ATEN earnings call analysis

NYSE:ATEN Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings. Welcome to 810 Network's fourth quarter and full year 2025 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. I will now turn the conference over to your host, Tom Bauman. Sir, you may begin. Tom Bauman | Host: Thank you, and thank you all for joining us today. This call is being recorded and webcast live on and may be accessed for at least 90 days via the A10 Networks website at atennetworks.com. Hosting the call today are Drupal Trivedi, A10's President and CEO, and CFO, Michelle Karan. 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 2025 financial results. Additionally, A10 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. 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, February 4th, 2026. 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. A-10 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 most recent 10-K and quarterly report on Form 10-Q. Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP basis. unless otherwise noted, 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 prepared remarks 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.atennetworks.com. Now, I'd like to turn the call over to Drupad Trivedi, President and CEO of ATEN Networks. Drupad Trivedi | President and Chief Executive Officer: Thank you, Tom, and thank you all for joining us. Today, ATEN reported record quarterly and full-year revenue results. These results reinforce ATEN's strategic position. A key contributor continues to be the sustained investment in an environment supporting AI-driven workloads. As customers scale high-performance computing, inference platforms, and data-intensive applications, they are increasingly focused on traffic management, availability, and security at massive scale. These requirements play directly to ATEN's strength. For the full year, revenue grew 11% year over year, outpacing growth rates across much of our competitive landscape and underscoring the increasing relevance of our portfolio with customers. We entered 2026 with momentum supported by macro trends as a result of our agile strategy, strong execution, and excellent industry reputations. Increasingly, we are considered a foundational piece in the development of AI and other infrastructure, in addition to being a critical component for customers operating their current environments. As our customers grow, we grow. In the fourth quarter, we delivered 80.4 million in revenue, our largest single quarter ever. Revenue expanded 8.3% year-over-year in spite of an unusually strong seasonal fourth quarter last year. Our investments in targeting North America customers has resulted in this portion of our business growing faster than ever. Operator | Technical Support: We seem to have lost Drupid's line. Just one moment while we get him reconnected. Okay, Drupad, your line is live. Okay, great. Drupad Trivedi | President and Chief Executive Officer: In the fourth quarter, we delivered 80.4 million in revenue, our largest single quarter ever. Revenue expanded 8.3% year over year in spite of an unusually strong seasonal fourth quarter last year. Our investments in targeting North America customers has resulted in this portion of our business growing faster than our overall revenue. And we continue to be well positioned with these customers while maintaining our geographic and customer diversity. Our global diversification continues to enable consistent performance despite macro variability. For full year 2025, we delivered revenue of 290.6 million up 11% year over year, and adjusted EBITDA of $86 million, which represents 29.6% of revenue. These are all company records and continue to demonstrate the inherent strength of our strategy, operating model, and disciplined execution. Security-led solutions are now sustainably at our long-term goal of 65% of total revenue. This shift reflects not only the breadth of our portfolio, but the increasingly central role security and encrypted traffic play in legacy networks as well as next generation networks. During the quarter, we closed a win with a large global data and analytics software provider serving customers across highly regulated industries. The customer was experiencing rapidly rising encrypted traffic volumes driven by platform expansion and recent acquisitions, creating both performance and cost challenges. ATEN was selected for its ability to deliver high-performance solutions supporting the next-generation network with hardware acceleration and improved security, enabling the customer to consolidate infrastructure, support future growth, and materially improve cost efficiency. We also closed a significant new win with a large global airline operating highly distributed mission-critical digital platforms. The customer was focused on improving automation, performance, and centralized management across a complex hybrid environment while reducing operational costs at scale. ATAN was selected for its ability to deliver state-of-the-art cybersecurity, resilient next-generation networking solutions with deep automation, while supporting consistent performance and availability across an always-on customer-facing operating model. Importantly, these wins are representative of the type of demand that aligns well with our operating model and our strategic growth drivers. They reflect customers prioritizing performance, security, and efficiency at scale. Use cases where ATEN can deliver strong value without incremental complexity or disproportionate cost. We continue to drive a disciplined operating model that balances targeted investment with margin expansion converting growth into profitability and cash, while dynamically reinvesting in strategic priorities. As previously noted, investing in organic growth is one of our strategic priorities, in addition to returning capital to shareholders. We have reallocated our research and development budgets, focusing on accelerating some of our future AI-related solutions and integrating AI across all our offerings, supporting current and future growth. We remain committed to our long-term operating model, driving revenue growth more than 10%, adjusted EBITDA margins of 26 to 28%, and EPS growth faster than revenue growth. ATEN is well positioned to serve our customers, and our solutions are