom Baumann: Please refer to our most recent 10K and quarterly report on Foreign Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP-based basis. and have been adjusted to exclude certain charges. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other.

Speaker Change: 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.

Speaker Change: non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies you.

Dhrupad Trivedi: The 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 Now I'd like to turn the call over to Dhrupad Trivedi, President and CEO of A10 Networks. Thank you, Tom, and thank you all for joining us today. A10's first quarter financial results demonstrate continued execution as we deliver broad-based growth and solid profitability. Our investments designed to expand our presence and capabilities with enterprise customers are delivering the desired results, and the service provider market, especially in North America, has improved modestly.

Speaker Change: A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today.

Speaker Change: And on the trended quarterly financial statements posted on the company's website.

Jupiter: Now I'd like to turn the call over to Jupiter, you're ready President and CEO of Aten networks.

Jupiter: Thank you Tom and thank you all for joining us today.

Jupiter: <unk> first quarter financial results demonstrate continued execution as we delivered broad based growth and solid profitability.

Jupiter: Although the investment designed to expand our presence and capabilities with enterprise customers are delivering the desired results and the service provider market, especially in North America has improved modestly.

Dhrupad Trivedi: Overall, A10 remains well-positioned, addressing non-discretionary security and capacity requirements with a diversified approach that provides continued durability against ongoing market volatility. Overall, A10 delivered 9% revenue growth year-over-year. Enterprise revenue grew 18% partly as a result of depressed 2024 and service provider revenue increased 3% year-over-year. More importantly, enterprise revenue grew 12% on a trailing 12-month basis, providing an increasingly durable foundation for future growth. Market trends and global demand is largely unchanged over the last few months and customers continue to navigate evolving conditions related to higher interest rates and the growing trade policy dynamics in the United States.

Jupiter: Overall, <unk> remains well positioned addressing non discretionary security and capacity requirements with a diversified approach that provides continued durability against ongoing market volatility.

Jupiter: Overall, <unk> delivered 9% revenue growth year over year.

Jupiter: Enterprise revenue grew 18%, partly as a result of depressed 'twenty 'twenty four and service provider revenue increased 3% year over year.

Jupiter: More importantly, enterprise revenue grew 12% on a trailing 12 month basis, providing an increasingly durable foundation for future growth.

Jupiter: Market trends and global demand is largely unchanged over the last few months and customers continue to navigate it.

Jupiter: When conditions related to higher interest rates.

Jupiter: And the growing trade policy dynamics in the United States.

Dhrupad Trivedi: These various factors are creating friction, impacting order timing, but as I mentioned, our solutions are increasingly non-discretionary and high priority in terms of spending. Our solutions impact capacity and security, so while there may be delays, these delays can usually only be temporary. And over the past few quarters, the overall market conditions have improved and stabilized. Our service provider customer growth continues to be driven by the demand for greater data center capacity. The rise of AI is only adding to this demand. In addition, AI is power-hungry, and our solutions provide industry-leading efficiency in terms of throughput and low latency and also include integrated security capabilities, enabling high-capacity build-outs with fewer A10 products compared to competitors.

Jupiter: These various factors are creating friction.

Jupiter: Impacting order timing, but as I mentioned, our solutions are increasingly non discretionary and high priority in gums all spending.

Jupiter: Our solutions in back capacity and has it got it.

Jupiter: So while there may be delays these delays can usually only be temporary.

And over the past few quarters, the overall market conditions have improved and stabilized.

Jupiter: Yeah.

Jupiter: Our service provider customer growth continues to be driven by the demand for greater data center capacity.

Jupiter: The rise of AI is only adding to this demand.

Jupiter: In addition, AI is power hungry and our solutions provide industry, leading efficiency in terms of throughput and low latency and also include integrated security capabilities, enabling high capacity build out with fewer heating products compared to competitors.

Dhrupad Trivedi: As such, we are often designed into large data center projects. This is serving not only as a catalyst for our business, but also a meaningful competitive advantage.

Jupiter: As such we are often designed into large datacenter projects.

Jupiter: This is already not only as a catalyst for our business, but also a meaningful competitive advantage.

Dhrupad Trivedi: We continue to allocate resources to address enterprise customers and this includes the recent acquisition of the assets and key personnel of ThreadX Protect. This accretive acquisition will expand our cybersecurity portfolio with web application and API protection. Attacks Against Web Applications and Application Programming Interfaces or APIs are on the right. In particular, these threats are significantly applicable to enterprise. ThreatX Protect provides a unique WAP solution, which harnesses behavioral and risk profiling to help protect enterprises from evolving threats, including threats to AI applications. We believe this capability, which is delivered as a software as a service solution, represents an ideal complement to our existing AI firewall solution.

Jupiter: We continue to allocate resources to address enterprise customers and this includes the recent acquisition of.

Jupiter: The assets that would keep us are now all Fedex protect this.

Jupiter: It's accretive acquisition will expand our cyber security portfolio with web application and API protection.

Jupiter: Our backs against the web applications and application programming interfaces or Apis are on the rise.

Jupiter: In particular these threats are significantly outbid cable to enterprise.

Jupiter: Right expert bank provides a unique lab solution, which harnesses behavioral and risk profiling to help protect enterprises from evolving threats, including threats do AI obligations.

Jupiter: We believe this capability, we just delivered as a software as a service solution represents an ideal complement to our existing AI firewall solution.

