Q2 2025 A10 Networks Inc Earnings Call
Good day, everyone, and welcome to the A10 Networks Second Quarter 2025 Financial Results.
At this time, all participants are in 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'll open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Tom Palmen of FN Keir. Sir, the floor is yours.
Thank you.
And 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 A10 networks website A10 networks.com.
Hosting the call today. Are Jupiter tvi 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 second quarter 2025 Financial results. Additionally A10 published a presentation and supplemental trended financial statements. You may access the press release presentation and turn the financial statements on
The investor relations section of the company's website.
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, macroeconomic factors, strategy, potential, new products and solutions our Capital allocation strategy, profitability, expenses and Investments positioning and our dividend program
These statements are based on current expectations and beliefs as of today, August 5, 2025.
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 of future events.
A10 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.
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.
Please note with the exception of Revenue. Financial measures discussed today are on a non-gaap basis and have been adjusted to exclude certain charges.
The non-gaap financial measures are not intended to be considered in isolation or as a substitute for results, prepared in accordance with gaap and may be different from non-gaap Financial measures presented by other companies.
A Reconciliation between 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 at www.networksolutions.com
Now, I'd like to turn the call over to Jupyter Vetti, President and CEO of A10 Networks.
Thank you, Tom, and thank you all for joining us today.
8, and continued to deliver growth and profitability in the second quarter.
This performance demonstrate the continued validation of our strategy.
We have basically aligned our technology roadmap and go-to-market focus with the evolving cybersecurity landscape, where our customers are facing increasingly complex challenges.
Our Solutions emphasize high performance.
And advanced security.
2 areas that are increasingly Central to both the service provider and Enterprise customers.
The Strategic focus and delivery of innovation is resonating in the market.
This concentration was further validated by our recent selection, by a global Cloud leader to help build their future, AI infrastructure indicating that 8 ends offering is, well, positioned at the intersection of today's most urgent priorities for the world's most demanding customers.
Increasingly, that alignment with the key drivers of technology investment is the most important point I want to share with investors today.
810 is exceedingly well aligned with these 2, primary catalysts influencing it and infrastructure spending artificial intelligence and cyber security
We believe we have the right technology and the right product roadmap.
And increasingly the right? Go to market execution, to fully capitalize on these trends.
Our intentional diversification, enhances our resilience.
In the second quarter, we saw an improvement in parts of global service provider spending driven by the factors I mentioned earlier.
Our balance exposure across verticals and geographies is a course of our business model.
And it allows us to maintain momentum while we capitalize on secular tailwinds in AI and cybersecurity.
Looking at performance, on a trailing 12-month basis provides, a view of our underlying momentum.
Total revenue grew 11% year-over-year, with Enterprise up 8% and Service Provider Revenue increasing 14%.
Even after adjusting, for the favorable year-over-year comparison, we believe this reflects a sustainable growth Trend aligned with our strategy and we remain comfortable in our ability to deliver annual revenue growth in the high single digit range.
Our first-half results are consistent with these expectations.
We will continue to navigate choppy market conditions. While focusing on execution and aligning Investments with long-term growth, expectations and business model goals.
Our service provider Revenue During the period benefited from improved demand from data center expansions and AI infrastructure Investments.
As I mentioned in the past.
AI applications are power hungry, making our Solutions which provide industry-leading efficiency, in terms of throughput low latency and best-in-class security more attractive as customers can achieve better Roi on those Investments.
We are actively leveraging this competitive advantage.
Along with our networking expertise in opportunities for large data center projects, around the world.
our eidas percent of Revenue, grew year-over-year,
Even as we aggressively invest in new areas.
As an indicator. We are 2, AI products win the top awards at the prestigious interop. Event in Japan competing against much larger players, as well as startups.
Our comprehensive $8 million and defense portfolio of solutions provides hybrid DDoS protection.
Thread intelligence.
Web application and Bot protection. And now at the fully featured web solution.
All integrated into a single solution with end-to-end delivery and stronger, security for Mission critical applications.
Back. I am increasingly confident in our strategic positioning.
Of AI and cyber security continues to pay dividends.