well aligned with the dynamic needs of today's customers. Today, ATEN works with nine of top 10 telecom operators, eight of the top 10 cloud providers, and more than 7,000 customers globally. The investment cycle to support AI specifically and network capacity generally continues to drive sustained demand. ATEN is positioned to grow with our customers and our proven capabilities and industry leading total cost of ownership are helping us win new business as well. With that, I'd like to turn the call over to Michelle Caron, our Chief Financial Officer, to review the numbers in more detail. After that, I will discuss our 2026 outlook. Michelle. Michelle Caron | Chief Financial Officer: Thanks, Drupad. As a reminder, 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 on our press release and on our website. So now let me turn to the results. As Drupid noted, we delivered a strong Q4 and entered 2026 with encouraging momentum. Fourth quarter revenue grew 8.3% to $80.4 million. This was a record revenue level for A10. From a mixed perspective, product revenue accounted for 61% of total revenue and service revenue represented 39%. Product revenue of 48.8 million grew 13% year over year and typically is representative of future revenue trends. Within our product revenue category, the fourth quarter achieved our long-term target of generating more than 65% of our total revenue from security led solutions. This demonstrates our ability to deliver differentiated solutions, leveraging our strengths in performance, scale, and reliability. Looking at our major verticals, Enterprise customers represented 42% of Q4 revenues. The Americas continued to outpace overall enterprise revenue growth for the company in line with our stated strategy. Service provider revenue, which was 58% of total revenue, was weighted towards cloud providers, further indication of our success in strategically aligning our offerings with AI infrastructure build-out. In fact, non-cloud service provider revenue was flat year over year, reflecting an ongoing mix shift as customers prioritize security and next generation networking initiatives over legacy infrastructure. A10 has evolved its solutions to be well positioned to capture legacy refresh demand as this market transition progresses and customers resume investment while continuing to align with their evolving priorities around performance, scale, and security. From a geographical perspective, our Americas region represented 64% of global revenue, reflecting the benefits of ATEN's investments in our enterprise segment and strength of AI infrastructure build-out. Macro-related headwinds such as persistent inflation and threat of tariffs in the rest of the world were more than offset by strength in Americas. Q4 operating results reflected our continued investment in our strategic initiatives as well as our financial discipline. Non-GAAP gross margin was 80.8% in line with our stated goals of 80 to 82%. Operating expenses were $43.6 million, with an operating margin of 26.6%, reflecting increased investments mainly in R&D, focusing on next generation networking and security. Our non-GAAP effective tax rate was 15.7%, resulting in net income of $19.1 million, or 26 cents a share. Q4 diluted weighted share count was 72.7 million shares. Adjusted EBITDA was $24.9 million, 31% of revenue. We generated 22.7 million in cash flow from operations in Q4, with CapEx coming in at 6.7 million, bringing free cash flow for quarter four in at $16 million. We've continued to invest in the business while also returning capital to our shareholders. Now I'll turn to the full year results. Revenue grew 11% to 290.6 million with non-GAAP gross margin coming in at 80.6%. At the same time, we delivered record adjusted EBITDA of $86 million or 29.6% reflecting disciplined execution and a highly productive operating model. Net income was $66.3 million, or 90 cents a share, and was up from 64.8 million, or 86 cents a share, in the prior year, while we invested significantly throughout the year in strategic investments such as AI and security. As a result of this, we were still able to increase EPS on a year-over-year basis. Our growth was driven by increased demand for security-led revenue, which represented 72% of total revenue for the year. Revenue from the Americas increased 30% for the year, while revenue from EMEA increased 12%. offsetting a decline in revenue from APJ where the region has been experiencing macroeconomic headwinds such as low GDP growth, persistent inflation, and concerns with tariffs. We continue to have deep customer relationships in these regions to preserve our geographic diversity. Turning to the balance sheet, cash and marketable securities were $378 million as of December 31st and our deferred revenue was 142.8 million. During the year, we paid $17.4 million in cash dividends and repurchased $68.9 million worth of shares, returning a total of 86.3 million to shareholders. The board has approved a quarterly cash dividend of 6 cents per share to be paid on March the 2nd to shareholders of record on February 16, 2026. The company has 53.4 million remaining on its 75 million share repurchase authorization. Now, we're closely monitoring the broader supply environment, including the memory segment, which has been widely discussed across the industry by customers, partners, and competitors alike. Based on our supply management processes, we don't expect this to impact the delivery to our customers, and we continue to navigate cost pressures alongside our suppliers and our customers. As a result, we've taken proactive steps around supply planning, supplier engagement, and component flexibility to mitigate potential impacts. We deployed similar measures in previously supply constrained environments such as 2020, so we feel well positioned to navigate this dynamic. I look forward to speaking with many of you in the coming weeks, gathering your feedback on our strategy and operations. I'll now turn the call back to Drupad for a discussion of our 2026 outlook and closing comments. Drupad Trivedi | President and Chief Executive Officer: Thank you, Michelle. The results for the fourth quarter and full year validate the strategic investments we have made over the past half decade to reposition ATEN as a valuable partner for addressing the new and emerging challenges