Dhrupad Trivedi: This acquisition is another piece of our strategy to make A10 even more relevant in the enterprise vertical. We now offer advanced security solutions in a hybrid approach to protect apps and APIs running anywhere from public cloud to the private cloud to co-location facilities or on-prem networks. Our comprehensive A10 DEFEND portfolio of solutions provides hybrid DDoS protection, DDoS threat intelligence, and web application and bot protection, and now adds a full-featured WAP solution, all integrated into a single platform with end-to-end delivery and stronger security for mission-critical applications. I'd note that the growth of AI is driving demand in the enterprise segment as well.

Jupiter: This acquisition is another piece of our strategy to make eight and even more relevant in the enterprise vertical.

Jupiter: We now offer our advanced security solutions in a hybrid approach.

Jupiter: Apps and API is running anywhere from public cloud to the private cloud the colocation facilities are on brand networks.

Jupiter: Our comprehensive <unk> defend portfolio of solutions provides hybrid Ddos protection Ddos threat intelligence and web application and bought protection and now has a full featured wrap solution all integrated into a single platform with end to end delivery and stronger security.

Mission critical applications.

Jupiter: I'd note that the growth of AI is driving demand in the enterprise segment as well.

Dhrupad Trivedi: This trend reinforces the benefit of the ThreadX product acquisition and underscores our overall strategic position in the market. I am encouraged by our strategic position. Our presence with enterprise customers is strong and growing, with solutions that are increasingly well-aligned with current and near-term customer needs. Our solutions are also meeting the needs of tier one service providers, and this segment is stabilizing and returning to growth, although with continued short-term volatility. We are navigating the ebbs and flows of short-term market volatility with a strong balance sheet delivering consistent profitability and returning capital to shareholders. As markets stabilize, we are well positioned to outpace the market in terms of revenue growth and increase our profit .

Jupiter: This trend reinforces the benefit of the trade expert bank acquisition and underscores our overall strategic position in the market.

Jupiter: I am encouraged by our strategic position our presence with enterprise customers is strong and growing with solutions that are increasingly well aligned with current and near term customer needs.

Jupiter: Our solutions are also meeting the needs of tier one service providers and this segment is stabilizing and returning to growth, although with continued short term volatility.

Jupiter: We are navigating the ebbs and flows of short term market volatility.

Jupiter: A strong balance sheet.

Jupiter: Consistent profitability and returning capital to shareholders.

Jupiter: As market stabilized, we are well positioned to outpace the market in terms of revenue growth and increase our profitability.

Brian Becker: With that, I'd like to turn the call over to Brian for a detailed review of the quarter. Brian. Thank you, Dhrupad. First quarter revenue was $66.1 million, an increase of 9% year-over-year. The growth was broad-based, with enterprise revenue increasing 18% faster than consolidated revenue and service provider revenue increasing 3%. The results reflect the continued normalization of service provider spending patterns and the investments we have made in the enterprise segment. We continue to experience quarter-to-quarter volatility in the service provider sector. This quarter, North America was relatively strong. Asia-Pacific results were impacted on a year-over-year basis, mostly as a result of strong Q1 last year related to large infrastructure projects in Japan.

Jupiter: With that I'd like to turn the call over to Brian What a detailed review of the quarter Brian.

Brian: Thank you <unk>.

Brian: First quarter revenue was 61, $66 1 million, an increase of 9% year over year. The growth was broad based with enterprise revenue, increasing 18% faster than consolidated revenue and service provider revenue increasing 3%. The results reflect the continued normalization of service provider spending patterns and the investment.

Brian: We have made in the enterprise segment.

Brian: We continue to experience quarter to quarter volatility in the service provider sector. This quarter North America was relatively strong Asia Pacific results were impacted on a year over year basis, mostly as a result of strong Q1 last year related to large infrastructure projects in Japan.

Brian Becker: The overall trends are increasingly positive and our global diversification continues to work in our favor. Product revenue for the quarter was $36 million, representing 54% of total revenue. Services revenue was $30.2 million, or 46% of total revenue. Total deferred revenue is 8%. increase to $152.7 million. During 2024, A10 introduced several new products and refreshed certain other products. As a result, we have been entering into large, long-term service agreements, typically five years in late, compared to three-year terms previously set. As a result, we are experiencing a short-term impact on our service revenue as contracts are spread over five years rather than three.

Brian: Overall trends are increasingly positive and our global diversification continues to work in our favor.

Brian: Product revenue for the quarter was $36 million, representing 54% of total revenue.

Brian: Services revenue was $30 2 million or 46% of total revenue.

Brian: Total deferred revenue was 8%.

Brian: Increased to $152 7 million.

Brian: During 2024, H and introduced several new products and refresh certain other products. As a result, we have been entering into large long term service agreements typically five years compared to three year terms previously seen.

Brian: As a result, we are experiencing a short term impact.

Brian: Our service revenue as contracts are spread over five years, rather than three however, our long term deferred revenue is increasing providing us greater visibility into future revenues and demonstrating the confidence our customers have an H N and our solutions as we are designed into longer term deployments.

Brian Becker: However, our long-term deferred revenue is increasing, providing us greater visibility into future revenues and demonstrating the confidence our customers have in A10 and our solutions as we are designed into longer-term deployment. With the exception of revenue, all the other metrics on this call are on a non-GAAP basis unless otherwise stated. Full reconciliation of GAAP to non-GAAP results are provided in our press release and on our website. Gross margin in the first quarter was 80.9%, in line with our stated goal of 80-82%, inclusive of short-term impact from the acquisition of FedExProtect, which added hosting and support related costs.

Brian: With the exception of revenue all the other metrics on this call are on a non-GAAP basis, unless otherwise stated full reconciliation of GAAP to non-GAAP results are provided in our press release and on our website.

Brian: Gross margin in the first quarter was 89% in line with our stated goal of 80% to 82% inclusive of short term impact from the acquisition of Fedex protect which added hosting and support related costs.