Our focus on systematically growing Enterprise Market adds another growth vector.
We believe it and is, well, positioned to serve both Enterprise and service. Provider customers employing, an intentional diversification, strategy, that delivers resiliency in our results,
We are also well Diversified across regions.
The business continues to effectively navigate short-term market volatility, delivering consistent profitability and returning capital to shareholders.
As markets evolve.
We are well positioned to outpace the market in terms of Revenue growth.
While increasing our profitability in line.
With our business model.
With that. I'd like to turn the call over to Brian for a detailed review of the quarter, right?
thank you zero, but
Second quarter Revenue was 69.4 Million, an increase of 15% year-over-year.
The results benefited from a more normalized service provider quarter compared to last year and the Strategic Investments we've made in Enterprise and AI infrastructure.
The overall Trends are positive and we continue to maintain our focus on global diversification.
Product revenue, for the quarter was 39.2 Million representing 56% of total revenue.
Services revenue is 30.2 million or 44% of total revenue.
Total deferred revenue, increased to 144.4 million.
As expected, we see strong, uptake of our Cutting Edge portfolio. Evidenced by a continued product Revenue growth and renewal rates on eligible, contracts, remain above 90%.
The high renewal rates are an indicator that we are not losing any customers or market share.
with the exception of Revenue, all of the metrics discussed on this call are on a non-gaap basis, unless otherwise stated
A full reconciliation of gaap to non-gaap results are provided in our press release and on our website.
Gross margin and the second quarter was 80% in line with our stated goals of 80 to 82%.
Adjusted ebit. That was 19.7 Million for the quarter reflecting 28.3% of Revenue in line with our stated long-term goals.
Non-GAAP net income for the quarter was $15.5 million or $0.21 per diluted share, compared to $13.2 million or $0.18 per diluted share in the year-ago quarter.
Diluted weighted shares used for computing. Non-gaap EPS for the second quarter were approximately 73.1 million shares down 2.4 million shares, year-over-year due to our continued share buyback.
On a gap basis, net income for the quarter was $10.5 million, or $0.14 per diluted share, compared to net income of $9.5 million, or $0.13 per diluted share, in the year-ago quarter.
During the quarter, we generated $22.2 million in cash from operations.
Turning to the year-to-date results revenue for the first 6 months of 2025 was 135.5 Million compared to 120.8 million and increase of 12%.
Non-gaap gross margin was 80.4% year to date.
We continue to navigate macro uncertainties and our aggressively supporting our key, AI customers.
Adjusted ebita was 39.2 Million year to date reflecting 28.9% of Revenue.
Non-gaap net income on a year-to-date. Basis was 30.5 million or 41 cents per diluted share compared to 26 million or 35 cents per diluted share last year.
On a GAAP basis, net income for the first six months was $20.1 million, or $0.27 per diluted share, compared to net income of $19.2 million, or $0.26 per diluted share, for the first six months of last year.
Turning to the balance sheet as of June 30th 2025. We had 367.4 million in cash, cash equivalents and marketable, securities compared to 1, 9 5. 6, 2 4.
We ended the quarter with convertible debt of $218.1 million, as a result of our convertible debt offering completed in Q1.
During the quarter. We paid 4.3 million in cash dividends and repurchased, 3.9 Million worth of shares.
Of record on August 15th, 2025.
The company has 71.1 million remaining of its 75 million share of purchase authorization.
I'll Now call to turn the call back over to droophead for closing comments.
Thank you, Brian.
We are encouraged by the continued business, execution, and remain confident. That 810 is strategically, well, positioned in the market.
Technology spending is heavily influenced by increased demand for cybersecurity solutions.
And the accelerating adoption of AI related spending.
8 and its positions. Squarely in front of these 2 durable secular catalysts
We are investing to enhance our position in the enterprise space and remain aligned with key leaders in the service provider sector around the world.
We believe our business model enables us to dynamically allow allocate resources to address changing market conditions, while preserving profitability and shareholder returns
Operator, you can now open the call for questions.
Certainly, everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press *1 on your phone at this time.
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Once again, if you have any questions or comments, please press *1 on your phone.