related to the evolving technology environment. The demands AI brings to a data center or a CSP are challenges that ATEN has a proven track record of addressing. We facilitate east-west traffic, efficiently managing workloads, and dynamically prioritized traffic emphasizing high throughput and low latency, all with integrated security. As a result, ATAN is positioned squarely in front of multiple durable secular catalysts. We are investing to enhance our position across our portfolio. Our business model dynamically allocates resources to address changing market conditions while preserving profitability and shareholder return. In the press release we issued today, we laid out our initial 2026 outlook. On a full year basis for 2026, we expect to deliver both top and bottom line growth, including revenue growth of 10 to 12% over 2025 levels. We also expect non-GAAP gross margin in line with historical trends and within our stated business model goals of 82% while navigating input cost pressures. We expect to expand our net and EBITDA margins from current levels, and we expect EPS growth to exceed our revenue growth rate. We will provide additional strategic and solution context around our growth drivers and market positioning at an upcoming investor day. including a deeper discussion of the factors that drive these expectations. Operator, you can now open the call up for questions. Operator | Conference Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star 1 if you have a question or a comment. The first question comes from Gray Powell with BTIG. Please proceed. Gray Powell | Analyst, BTIG: Hey, great. Thanks for taking the questions, and congratulations on the good results. Thanks, Gray. Absolutely. So maybe a couple questions on my side. Just to start off, it was really good to see the improvement in service provider growth in 2025. Just, you know, as we think about 2026, how sustainable is the trend there? And then I know you hit on this in the prepared remarks, just like how should we think about the different growth drivers within service provider, you know, like a recovery in traditional communication companies? versus continued growth from the cloud providers deploying AI infrastructure? Thank you. Drupad Trivedi | President and Chief Executive Officer: Yeah, great. No, thank you. Good question. Yes, I think as we went through the period this year, right, I think you can see in the results, we saw certainly relative to 2024 an improvement in the service provider segment overall. I would say the two things to note, first is Majority of that growth did come from cloud-oriented companies, whether it's in US or elsewhere, building out infrastructure towards AI or towards more cloud services. However, I would say as we went through the year into Q3, Q4 period, we saw not return to original levels, but certainly improvement in spending patterns with also the traditional telcos. And the nature of their investment, I would say, is twofold. One was relative to improving their security position and posture for the networks or the enterprise services that they provide. And second, I would say that because of the nature of our portfolio, the other part of that growth was them simply needing to add capacity to manage more data and more users and more traffic on the network, right? So without them needing to build like a kind of a greenfield new network, both those drivers were relevant to us. One was making their networks more secure, and second is continuing to modernize the network as well as adding capacity while they do that. Gray Powell | Analyst, BTIG: Got it. Okay, and then just a quick follow-up, if it's okay. I know it's probably really hard to quantify, and maybe it's too early, but are you seeing AI drive higher traffic volumes, like higher levels of DDoS attacks or something else, and that's driving part of the refresh cycle, or am I getting ahead of myself there? Drupad Trivedi | President and Chief Executive Officer: Yeah, no, that's a good question, Gray. I think, you know, we certainly monitor that. And I think your question, it may be a little early. I don't think we are past that point where we could quantify or talk about it. But absolutely, there is two sides of the coin, right, is where AI also facilitates kind of ease of deploying more complex, more sophisticated attacks, and therefore also drives volume. And some of it is related to also the nature of traffic that did not exist on the network before AI, right? So that certainly is a factor. A little early to quantify, I don't think that service providers are investing yet on that, but they are certainly viewing that as something to worry about. But they do expect and anticipate increasing volume just from the nature of the volume increase when people constantly feed prompts and get feedback as opposed to not having that traffic before. So that certainly also feeds the growth. And the security is something that is on, I would say, everybody's radar, but hard to quantify that yet. Gray Powell | Analyst, BTIG: Understood. All right. Thank you very much. Thanks. Operator | Conference Operator: Our next question comes from Sandy Soderstrom with Sudoti. Please proceed. Sandy Soderstrom | Analyst, Sudoti: Thank you for taking my question, and congrats on the quarter and the outlook for 2026. Thank you. You had quite an outperformance in the fourth quarter. What was the main surprise here? What changed during the quarter, and sort of how did the quarter trend for you? Drupad Trivedi | President and Chief Executive Officer: Yes, I think for us, as we had talked about, right, Anya, is that our focus is Obviously, we have a strong position with the service provider segment globally, and as that improves, maybe not fully recovered, we'll continue to see some benefit from those deep relationships that we continue to build upon. So that, obviously, you can see in the numbers helped a little bit. Second is we continue to focus on growing our footprint around larger customers, including in the enterprise segment. And we highlighted a couple of new customers. So our ability to land new large customers obviously is also helpful to that growth while we benefit overall, right? And third, as we said in our comments that to the degree where some may be a lot, some may be not so much. People are investing in AI infrastructure. Our