Brian Becker: Adjusted EBITDA was $19.5 million for the quarter, reflecting 29.5% of revenue. Non-GAAP net income for the quarter was $15 million, or $0.20 per diluted share, compared to $12.7 million, or $0.17 per diluted share, in the year-ago quarter. Diluted-weighted shares used for computing on-gap EPS for the first quarter were approximately 75 million shares, down slightly year-over-year due to our continued share buyback. On a gap basis, net income for the quarter was $9.5 million or $0.13 per diluted share compared to net income of $9.7 million or $0.13 per diluted share in the year ago. During the quarter, we generated $15.2 million in cash from operations.

Brian: Adjusted EBITDA was $19 5 million for the quarter, reflecting 29, 5% of revenue.

Brian: non-GAAP net income for the quarter was 15 million or <unk> 20 per diluted share compared to a 100 to $12 7 million or 17 cents per diluted share in the year ago quarter.

Brian: Diluted weighted shares used for computing non-GAAP EPS for the first quarter were approximately 75 million shares down slightly year over year due to our continued share buyback.

Brian: On a GAAP basis net in net income for the quarter was $9 5 million or 13 cents per diluted share compared to net income of $9 7 million or 13 cents per diluted share in the year ago.

Brian: During the quarter, we generated $15 2 million in cash from operations as.

Brian Becker: As expected, cast generation normalized in the first quarter in line with historical pattern. Turning to the balance sheet, as of March 31st, 2025, we had $355.8 million in cash, cash equivalents and marketable securities. compared to $195.6 million at the end of 2024. On March 17th, we issued $200 million in convertible senior notes. Shortly after, we issued an additional $25 million to the original purchaser. The notes will accrue interest at a rate of 2.75% per annum, payable semi-annually on April 1st and October 1st of each year, beginning on October 1st, 2025. The notes will mature on April 1st, 2030 unless repurchased earlier, redeemed, or converted.

Brian: As expected cash generation normalize in the first quarter in line with historical patterns.

Brian: Turning to the balance sheet as of March 31, 2025, we have $355 8 million in cash cash equivalents marketable securities compared to $195 6 million at the end of 2024.

Brian: On March 17th we issued $200 million in convertible senior notes. Shortly after we issued an additional 25 million to the original purchaser.

Brian: The notes will accrue interest at a rate of 2.75% per annum payable semi annually on April one and October one of each year beginning on October one 2025.

Brian: The notes will mature on April one 2030, unless repurchased earlier redeemed or converted.

Brian Becker: Before December 1st, 2029, note holders will have the right to convert their notes only upon the occurrence of certain events. As a result of this transaction, we ended the quarter with long-term debt of $217.7 million and increased our cash, cash equivalents, and marketable securities to $355.8 million, or approximately $4.7 billion. $4.74 per share. During the quarter, we paid $4.4 million in cash dividends and repurchased $47 million worth of shares. As a result of the debt offering, we used approximately $44.2 million of the net proceeds to repurchase shares of common stock in privately negotiated transactions affected through one of the initial purchasers of the notes or its affiliates.

Brian: Before December one 2029 note holders will have the right to convert their notes only upon the occurrence of certain events.

Brian: As a result of this transaction we ended the quarter with long term debt of $217 7 million and increased our cash cash equivalents in marketable securities to a $355 8 million or approximately $4 seven.

Brian: $4 74 per share.

Brian: During the quarter, we paid $4 4 million in cash dividends and repurchased purchased $47 million worth of shares.

Brian: As a result of the debt offering we used approximately $44 2 million of the net proceeds to repurchase shares of common stock in privately negotiated transactions affected through one of the initial purchasers of the notes or its affiliates.

Brian Becker: as the company's agent and repurchase price of $19.55 per share. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on June 2, 2025 to shareholders of record on May 15, 2025. We have nearly exhausted our prior $50 million share repurchase authorization as of March 31, but the board has now authorized a new $75 million share repurchase program.

Brian: As the company's agent.

Brian: The purchase price of 19 point $19 55 per share.

Brian: The board has approved a quarterly cash dividend of <unk> <unk> per share to be paid on June <unk> 2025 to shareholders of record on May 15th 2025.

Brian: We have nearly exhausted our prior 50 million share repurchase authorization as of March 31, but the board has now authorized a new $75 million share repurchase program.

Brian Becker: We continue to target growth margins of 80% to 82% and adjusted EBITDA margins of 26% to 28% on a full year basis.

Brian: We continue to target gross margins of 80% to 82% and it eats adjusted EBITDA margins of 26% to 28% on a full year basis.

Dhrupad Trivedi: I'll now turn the call back over to Dhrupad for closing. Thank you, Brian. A10 continues to deliver solid execution, navigating uncertain times with a strong balance sheet and innovative solutions. We have established a business model that enables us to reallocate resources to address changing market conditions and flex expenses to preserve profitability and shareholder returns. We continue to outperform our peer set, and our tight alignment with AI trends positions us for continued success.

Speaker Change: I'll now turn the call back over to <unk> for closing comments.

Speaker Change: Thank you Brian.

Speaker Change: <unk> continues to deliver solid execution navigating uncertain times with a strong balance sheet and innovative solutions.

Speaker Change: We have established a business model that enables us to reallocate resources to address changing market conditions and flex expenses to preserve profitability and shareholder returns we.

Speaker Change: We continue to outperform our peer set and our tight alignment with AI trend.

Speaker Change: As it turns us while continued success.

Operator: Operator, you can now open the call up for questions. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Again, if you have any questions or comments, please press star one on your. Please hold while you poll for questions. Thank you.