Your first question is coming from Gray Powell from BTIG. Your line is live.
No, congratulations on a good results.
Thank, thank you. Great.
Um, yeah, absolutely. Uh, so so so, yeah. You you, um, you posted the best product Revenue growth in Q2 that we've seen in over 5 years. Uh, I realized that comps get tougher next quarter but just just, how should we think about, uh, the potential to sustain, uh, your recent momentum and and just the, the, the sustainability of the, the service provider segment did, do you think you'd like, hit a a turning point there?
Yeah, no great question. So I'll probably address them both separately. So you're right. I think, uh, Grace or, obviously, we are pleased with the...
Progress and results on the product side because ultimately that builds a foundation for us, right? With the customer base and results in more sustained growth, long term. So, uh, that's 1 the part of the driver for that. I would say 2 things, uh, 1 is on the Enterprise side as we are able to penetrate, you know, larger Enterprise customers. Uh, that's part of how we are able to grow that Revenue, uh, profile and ultimately resulting in a stronger customer base. Uh, second is related to your second point. I would say uh, when we look at our service provider performance, uh outside of North America, we continue to make good progress on service providers sustainability. Uh, within North America, I think we saw a little bit mix where some of the customers are beginning to have a more normal spending
Pattern uh relative to last year. So that's a positive sign and not all of them are there yet we still see some of them sort of holding off on capex and decisions, so uh it could it could get better but it fundamentally the product Revenue growth.
Should be seen as an indicator of.
Customers choosing us to either refresh existing installations or selecting us over competitors to go to new ones is a lead indicator of growth now, as well as in the future.
Really helpful. And then, um,
Just some of the other vendors we cover.
They've highlighted, um, I I like a more back-end loaded June quarter, uh, as well as strength and July, uh, can can you provide any commentary on how linearity played out this quarter or just any any insights on what you saw like, you know, so far in July just any any color at all?
A phenomenon of customers on track versus what we expect to happen in Q3. And not a lot of noise between quarters around orders being pulled in or pushed out. Right? So we don't see that as a major thing, but we certainly don't see any signs in July that make us think any better or worse on the outlook.
Understood, thank you very much.
Thanks, thank you.
Your next question is coming from Simon Leupold from Raymond James, your line is live.
Hi, thank you. This is, uh, Victor chewin for, uh, signing Leo. Um, can you tell us, uh, uh, how we should think about the potential? Um, materiality and contributions from the potential uh uh Microsoft award that you announced recently?
Uh, yeah, I know a good question Victor. So I think, you know, the, uh, I think obviously, we don't disclose Revenue by customer and so, I would say, 2, 2 things to probably reflect on, uh, 1 is the objective. Was, you know, that's a
Very, very, very important customer for A10, for a long period of time with a deep relationship. And so the objective for us really was to highlight that, you know, we are.
Partnering together, long-term and continue to be a part of their thinking around, not just their current, uh, infrastructure on cloud as but also how they think about Ai and connectivity. And obviously, we appreciate the continued partnership there, right? So it's not, it's more. Reflective of the fact that our solution is highly relevant to a global leader in Cloud networking who obviously expects and runs their network with very, very high expectations. So, uh, that's that's probably the right way to think of it. Uh, we did have other customers who are also buying our products that go into their AI infrastructure. Uh, the key point to note is
Maybe 6 to 9 months ago.
Our customer interactions were centered around building data centers that now support AI. What is evolving and changing is that more and more customers in the U.S., but also outside the U.S.
Are thinking of building AI data centers almost as a higher priority.
Than just making sure that their current trajectory is relevant for AI, right? So that
That's the importance and relevance of why we announced that and we appreciate that partnership for a long time. So,
Great. That that's very helpful. Um, and and just 1 follow-up. Um, Telos have kind of talked about uh, you know, raising capex. Um, you know, somewhat following the uh, big beautiful uh, Bill passage and and kind of the improved cash flow that they'll see from there, uh, does does A10 kind of see this trend, you know, trickling down to them. And, and kind of, uh, you know, seeing Tailwind from this over the longer term.