portfolio is well positioned, so we see that. So I would say SP becoming slightly better was, I would say, better than we expected. Not all the way back, but certainly something that helped us in the quarter. Our growth on enterprise side as well as on AI-led infrastructure was what we were expecting. Sandy Soderstrom | Analyst, Sudoti: Okay, thank you. And you mentioned some new customers. Did you displace someone with them? Drupad Trivedi | President and Chief Executive Officer: Yeah, I think typically in most of those cases, we would be displacing them. I think the only exception to that is When we work with customers on some of our security solutions, they may not be using anything today, right? And they are implementing new security protocols or standards. So in that case, it's not replacing somebody. But outside of that, it would be certainly in a competitive situation. Sandy Soderstrom | Analyst, Sudoti: Okay. And is it like one specific... competitor are you replacing or is it more broadly and has it changed at all recently, the competitive landscape? Drupad Trivedi | President and Chief Executive Officer: No, so I would say no real change in the landscape, right, as we have talked about in the past, right, on enterprise side and security side, it's the same competitive landscape. I think we just continue to work at improving our solutions and be more in tune with customer needs. So I think as that is better aligned, we I've seen better opportunities as well. Sandy Soderstrom | Analyst, Sudoti: Okay, and just one more from me. If I heard you right, there was an uptick in the CapEx spend. What's driving that, and how should we think about that for 2026? Drupad Trivedi | President and Chief Executive Officer: Sure, yeah. So I think, you know, If you kind of look at our trend, there was a little bit of taking CapEx in Q4. There's two real drivers to it. I think one of it is related to our need to invest in some of the backend infrastructure. So when we, you know, acquire a company like ThreadX and we are offering some more services, what that translates to is not necessarily cost from a traditional sense, but on hosting services, data centers, SOC, and doing our security right to strengthen our own security operations and so forth. So some of that investment is really around enabling the solutions that are helping our solutions be more relevant to customers in terms of either hosted solutions or backend infrastructure. So a lot of that is in IT. And then some part of it is as we are in the early stage with customers doing demos and POCs on AI infrastructure. Obviously, we are investing a little bit of that capex in new kinds of processors and chips and GPUs and things like that. Sandy Soderstrom | Analyst, Sudoti: Okay. Thank you. That was all for me. Drupad Trivedi | President and Chief Executive Officer: Thank you, Anil. Operator | Conference Operator: The next question comes from Hamid Khursan with BWS Financial. Please proceed. Hamid Khursan | Analyst, BWS Financial: Hi. Could you just walk through your your guidance a bit here. This is the first time you've been willing to provide any kind of guidance this specific in like two, three years. How are you seeing that visibility? Is it enterprise, the service provider? And how certain are you that this is going to actually be there compared to two, three years ago when you stopped giving guidance? Drupad Trivedi | President and Chief Executive Officer: Yeah, I think that's a good question. I think if you look at how kind of the environment has evolved and our products and business has evolved over the last two, three years. Certainly, right, we were much more exposed to just the SP or the traditional SP spending cycle, which is capex cyclic and capex intensive and so harder to predict over long periods of time. What we did guide even the last three years, as you know, Ahmed, was delivering on the gross margin and EBITDA percent, but not as much on top line because of the level of variability with everything going on, right, with macro as well as micro. So as we see the last few quarters, I think we have continued to make the base of our revenue more durable. And as we are getting more more of that from enterprise or large enterprise, as well as SP, as well as AI spending. I think in an aggregate, we think we can sustain kind of the momentum where we are, where, you know, we just finished the year at 11% year-over-year growth. So we feel that based on the visibility we have with the six to nine-month cycle and more diversified exposure across these markets, that's all it is, right? fundamental outlook of saying you know EBITDA 26 to 28 percent gross margin 80 to 82 percent and EPS growing year over year has not changed I've given that guidance every year right so okay great and my other question was related to the your APJ performance was that country specific or was that multiple countries Yeah, no, I would say that the majority of it was related to Japan, and I think it's heavily related to the environment there with the low GDP concern over what, you know, tariff environment could mean, and therefore large SPs as well as enterprise holding off on investment. So I think we certainly are not seeing us losing share, but we are certainly seeing depressed spending in line with all the macro news you would see out of Japan. Outside of Japan, I think we were fine. It was not that negative, probably close to company average. Hamid Khursan | Analyst, BWS Financial: Okay. Thank you. No problem. Thank you, Ahmed. Operator | Conference Operator: Again, if you have a question or a comment, please press star one on your touchtone phone. The next question comes from Michael Romanelli with Vizuho. Please proceed. Michael Romanelli | Analyst, Vizuho: Yeah, hi. Thanks for taking the question. So, you know, enterprise revenue growth was 8% this quarter, obviously much improved from the 10% decline reported last quarter. I guess, did you, you know, close any notable deals that perhaps push from the 3Q? And, you know, I guess going forward and, you know, in relation to the, you know, 10% to 12% growth outlook for 2026, how should we be thinking about enterprise business growth for the full year? Drupad Trivedi | President and Chief Executive Officer: Yeah, so I think, good question, Michael. And I think if you remember last