Speaker Change: Operator, you can now open the call up for questions.

Speaker Change: Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.

Speaker Change: We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.

Speaker Change: Please hold while we poll for questions.

Gray Powell: Thank you. Your first question is coming from Gray Powell from Pete B T. I G. Your line is live.

Gray Powell: Your first question is coming from Gray Powell from Pete B-T-I-G. Your line is locked. Okay, great, thanks for taking my questions. And I'm in the back of a car, so hopefully you can hear me okay. Yeah.

Gray Powell: Okay, great. Thanks for taking my questions and I'm in the back of a car. So hopefully you can hear me okay.

Gray Powell: Yeah.

Gray Powell: But yeah, so I just want to start off with maybe a couple of questions around tariffs. I mean, how is the uncertainty there impacting customer conversations in recent weeks? And I guess my general understanding was that like in the week after Liberation Day, a lot of customers, just broadly, not even 18 specific, a lot of customers felt like it was almost like, you know, going into COVID lockdowns. And in recent weeks, maybe things, their tone of conversations has gotten better. So I just wanted the insights on your discussions during the month of April, and if there's any material difference between what you're seeing between service providers and enterprise customers and how they're responding.

Gray Powell: Yeah. So I just I just wanted to start off with maybe a couple of questions around tariffs.

Gray Powell: How is the uncertainty there impacting customer conversations in recent weeks.

Gray Powell: I guess my my general understanding is that like in the week. After liberation day, a lot of customers just broadly not not even 18 specific a lot of customers were felt like it's almost like going into Covid lockdowns and in recent weeks, maybe things or tone of conversations have gotten better. So I'd just love any insights on your discussions during the month of April.

Gray Powell: And if there's any material difference between what you're seeing between service providers and <unk>.

Gray Powell: Enterprise customers and how they're responding.

Dhrupad Trivedi: Yeah, no, great, great question, Gray. So I think I would, I would say, broadly across all customers, you know, from a demand perspective, right, what we are seeing is maybe a little bit different, but similar. So in many cases, the phenomenon we see with customers in Asia Pacific or EMEA is while they may not have a direct link to understanding tariff impact being up or down, there is certainly a little more caution because they are concerned about in the long term, what does that mean for their macro economy in two quarters or four quarters or six quarters, right?

Gray Powell: Yeah, no great Great question, Great. So I think.

Gray Powell: I would I would say broadly across all customers.

Gray Powell: From a demand perspective right. What we are seeing is.

Gray Powell: Maybe a little bit different but similar so in many cases the phenomenon, we see with customers in Asia Pacific. Our EMEA is while they may not have a direct link to understanding that if impact being up or down a.

Gray Powell: That is certainly a little more caution because they are concerned about in the long term.

Gray Powell: What does that mean for the macro economy into autos, all four quarters or six quarters right. So that is a little bit more caution, particularly on larger S. B projects, which have a longer horizon for getting the return on investment back up as it relates to enterprise customers I would say the concern is a little.

Dhrupad Trivedi: So there is a little bit more caution, particularly on larger SP projects, which have a longer horizon for getting the return on investment back. As it relates to enterprise customers, I would say the concern is a little bit less. And then including also, I would say, US.

Gray Powell: With less and then including also the U S. So far all customers I think we see too.

Dhrupad Trivedi: So for all customers, I think we see two, two approaches, right? So one is, there are some customers who are, waiting for July 7th, if you will, as sort of a magic date to know what that means. And kind of waiting it out to see where it ends up. And we have some customers who are concerned to where they are wondering if it's better for them to procure a little bit ahead and protect against that, right? So I would say net impact for us right now is neutral, but it's hard to say which of those forces is bigger than the other.

Gray Powell: Two approaches right. So one is there are some customers who are.

Gray Powell: Waiting for July seven if you will as sort of a magic date to know what that means.

Gray Powell: And kind of.

Gray Powell: Waiting it out to see where it ends up and we have some customers who are concerned to where they are wondering if it's better for them to procure a little bit ahead and protect against that right. So I would say net impact for US right now is neutral, but it's hard to say.

Gray Powell: Without those forces it is bigger than the other and.

Dhrupad Trivedi: And it's a.

Gray Powell: And it's.

Dhrupad Trivedi: I would say what is really unknown beyond sort of the tariff which is a first-level input is how the subcomponent manufacturers right to make things like chips etc will react so so that's an unknown unknown so can't do much about it but overall we are seeing caution in the spending pattern more so than a complete freeze What kind of visibility do you have on some of the large customer initiatives to build out AI data centers, and just how should we think about that materializing in the form of incremental data? Sure, so I think I would characterize it as the following.

Gray Powell: Well I would say what is really unknown beyond sort of the data, which is a first level input.

Gray Powell: How the sub component manufacturers I do make things like chips et cetera will react. So oh, that's an unknown unknown, so gone too much about it but overall, we I think caution in the spending pattern.

Gray Powell: More so than a complete freeze.

Gray Powell: Understood. Okay, I really appreciate the transparency.

Gray Powell: And then just maybe one more question if I if I may.

Gray Powell: What kind of visibility do you have on some of the large customer initiatives to build our AI data centers and just how should we think about that materializing in the form of incremental demand.

Gray Powell: Sure.

Gray Powell: So I think I would characterize it as the following so we are maybe in the first wave of large yeah loud, where the companies who you would expect right out building out big data vendors as part of their AI initiatives.