Yeah, no good. Good question Victor and I would say you are correct. So I think there's 2 factors that go into it. So uh, you know, first I would separate the notion of Telos in North America versus the rest of world. So rest of world is kind of stable, not that different North America. I think the 2 big factors that affected our, uh, 1.
These Investments are typically based on, you know, what is the interest rate? What is the ROI and is their consumer sentiment, that's positive. And So based on that, uh, I think if we see uh, you know, speculatively a little bit of movement on interest rates, certainly it would probably encourage some of them to, to lean in a little harder. And so, of course for us,
Intrinsically. What? That means is a Tailwind relative to them.
Trying to make the business case work, right? So that that that would certainly uh be the case. The second element of it is I would say the Telos spending patterns what we have done. Strategically is there is uh think of it as maintenance capex that they have to do and build new networks and maintain networks and we obviously participate and benefit when they increase that. Uh but at the same time what we are doing is continuing
Great. Thank you.
Thank you.
Thank you. And once again, everyone, if you have any questions or comments, please press star, then 1 on your phone.
Your next question is coming from Hobbit Kourend from BWS Financial. Your line is live.
Right on the comments.
The the AI global leaders. Um, are these mainly North American companies, um, or the international I mean you're using plural tense. So it's, it's sounds like multiple customers there.
No, no, that's right. The good question. Um, and thank you. Uh, so I would say there are two parts to it. I think certainly some of them are not American players. And, as obviously, you can imagine, they are not all in the same type of company, but a lot of them are at the forefront of building new AI infrastructure, right? So, that is correct. It's more than one. Uh, and the second part of it is, uh, you know,
obviously part of the reason and motivation for us to talk about some of the new AI products in like interop event in Japan, uh, as well, is we have Traction in a Mia as well as Japan with large, Global players who are evolving their plans around, how do they take advantage of AI, uh, and not
Not all of them want to depend on 3 American companies for AI, right? So uh, so we are partnered with uh, those customers long-term uh in Asia as well as in Europe.
Okay, and then how much of a benefit did you see from foreign exchange this quarter?
So I think if you, you know, you know this, Hamed, but obviously for us, the only foreign exchange exposure is with the Japanese Yen. Everything else is conducted in U.S. Dollars. And actually, I think this quarter foreign exchange was a small, very small advantage—like not less than 100 basis points, a lot less.
Okay, great. Thank you.
No problem. Thank you Ahmed.
Thank you. Your next question is coming from Christian's web from Craig Hallam. Your line is live.
help us just again, what what what percentage of Revenue is, is AI driven, and I'm kind of thinking maybe some of your firewall products to secure Ai and large language model, inference environments, you know, given the growth that we're seeing there, you know, how long before um that kind of drives you know, double digit
Plus type of year-over-year growth for you.
Yep. No great. No good question. Thank you, Christian. So uh 2 2 maybe 2 points 1 is uh
The growth in our results that we are seeing because of AI relates more to our customers, building new data centers that host and manage AI traffic, more than anything else. Because that's today uh where we are engaged with customers on things, like AI firewall and Predictive Analytics, uh, is in the early phase of where those customers are deciding how to take advantage of AI. What does this mean for them? Uh, Etc. So
that will translate into Revenue, probably in 26 and Beyond, uh, but it's really important to be engaged with them on that road map today. Uh, and the
And it's a fair question, and we'll figure out how to maybe explicitly address that in the future. But the subtlety of that question is, if a customer was planning to build four data centers,
Now, they are saying we still are going to build 4 data centers, but change them.
To be able to accommodate more AI type traffic and AI related security than before. So, it's a little bit subtle for us to try to judge,
What is the differential between if they build regular data centers versus AI data centers? Right? But I understand your question, which is how much of our growth is exposed and driven by AI. And I think we'll figure out a way to quantitatively address that.
fantastic. No other questions. Thank you.
Thank you for Patiently Waiting.