call, right, I talked about the fact that because we are early in expanding our footprint into that marketplace, it's going to be a little bit choppy. And therefore, even the last quarter, we were highlighting, focusing on the TTM growth versus every quarter, right? So every quarter could be up or down. But on a trailing 12-month basis, we are confident that that segment will grow at least at the fleet average of 10 to 12%. Michael Romanelli | Analyst, Vizuho: Okay, got it. That's helpful. And then, you know, as part of your presentation, prepared remarks through PID. You know, you highlighted a few encouraging wins in Q4, which was, you know, great to hear. You know, I guess, like, overall, how would you characterize, you know, net new enterprise logo activity this quarter? And, you know, as part of the, you know, 2026 guide, like, you know, obviously you have a very large install base, but, you know, how should we be thinking about, you know, your ability to sign up, you know, many more new enterprise customers? Thanks. Drupad Trivedi | President and Chief Executive Officer: Yeah, no, it's a good question. And I think, you know, what I would highlight again, right, is as a company, based on our technology and value proposition, we are not really focused on an SMB market orientation. So really, we are not looking at how many hundred customers we acquire every quarter and how many churn and everything else, right? So our goal is really to continue to get new customers, typically in large enterprise who operate complex network with thousands of users, mission critical environments, right? So in that context, obviously acquiring new customers is very, very important. but it's very different than a typical SMB model. And we don't need to acquire hundreds of customers to get that growth, right? So we absolutely have a good pipeline of adding new customers, but even once we have those customers, typically we continue to expand and sell them more product categories as well over time. So that's an important metric for us, but I would say, It's different than maybe an SMB-oriented business. Tom Bauman | Host: Got it. Okay. Thank you. Thanks. Thank you, Michael. Operator | Conference Operator: The next question comes from Hendy Susanto with Gabelli Funds. Please proceed. Hendy Susanto | Analyst, Gabelli Funds: Good evening. Drupad Trivedi | President and Chief Executive Officer: Hi, Hendy. Hendy Susanto | Analyst, Gabelli Funds: Hi, Drupad. You highlighted how AI can drive growth in three categories like modernization, network capacity, and security. How do you rank among those three? Drupad Trivedi | President and Chief Executive Officer: Yes, I think, you know, obviously core of our growth comes from capacity, whether it's existing or new or new build-outs or growing as the network. Security is not decoupled from capacity, right? So obviously our goal was to get security-led revenue to be, 65% of total and we are there and we'll stay there. And we are confident we can continue doing that. Modernization, I think there's two aspects to it. One is when people are modernizing applications and use cases, then obviously we are relevant. The second part of it is where modernization means somebody has to build a brand new 5G network, obviously that's not a growth we bet upon and we will benefit when that happens more, when somebody builds, you know, kind of a greenfield network. But in the current economic environment, we don't count upon that as a major driver. And our goal is to find growth independent of that. And if that happens, then that's good, right? So it's really, around working with our customers on their current networks and capacity and security while enabling them with more and more capabilities and then obviously benefiting more than that if they build new networks. Hendy Susanto | Analyst, Gabelli Funds: Thank you, Drupad. And then one more question. There's a growing conversation about agentic AI as a growth opportunity in 2026, like an early stage of growth. of agentic AI. I would like to check in in case you have seen some use cases emerging for agentic AI application and how we should be thinking about ATAN networks in that context. Drupad Trivedi | President and Chief Executive Officer: Sure, yeah. So I think, you know, like all of, you know, we hear from a lot of the people in industry and others as well, right, Dan? It's early in the cycle where we are engaged with customers really is... While we do have AI products per se, where we are much more engaged with customers is how do they plan to use AI for their business goals and what they do with it. Some of the examples we have talked about is for our service provider type customers, in the next two to three years, having an ability to do predictive analytics, and getting predictive insights into their network and performance and capacity planning is important to them. It's still early because companies are themselves figuring out how to take advantage of AI. Second is, of course, as we talked about, as companies use more AI, whether it's a you know, onsite model or a global model, they will have new kinds of traffic, new kinds of thread, and new capabilities needed to manage those, and particularly with low latency and more distributed networks. So in that environment, obviously, we are working with customers also on how to continue to improve their security posture with new types of traffic, and also enabling the architecture where they can manage that kind of traffic better on their networks. Okay. Hendy Susanto | Analyst, Gabelli Funds: Thank you so much, Drupad. Thank you, Andy. Operator | Conference Operator: We have reached the end of the question and answer session, and I will now turn the call over to Drupad Trivedi for closing remarks. Drupad Trivedi | President and Chief Executive Officer: Thank you. And thank you to all of our employees, customers, and shareholders for joining us today and for your continued support. I am increasingly confident in our strategic orientation with security and AI infrastructure spending patterns. Thank you for your time and attention. Operator | Conference Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606085946-00'00'