Dhrupad Trivedi: So we are maybe in the first wave of large AI build-outs where the companies who you would expect, right, are building out big data centers as part of their AI initiatives to put in capacity. And that applies to, obviously, public cloud as well as private cloud kind of companies, but also large enterprises doing that. I would say the visibility we have into that is reasonably good. I think a lot of those companies tend to kind of. modulate their plans, however, based on their financials and how they evolve. So a little bit uncertain, but generally understanding of what is their long-term play.

Gray Powell: Pasadena and that applies to all this the public cloud as well as private cloud kind of companies, but also large enterprises doing that.

Gray Powell: I'd say the visibility we have into that is reasonably good a I think a lot of those companies tend to kind of.

Gray Powell: Modulate their plans however, based on their financials and how they evolve a little bit uncertain, but generally understanding of what is the long term play the real value of the market I think is going to be in the yard to do when.

Dhrupad Trivedi: The real value of the market, I think, is gonna be in a year to two when enterprise customers are doing more inference models on-prem or private cloud, particularly outside of US. And I would say in that case, we are engaged with them on that roadmap and rollout, but they are not in the mode of actually, you know, building stuff yet, right? So, but we think that's a bigger, more durable, longer opportunity and are engaged early with a lot of them. Understood.

Gray Powell: Enterprise customers are doing more inference models on brand or a private cloud.

Gray Powell: Clearly outside of U S and I would say in that case, we are engaged with them on that roadmap and rollout.

Gray Powell: But they're not in the moored off actually you know building stuff yet right. So, but we think that's a bigger more beautiful longer opportunity and engaged early with a lot of them.

Gray Powell: Understood. Okay. Thank you very much.

Dhrupad Trivedi: Okay.

Gray Powell: Thank you very much.

Gray Powell: Thank you.

Rich: Thanks Rich.

Speaker Change: Thank you. Your next question is coming from Christian Schwab from Craig Hallum. Your line is live.

Christian Schwab: Your next question is coming from Christian Schwab from Craig Hallam. Hey, hey guys, congrats on a solid quarter. Understanding the, you know, overall cautious, you know, pattern that you're seeing, but yet the outperformance in the current March quarter, are you still anticipating high single digit revenue growth or maybe you weren't anticipating, I guess that's where the streets add, but are you comfortable with, you know, high single digit revenue growth for the year in this Thank you, Christian.

Speaker Change: Hey, Hey, guys congrats on a solid quarter.

Speaker Change: Understanding the you know overall cautious you know pattern.

Speaker Change: That you're seeing but yet the outperformance in the current March quarter or are you still anticipating.

Speaker Change: High single digit revenue growth or we weren't anticipating.

Speaker Change: That's where the street's at but.

Speaker Change: Are you comfortable with you know high single digit revenue growth.

Speaker Change: For the year in this environment.

Speaker Change: Thank you Christian good good question. So I think as I said before as it stands now we are comfortable with that expectation as it stands today.

Dhrupad Trivedi: Good, good question. So I think, as I said before, as it stands now, we are comfortable with that expectation as it stands today. We don't expect that to change a whole lot until maybe we get through July, right? And if there is macro shifts that are different than what we are expecting, that's hard for us, or for anybody probably to predict. So, but outside of anything being very unusual, we expect to be in that similar ballpark. Perfect.

Speaker Change: We don't expect that to change a whole lot.

Speaker Change: And then maybe we get through July right and if that is.

Speaker Change: Macro shifts that are different than what we are expecting that's hard for us or anybody probably could predict so but outside of anything being very unusual a we expect to be in that similar ballpark yes.

Dhrupad Trivedi: And then, can you just remind us on the competitive front, on the data center capacity, AI-driven product portfolio, you know, who you face most often as far as competition, and does it vary by geography? Yeah, sure. Good question. So I think the competitive dynamic is not that different than the typical data center build out.

Speaker Change: Perfect and then.

Speaker Change: Can you can you just remind us on the competitive front.

Speaker Change: The data center capacity AI driven product portfolio.

Speaker Change: You know, who you face most often as far as competition and does it vary by geography.

Speaker Change: Yeah sure. Good question, So I think the competitive dynamic is.

Speaker Change: Not not not that different than the typical data center build outs are it does it does vary by geography, and what I mean by that is.

Dhrupad Trivedi: It does vary by geography. And what I mean by that is we are partnering with many of our existing large service provider type customers, whether it's in Japan or Europe or US, and evolving with them as they are building out their own AI data centers, right? So it's a logical evolution of what they were doing with us. And in that sense, right, we are not facing kind of a new wave of competitors from a technology provider perspective. I think there's more of the players in maybe as it relates to building the physical data centers. But as it relates to the core technology, I think we are not in any different competitive situation.

Speaker Change: We are partnering with many of our existing large service provider type customers, whether it's in Japan, or Europe, or U S. A and evolving with them as they are building out their own AI data centers right.

Speaker Change: Logical evolution of what they were doing with us and in that sense. We are not facing kind of a new wave of competitors from a technology provider perspective, I think that is more.

Speaker Change: All the players in maybe as it relates to building the physical data centers, but as it relates to the core technology I think we are not in any different.

Speaker Change: Different competitive situations.

Dhrupad Trivedi: It's the same differentiation that has helped us before.

Speaker Change: Same differentiation that has helped us before.

Christian Schwab: Great, no other questions. Thank you.

Speaker Change: Great no other questions. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is coming from <unk> <unk> from B Ws financial your line is live.

Hamed Khorsand: Your next question is coming from Hamed Khorsand from BWS Financial. Hi, so first off on the enterprise side, is the growth that you saw this past quarter, a dynamic from that large customer or large order you received last year, or is there something else here that's helping you grow the Yeah, good, good question, Hamid. So I would say, if you look at our enterprise revenue by quarter, in the trended numbers, the reason why that percentage looks really big has more to do with a bad or soft Q1 last year. And that's why I think it's more important to see that on a trailing 12-month basis versus the previous 12 months, that revenue is up about 12%.