Yeah, yeah. Hey, hey guys, thanks for taking the questions and congrats on the strong results. Um, maybe just to start to start here. Um, you know, I Believe on last quarter's earnings call, you know, you guys had mentioned that 810 had sort of multiple customers that helped Drive. The good Enterprise Revenue growth in q1. So just looking within the Enterprise cohort, can you maybe double click on what you saw this quarter, whether that be from, you know, a customer vertical and or go perspective
Uh, sure. Yeah. So I think, you know, if you look at, uh, our results, uh, by geography, first thing you'll notice is, right? If you look at even our Enterprise growth, uh, on a TTM basis of 8%, right? Which we think on a peer group basis is, is, is still stronger. Uh, our growth in Enterprise and North America was significantly higher than 8%. Uh, so our, you know, Investments
have been aligned with uh growing with large Enterprise segment. Uh not small and medium, but large Enterprise segment in North America and our growth. Uh reflects effectively that result, right? Where. Even if the global this number is 8, North America.
Particularly than us number is much higher, so that 1 element of it. Uh, the second thing you asked around, you know what types of customers. So you know, we obviously for a company of our size, we need to be a lot more focused uh, versus going after every Enterprise customer. And as I think, we have continued to say in the past, our focus is around large Enterprise customers who operate very complex networks and are highly concerned about security. And what that means is segments, like financials, uh, gaming and technology companies, for example, uh, where you have a lot of users,
High risk of security and data. Breach, uh, and Mission critical things such as, you know, latency of your network, which is very important. Whether it's from a gaming experience perspective, or from the perspective of being able to process trades uh on Wall Street. So uh, so that's, that's our Focus area. That's where we made Investments around product product road map as well as commercially. And that's where, you know, we expect
And hope we continue to execute, well to build that Foundation.
Got it. Uh, super helpful. And then I just wanted to um, touch on uh, thread X. You know, I appreciate it's, you know, it's still early days but it was was wondering, you know how those conversations are going with both existing prospective customers. How it's, you know, been integrated and um, you know, if it's, you know, if you guys think that it could help Drive uh, higher net, new business, you know for your cyber security portfolio, particularly within the the larger Enterprise, any color here would be helpful. Thanks guys.
Yeah, no Michael, thank you. Good, good question. So I think, absolutely right. Uh, so I think for us obviously with thread X, um, we were able to integrate into our portfolio a very, very strong product, which is particularly recognized in the industry as something. That's very easy to download set up and run and in cyber security. That's a big premium because
Typically you know people are just confused by 20 Acron thrown at them. So I think the fact that they are easy to set up and run is actually a differentiator and 1 of the reasons we really like their solution. Uh the second part is as you said correctly uh
As we think of the evolution of network architecture and cyber security. What is important is
when the world moves to more of a networking and Ai and Learning Centers uh all distributed
It becomes more of an API and web security story. And with thread X. Now, we are able to integrate our strength in, you know, dose bought all those components already.
Alongside with a contemporary API and web solution that helps us not just be aligned today on a product side, but actually be aligned from a road map perspective, long term. So uh, in terms of scale, it's hard to say how important thread X is. But in terms of importance to our customers, it is a very very important part of
Us being seen as the relevant solution for them, who provides the right mix of networking expertise and security expertise, while being contemporary with their roadmap on AI as well.
And sorry Michael. The second part you asked was uh, you know, so you are correct. It's pretty early days uh to uh, to know 1 way or the other. But our goal is, of course, eventually as we continue to learn more about the customers, the buyer Behavior, and the market Trend, uh, that we are able to start taking it to more and more of our customers and it's a process. We have started, uh, already and we, we think it's promising relative to what we were expecting, uh, but obviously those Cycles typically take 6 to 9 months. So it's hard to, uh, declare Victory or not. But certainly our early indicators are, it has clearly
Helped us assess different types of buyers and expand kind of the aperture of what we discussed with customers.
Perfect, thanks for the caller.
Yep, thank you.
Thank you, that complete, concludes our Q&A session. I'll now hand the conference back to Droopy for a closing remarks. Please go ahead.
Thank you.
Thank you to all of our shareholders for joining us today and for your continued support.
We greatly appreciate the deep customer relationships.
Along with our dedicated employee base, around the world for working to deliver consistent results. Thank you.
Thank you, everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.