NYSE:ATEN Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: Good day, everyone, and welcome to the A10 Network's third quarter 2025 Financial Results Conference Call. At this time, all participants are on a listen-only mode, and we will 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 Bauman. Sir, the floor is yours. Tom Bauman | Host, Investor Relations: Thank you all for joining us today. This call is being recorded in webcast slides. and may be accessed for at least 90 days via the ATEN Networks website at atennetworks.com. Hosting the call today are Drupal Trivedi, ATEN's President and CEO, and CFO, Michelle Curran. Before we begin, I would like to remind you that shortly after the market closed today, ATEN Networks issued a press release announcing its third quarter 2025 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. 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, November 4th, 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. A-10 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 that with the exception of revenue, financial measures discussed today are on a non-GAAP basis, unless otherwise noted, and have them 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 a10networks.com. Now I'd like to turn the call over to Drupal Chavetti, President and CEO of A10 Networks. Drupal Trivedi | President and CEO: Thank you, Tom, and thank you all for joining us today. A10's strategic position, aligning our solutions and technology roadmap with the persistent needs of our customers, around trusted infrastructure, cybersecurity, and AI capabilities continues to enable growth that outpaces our market peers. Our solutions emphasize high throughput, low latency, and integrated security, which our customers and the broader market increasingly view as essential. ADAN is well positioned alongside the durable catalysts that are driving spending across our markets. In the third quarter, revenue grew nearly 12% year-over-year. On a trailing 12-month basis, growth from enterprise customers in North America continues to outpace our overall company-wide growth. Revenue from the Americas has increased 25% on trailing 12-month basis, driven primarily by investment in AI infrastructure. This performance helped offset macro-related headwinds in other regions. Our global diversification continues to enable consistent performance despite macro variability. AI-related deployments were a key driver for growth where security and performance at scale are critical. These applications are power-hungry, and our solutions deliver efficient throughput and low latency with integrated best-in-class security capabilities. This allows customers to achieve target performance with fewer devices, improving total cost of ownership while maintaining the highest levels of network performance. We continue to leverage this advantage in large data center opportunities globally. Our operating model continues to focus on discipline and leverage, converting growth into profitability and cash while reinvesting in strategic priorities. EBITDA margins expanded year-over-year from 26.7% to 29.3%, while non-GAAP operating margin expanded from 22.6% to 24.7%. This demonstrates the inherent leverage in our model, even as we continue to invest more in R&D. 8N is well positioned to serve both enterprise and service customers alike while we navigate macro uncertainty. In the world of AI, these will be harder to demarket as customers redefine their architectures. Our increasingly strong alignment with AI infrastructure build-out and adoption gives us confidence in our strategic positioning as we align investment with structural tailwinds of AI and cybersecurity. As our investments in innovation and product enhancements have taken shape, we have established ourselves as a stronger, more differentiated technology solution provider. On a trailing 12-month basis, growth stands at just over 10%. Based on momentum in key strategic initiatives, we expect full-year growth rate of 10%. With that, I'd like to formally welcome Michelle Kern, our new Chief Financial Officer, to the call. I also want to take a moment to thank Brian Becker. Brian had been an important part of the leadership team during ATEN's progress and had instituted strong processes that will continue to serve us well into the future. Michelle brings deep operational and financial expertise from complex global organizations and a proven ability to align financial strategy with growth opportunities. Her background complements ATEN's disciplined culture and long-term transformation agenda. We expect continued disciplined execution and an increased focus on capital deployment to play a role in our overall growth. Michelle's experience positions her well to help drive that next phase of the company. Michelle? Michelle Kern | Chief Financial Officer: Thank you, Dhruv. I'm excited to join A10 at this important inflection point. What drew me here is the combination of a strong foundation coupled with an even stronger opportunity ahead. With a proven business model, solutions that are ideally aligned with global spending trends, and a Tier 1 customer base, A10 is positioned for consistent success. I share Drew Bidd's belief that we can continue to grow both organically and inorganically, and I look forward to contributing to both sides of that growth equation. My near-term focus involves building on our solid base and driving greater consistency, predictability, and profitability as we grow. I'll be concentrating on a few key areas. First, maintaining financial discipline and transparency. better aligning our performance and market expectations. Second, driving profitable growth, balancing top-line expansion with healthy margins and cash flow. And third, maintaining disciplined capital allocation, investing where we can create the most value while continuing to return capital to our shareholders. supporting our pipeline of M&A activities, and effectively putting our cash to work will be part of this initiative. Now let me turn to the results. As Drupid noted, we delivered a strong Q3, growing revenue almost 12% to $74.7 million, reflecting a mix of 58% product revenue and 42% service revenue. Global service revenue of $31.6 million, grew 6%, while product revenue of $43.1 million grew 17% year over year. Product revenue, which has been strong for the last two quarters, represents a leading indicator of future revenue. Our third quarter performance gives us confidence we're on the right