Speaker Change: Hi.

Speaker Change: First off on the enterprise side.

Speaker Change: The growth that you saw this past quarter, a dynamic from that large customer large.

Speaker Change: Order you received last year or is there something else here, that's helping us grow the this past quarter.

Amit: Yeah. Good question, Amit, So I would say if.

Amit: If you look at all of our enterprise revenue by quarter in the trend in numbers.

Amit: The reason why that percentage looks really big as more to do with a bad are soft Q1 last year.

Amit: And that's why I think it's more important to see that on a trailing 12 month basis versus the previous 12 months that revenue is up about 12%. So so we think that number is more indicators of continued progress.

Hamed Khorsand: So we think that number is more indicative of continued progress.

Hamed Khorsand: We did get a small follow-on repeat order from what we had talked about last year, but that was not a major reason here. So we had multiple customers that drove that growth, and then we were comparing it to a soft Q1 last year, which made that number bigger. look bigger on a Q over Q basis. But even on a 12 month basis, I think that 12% is more reflective.

Amit: We did get a small follow on repeat order from what we adopt last year, but that was not not a major reason here right. So we had multiple.

Amit: What kind of customers that drove that growth and then we were combating it do a soft Q1 last year, which made that number.

Amit: Look bigger on a Q over Q basis, but even on a 12 month basis I think the 12% is more reflective.

Hamed Khorsand: Okay, and then on the service provider side, you were talking about North America being strong but then you're saying that there's caution, is there caution among every one of your customer base within service provider or is it just a particular subset? Yeah, so I would say that, you know, service provider year over year grew just about 3%, right? So that's, I'd say that's better than not growing, but it's not a big number, right? So I would say it is improving and stable in the sense not declining. The caution I would say is is broad based.

Amit: Okay, and then on the service provider side.

Speaker Change: You were talking about North America being strong, but then you're saying there's caution is there caution among that group.

Speaker Change: One of your customer base within service provider or is it just a particular subset.

Speaker Change: Yeah, So I would say that a service provider or a year over year grew just about 3% right. So that's a I would say that it's better than not growing but it's not a big number right I would say it is improving and stable in that sense not declining.

Speaker Change: Caution I would say is.

Speaker Change: Is broad based I think that at a few of them who are more bullish right, but I think the rest out.

Hamed Khorsand: I think there are a few of them who are more bullish, right, but I think the rest are https://www.hamedkhorsand.com And lastly, your sales and marketing was down this year compared to last year.

Speaker Change: Kind of caution that as it relates to macro conditions and how they would so but there are a few who are pretty aggressive in what they're doing and that is kind of how does propagate but when do we see the long term plans.

Speaker Change: It's a stabilization in the sense that most of the customers will spend something this year that we expect we just don't know exactly which quarter maybe yeah.

Speaker Change: And lastly, your your your sales and marketing was down this year compared to last year is there a reason for that or are you just managing cost.

Hamed Khorsand: Is there a reason for that or are you just managing costs? Yeah, I think there's no, there's no reason for that. I think we just continue to monitor that in terms of our EBITDA margin.

Speaker Change: Yeah, I think there's no. There's no reason for that I think we just continue to monitor that in terms of our EBITDA margin and second I would say right is to do that and continue to invest in new solutions like AI and other things you can see R&D is up.

Hamed Khorsand: And second, I would say right is to do that and continue to invest in new solutions like AI and other things, you can see R&D is up. And so, you know, we to get to the same EBITDA, right, it has to net out somewhere.

Speaker Change: And so to get to the same EBITDA and I did as to net out somewhere.

Hamed Khorsand: Great, thank you. Thank you. Thanks, everyone. Thank you.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is coming from Simon Leopold from Raymond James Your line is live.

Simon Leopold: Your next question is coming from Simon Leopold from Raymond James. Thank you very much for taking the question. A couple of things I wanted to check on. One was, in the prior quarter, you had talked about targeting a full year EBITDA of 26 to 28%. Certainly, there's a lot of moving parts changing, but just want to check in on how you're feeling about that target today.

Simon Leopold: Thank you very much for taking the question a couple of things I wanted to check on.

Simon Leopold: One was in the prior quarter, you had talked about targeting a full year EBITDA of 26% to 28% are.

Simon Leopold: Certainly there's a lot of moving parts are changing but just wanted to check in on how you're feeling about that target today.

Dhrupad Trivedi: Yeah, thank you, Simon. So I think we feel pretty good about being in that range of EBITDA of 26 to 28%. And the way we think about it is we may face some fluctuation on input costs and so forth with tariffs and we'll have to manage through that, we'll have to manage OPEX through that. But we are confident and committed to kind of getting to the 26 to 28%.

Simon Leopold: Yeah no. Thank you.

Simon Leopold: They are so I think we feel pretty good about being in that range of EBITDA of 26% to 28%.

Simon Leopold: And the way we think about it is they may be some fluctuation on input costs and so forth that is and we'll have to manage through that we'll have to manage opex through that but we are confident and committed to kind of getting to that 26 or 28%.

Dhrupad Trivedi: For more information visit www.FEMA.gov Thanks.

Dhrupad Trivedi: And then in terms of your contract manufacturing partners, I think most, if not all, of your exposures to Taiwan, I certainly appreciate the fluidity of the tariff environment, but how do you think about that strategically?

Speaker Change: Thanks, and then in terms of your your our contract manufacturing partners like I think most if not all of your exposures to Taiwan.