track to deliver on our strategic priorities while continuing to drive rigor, building on our culture of excellence. Within our product revenue category, the third quarter reflected a greater contribution of security-led revenue, exceeding our long-term target of generating 65% of our total revenue from security-led solutions. This performance reflects customer demand and our alignment with customer needs, particularly within North America for both service providers and enterprises. Now, looking at our major verticals, enterprise customers represented 36% of Q3 revenues. As previously stated, America is our priority region, and we continue to see growth in excess of overall revenue on a trailing 12-month basis. Service provider revenue, which was 64% of total revenue, was weighted towards cloud providers. further indication of our success in strategically aligning our offerings with AI infrastructure build-out. From a geo perspective, our Americas region represented 65% of global revenue, reflecting the benefits of A10's investments in our enterprise segment and strength of AI infrastructure build-out. As Drupad mentioned, macro-related headwinds in rest of worlds were made up for in the Americas region. Now, 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 is provided in our press release and on our website. Our continued operating discipline contributed to our strong Q3 results. Non-GAAP gross margin was 80.7%, in line with our stated goals of 80 to 82%. Operating expenses were $41.8 million, reflecting an operating margin of 24.7%, an improvement of about 215 basis points year over year. GAAP net income for the quarter was $12.2 million, or 17 cents per diluted share. Non-GAAP net income for the quarter was $16.7 million or $0.23 per diluted share, reflecting a 7.4% EPS growth from the year-ago period. Diluted weighted shares used for computing non-GAAP EPS for the third quarter were approximately 73 million shares, down 1.7 million shares year-over-year, driven by our continued share buybacks. Adjusted EBITDA was 21.9 million, 29.3% of revenue, which is aligned with our long-term strategic goals. Turning to the year-to-date results, revenue for the first nine months of 2025 was 210.2 million, compared to 187.5 million, an increase of 12.1%. Non-GAAP gross margin was 80.5% year-to-date, Adjusted EBITDA was $61.1 million year-to-date, reflecting 29% of revenue. Non-GAAP net income on a year-to-date basis was $47.2 million, or $0.64 per diluted share, compared to $41.9 million, or $0.56 per diluted share last year. On a GAAP basis, Net income for the first nine months was $32.3 million, or $0.44 per diluted share, compared to net income of $31.8 million, or $0.42 per diluted share, in the first nine months last year. I'll now turn to the cash flow and balance sheet, both of which are very strong. We generated $22.8 million in cash flow from operations in Q3 last CapEx was $4.7 million, with cash and investments totaling $371 million at the end of the quarter. Deferred revenue was $143.5 million. During the quarter, we paid $4.3 million in cash dividends and repurchased $11 million worth of shares. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on December 1, 2025, to shareholders of record on November 17, 2025. The company still has over $60 million remaining of its $75 million share repurchase authorization. I look forward to speaking with many of you in the coming weeks, gathering your feedback on our strategy and operations. I'll now turn the call back to Drupid for closing comments. Drupal Trivedi | President and CEO: Thank you, Michelle. We are encouraged by continued business execution and remain confident that ATEN is strategically well positioned in the market, especially as we see acceleration in AI infrastructure build-out. ATEN is positioned squarely in front of multiple durable secular catalysts. In fact, our strength in high-performance hardware and software is more relevant than ever before. 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 allocate resources to address changing market conditions while preserving profitability and shareholder returns. Operator, you can now open the call up for questions. Conference Operator | Operator: Certainly. 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. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Gary Powell from BTIG. Your line is live. Gary Powell | Analyst, BTIG: Hey, thanks. It's actually great stuff again for Gary. Gary's traveling today. But I just want to say congratulations on the good results. I just had a couple of questions. Thank you. Thank you. spk00: I appreciate it. Gary Powell | Analyst, BTIG: Thank you. Yeah, absolutely. I think last year security-led revenue was around 63% of the business, growing 9%. You called out 65% on the prepared remarks on the slide deck. Just how is it tracking this year, and where do you think it can go longer term? Drupal Trivedi | President and CEO: Yeah, good question. Thank you. I think so, you know, we had said long-term our goal was 65% because performance we see the connection between security and infrastructure as something that actually is a strength for us in the sense we want those things to work together and make it even better. So if you look at where we actually ended up in Q3, the number was higher than 65%. And so we feel pretty good continuing to maintain that goal of about 65%. And if we do better, that's great. But at the same time, we are not looking to lose infrastructure revenue in its place, right? So I feel pretty good that we have been able to improve that mix to, you know, from somewhere less than 30% to 65%. And obviously our goal is to lead with that because that tends to expose us to higher growth markets and applications. Gary Powell | Analyst, BTIG: Understood. Okay, that's really helpful. And then just a separate topic, and this one might be a little bit early, but F5 had a pretty bad data breach a few weeks ago. Again, like I'm sure it's, you know, a little bit early from your side, but is that something that can potentially help your customer discussions on the enterprise side of the business? Is that something that's come up at all in conversations yet, or is there any, I don't know, is there any directional commentary you could make about that? Drupal Trivedi | President and CEO: Yeah. Sure, yeah. No, I