Speaker Change: I certainly appreciate the fluidity of the tariff environment, but how do you think about that strategically I know you can't change overnight.

Dhrupad Trivedi: I know you can't change overnight, but do you think about trying to diversify and what would it take to do so? Yeah, no, good, good question. And I think I would say there are two layers to it. So one is as it relates to assembly and manufacturing. You are correct, we are engaged with those partners to understand how to build something, you know, more, more resilient, more flexible footprint globally. Because still 50% of our business is not to US, right? So their impact is different. And so yeah, absolutely, we are continuing to work. And it takes time to requalify the line and things like that.

Speaker Change: Do you do you think about trying to diversify.

Speaker Change: And what would it take to do so.

Speaker Change: Yeah no. Good good question and I think I would say there are two layers to it so.

Speaker Change: One is as it relates to our assembly and manufacturing.

Speaker Change: You are correct, we had to engage with those partners.

Speaker Change: Do I understand how to build something you know more more readily and more flexible footprint globally.

Speaker Change: Because still at 50% of our business is not the U S rights, so that impact is different and so.

Speaker Change: Oh, Yeah, absolutely we are continuing to work and it takes time to requalify the line and things like that but absolutely something we look at the second layer that is little harder to quantify is within that right. There is a supply chain, where you might be getting chips from the U S company or etcetera.

Dhrupad Trivedi: Right. But absolutely something we look at. The second layer that is a little harder to quantify is within that, right, there is a supply chain where you might be getting chips from US company or etc. Right. So, so in those Subcomponent level, it is hard to know where that lands after July, and we monitor that. But as it relates to diversity of sourcing and improving that kind of profile for us, absolutely something we are involved in, and we are already looking at that for things like disaster recovery, right? So it's a matter of accelerating some of those initiatives.

Speaker Change: Right.

Speaker Change: So in those sub.

Speaker Change: Sub component level.

Speaker Change: It's hard to know where that lines after July and we monitor that but as it relates to a diversity of sourcing and in brewing that kind of profile for us absolutely something we added walden than.

Speaker Change: We were already looking at back for things like disaster recovery right. So it's a matter of accelerating some of those initiatives.

Dhrupad Trivedi: Thanks.

Speaker Change: Thanks, and then just one last one we've seen quite a bit of movement in exchange rates in the last month or so.

Dhrupad Trivedi: And then just one last one. We've seen quite a bit of movement in exchange rates in the last month or so.

Dhrupad Trivedi: Could you help level set how we should think about that? Because you obviously have a lot of of yen exposure and how to quantify that in terms of both the top line as well as operating aspects. Thank you. Yeah, so that's right. I think our business is conducted everywhere in the US except Japan. In Japan, it's in yen. Typically, you know, from a demand perspective, I think we haven't seen a lot of movement because of that reason. I think the projects tend to be more driven by the project timeline and not very, very fluid based on exchange rate going up or down a little bit, right.

Speaker Change: Could you help level set how we should think about that because you obviously have a lot of of yen exposure and.

Speaker Change: How to quantify that in terms of both the top line as well as operating aspects. Thank you.

Speaker Change: Yeah, that's right I think all of our business is conducted everywhere in the U S, except Japan and Japan, it's in yen.

Speaker Change: Typically.

Speaker Change: From a demand perspective, I think we haven't seen a lot of movement because of that reason I think the projects tend to be more driven by the project timeline and not <unk>.

Speaker Change: Very ready.

Speaker Change: Fluid based on exchange rate going up or down a little bit right. So certainly.

Dhrupad Trivedi: So certainly, we see that as now, of course, that translates to revenue risk for us. And I think about two years ago or three years ago, right, we don't FX at just our top line, but we had about 200 basis points impact on growth from the exchange rate. So that's on the top line. We obviously focus on the customer and their project need, and we take that exposure. Below that, I think we certainly on contracts we already have and receivables and so forth, we tend to hedge against that so that we are protecting that exposure as much as we can.

Speaker Change: We we see that as now of course that translates to revenue risk for us and I think about two years ago three years ago like we know the effects of desktop our top line, but we had about 200 basis point impact on growth from the exchange rate. So so that's on the top line, we obviously focus on the customer and their project.

Speaker Change: And we take that exposure below that I think we certainly on <unk>.

Speaker Change: Contracts, we already have and receivables and so forth, we can't do a hedge against that so that we are protecting that exposure as much as we can.

Dhrupad Trivedi: Thank you very much. Very good. Thank you, Pamela. Thank you.

Speaker Change: Let me think back on them.

Speaker Change: Okay.

Speaker Change: Thank you Simon.

Speaker Change: Thank you. Your next question is coming from Hendi <unk> from Gabelli funds. Your line is live.

Hendy Susando: Your next question is coming from Hendy Susando from Gabelli Funds. Your line is live. Good afternoon, Dhrupad and Brian. Congrats on positive year-over-year growth. Thank you, Andy.

Speaker Change: Good afternoon, two part and Brian Congrats on positive year over year growth.

Speaker Change: Thank you Andy.

Hendy Susando: Dhrupad and Brian, I would like to ask about the product refresh. Brian mentioned that. Can you compare and contrast what the refresh outlook looks like for this year compared to the past and maybe down the road? Yeah, good question, Hendy. What I was referring to is normal cycle product upgrades. So, you know, customer buys products and typically would depreciate that product in our service provider segment between five and seven years. So, at some point, the product becomes non-serviceable and no longer performs to the spec. That's the product refresh cycle I was referring to. It wasn't that, you know, we suddenly had a revamp of our product line, nothing like that.

Speaker Change: Dupont and Brian I would like to ask about the product refresh.

Speaker Change: Brian mentioned that like can you compare and contrast, what the refreshed outlook looks like for this year compared to the past and maybe down the road.

Speaker Change: Yeah. Good question Hendi, what I was referring to as normal cycle product upgrades. So you know customer buys products.

Speaker Change: And typically would depreciate that product and our service provider segment between five to seven years. So at some point the product she comes on serviceable and no longer perform Super spec. That's the that's the product refresh cycle I was referring to it wasn't that.

Speaker Change: We suddenly had a revamp of our product line nothing like that it was just normal course of business. It just so happened that there was a pretty significant switch in two product lines at the same time, which usually we stagger over a smaller period, but again, it's normal course of business thing.

Hendy Susando: It was just normal course of business. It just so happened that there was a pretty significant, you know, switch in two product lines at the same time, which usually we stagger over a smaller period. But again, it's normal course of business, nothing that really changed the outlook from a customer's perspective and really would just be considered a shift from service renewals to product increase. Yeah, and the refresh cycle is driven by the customer's usage cycle, not necessarily us making them all change their product, right?

Speaker Change: It really changed the outlook from our customers perspective, and really would just be considered a shift from service renewals through product increase.

Speaker Change: Yeah.

Speaker Change: Cash cycle is driven by the customer as you said cycle.

Speaker Change: Not necessarily making them all change that product right. So.

Speaker Change: Yep.

Dhrupad Trivedi: And then second question, Dhrupad, you mentioned that... The longer and bigger opportunity is in the enterprise AI inferencing solutions. And then you made a comment particularly outside of US. May I know why you emphasize? opportunity outside of U.S. for the enterprise inferencing. Oh, sorry. No, I think the opportunity is equal everywhere. And I think obviously, US is a very big market. I think what I was highlighting is that In the US, the market has three or four major players, and that's what everybody does. Outside of the US, many, many of our customers are in countries which have data sovereignty and other data privacy reasons.

Speaker Change: And then second question two parts you mentioned that.

Speaker Change: The longer and bigger opportunity is in the enterprise AI inferencing.

Speaker Change: And then you made the comment, particularly outside the U S. Mi I know why you emphasize.

Speaker Change: Unfortunately, the outside the U S or the enterprise inferencing.

Speaker Change: Oh, Oh, sorry, no I think the opportunity is equal everywhere and I think obviously U S is a very big market I think what I was highlighting is that.

Speaker Change: In the U S. The market has three or four major players and that's what everybody does outside of U as many many of our customers are in countries, which are data so Randy and other data.

Dhrupad Trivedi: And for those reasons, they are building private clouds and private LLM. And that is what I meant by being a different type of opportunity, versus having to be one of the three guys in the US.

Speaker Change: <unk>.

Speaker Change: And for those reasons they are building private clouds, and private LNG and that is what I meant by being a different type of opportunity. What's is having to be one of the three guys in the U S. So.

Hendy Susando: And then last question for me, if there's any tariff impact and then you need to negotiate price with the customers, like the choice between new pricing or absorbing that, how should we think about the likely scenarios? I mean, I think that's a very, very difficult question to have a perfect answer for. So certainly, I think our expectation is if there is tariff impact, we would work with our customers to figure out how to share that. And, you know, it's somewhere between 100 and zero, right, that they would share. And I think we would need to have a better view after July or whenever to be able to have those conversations, right?

Speaker Change: And then last question for me, if there's any tariff impact and then you need to negotiate price with the customers like the choice between.

Speaker Change: Like you know pricing or absorbing that how should we think about the likely scenarios.

Speaker Change:

Speaker Change: I mean, I think that's a very very difficult question do I have a perfect and so far so certainly I think our expectation is if that is that if in fact, we would work with our customers to figure out how to share that and you know, it's somewhere between 100 and zero right that they would share.

Speaker Change: And I think we.

Speaker Change: Would need to have a better view on.

Speaker Change: In July or whenever a to be able to have those conversations side. Because today. We don't know if that impact is going to be zero percent, 30% of our 150%. So it's hard to actually have those conversations but of course, our goal will be that because.

Dhrupad Trivedi: Because today, we don't know if that impact is going to be 0%, 30%, or 150%. So it's hard to actually have those conversations. But of course, our goal will be that because The nature of our customers is also one where they are very worried about performance of the network. They want to make sure, of course, that A10 can continue to invest in R&D and try more innovation versus buying the lowest cost commodity on the market, right? So we think that's the profile of our customers. That's our company profile. So we would jointly solve that problem once we know what the problem is.

Speaker Change: The nature of our customers is also one where they already worried about performance of the network. They want to make sure of course that <unk> can continue to invest in R&D and drive more innovation.

Speaker Change: What is buying the lowest cost commodity on the market tight until we think that's the profile of our customers. That's our company profiles there'll be wood.

Speaker Change: Joined lease all of that problem. Once we know what the problem is.

Hendy Susando: Thank you, Dhrupad and Brian. Thank you, Andy.

Speaker Change: Thank you drew Bob and Brian.

Andy: Thank you Andy.

Andy: Okay.

Operator: Thank you, that concludes our Q&A session.

Speaker Change: Thank you that concludes our Q&A session I will now hand, the conference back to Jupiter Trivedi for closing remarks. Please go ahead.

Dhrupad Trivedi: I will now hand the conference back to Dhrupad Trivedi for closing remarks. Please go ahead. Thank you. And thank you to all of our shareholders and employees for joining us today and for your ongoing support. Thanks. Thank you, everyone.

Speaker Change: Thank you and thank you to all of our shareholders and employees for joining us today and for your ongoing support.

Speaker Change: Yes.

Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.

Operator: This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Speaker Change: Yes.