think good question, and I think, you know, first of all, I would say that all of us in the cybersecurity industry, right, face the same kinds of attacks and challenges that we are all resolving, right? So obviously we cannot specifically comment on anything, but I would say as we navigate that market environment and you look at, some of the key players in that space, right, including F5, of course. I think we have seen certainly an increased level of interest from customers, not necessarily wanting to change, but wanting to understand what else is in the market and what alternatives there might be towards making sure that their own infrastructure is more resilient in the future, right? So, of course, I think we'll continue to work with our customers just as we'll continue to work with the industry overall to find better ways to manage and handle cybersecurity challenges. Gary Powell | Analyst, BTIG: Okay. Thank you very much. Conference Operator | Operator: Thanks. Appreciate it. Thank you. Your next question is coming from Simon Leopold from Raymond James. Your line is live. for Simon Leopold\ Hi, guys. This is Victor Chew for Simon Leopold. Hi. You noted strength in North American AI infrastructure investments in your preparing works, but can you, you know, elaborate on this, you know, some of the specific factors contributing to the upside of this quarter, you know, were there a handful of specific customers or deals, or was it more, you know, was the strength more broad-based? Drupal Trivedi | President and CEO: Sure, Victor, thank you. Yeah, I think so, as, of course, right, you know, well, too, the market today in AI is pretty concentrated with, several large players, and then in the longer term, we are also engaged with a multitude of players who in two to three years' time will be doing a lot more things on their own. So right now it's in the phase of initial big build-out, and then it becomes more realistic in terms of business goals, local models, and so forth. So in this phase of the evolution, certainly the benefit to us was from a few large customers who are investing aggressively into building the AI infrastructure. But we are equally engaged with customers around the world on the enterprise side as well, who will be the beneficiaries long-term as they build out their own solutions and decide how to take advantage of AI. for Simon Leopold\ Great. That's very helpful. And just a quick follow-up, just to elaborate on the previous question, have you observed On the flip side, have you observed any negative collateral impact from the high-profile security breach from one of your key competitors of customers expressed specific concerns or hesitations moving forward with planned deployments? Drupal Trivedi | President and CEO: No, we have certainly not seen any negative impact from that. I think people are used to having to deal with public as well as private incidents in that space for many, many years to come. So it is certainly not a negative thing for us at all. And it's, you know, I would say it has certainly increased conversations we are having with customers. But at the same time, it's hard to say it's positive. But certainly there's no hesitation on customer side in terms of spending on ATEN's products, right, and holding off on that in any way. Great. Tom Bauman | Host, Investor Relations: Thank you. Thank you very much. Drupal Trivedi | President and CEO: No problem. Thank you. Conference Operator | Operator: Thank you. Your next question is coming from Julio Romero from Sedoti & Company. Your line is live. Julio Romero | Analyst, Sedoti & Company: Great. Thanks. Good afternoon. This is Julio on for Anya. Thanks for taking questions. Conference Operator | Operator: Thank you. Julio Romero | Analyst, Sedoti & Company: I'm good. Thanks. So my first question would be just it seems like the efforts you've done on the enterprise sales push have been working. Are there any more initiatives you can do there? And then secondly, where are you in the innings of expanding within this market? Drupal Trivedi | President and CEO: Yeah, no, good question. And I think, you know, we have been talking about that for a few periods now, right? So I think our initial thesis was around building up our capability on the product solution side as well as on the commercial execution side to get more stability with enterprise customers and growing our share. I think in the last two to three years, we have continued to see that kind of maturation process, if you will, And we believe certainly with our sales leadership currently in place, there is a lot of focus around that while we continue to support our service provider customers as well. So I would say if I had to characterize it in that sense, I would say probably we are in the third or fourth innings as we continue to build kind of our own maturation of the team, but also engagement with customers. Julio Romero | Analyst, Sedoti & Company: Excellent. Very helpful. And then, you know, just any preliminary thoughts you could share on how you would view 2026 shaping up for you from a top line and bottom line perspective, just at a high level at this point? Drupal Trivedi | President and CEO: Yeah, no, good question. And I think, you know, I would say you can see, obviously, last year was a little bit unusual year in terms of seasonality. And this year, as we talked about, we expect on a full year basis to get back to 10% growth and obviously the EBITDA results as well. As we look into the future, I would say the challenge, like everybody else, is we are dealing with uncertainties that we cannot control, such as interest rates and tariffs and everything else. But given the momentum in the business, particularly around secular tailwinds, that we are aligning more and more to. We feel that going into next year, we should be able to sustain the growth level that we are seeing now. And, you know, we obviously will continue to provide more clarity as we see it as well. But our goal is obviously to be in that high single digit range. And if the market aligns, do better than that, but at the same time focused on our business model goals on 26% to 28% EBITDA, as well as EPS growth faster than top line. Julio Romero | Analyst, Sedoti & Company: Excellent. Thanks very much, and best of luck in the fourth quarter. Conference Operator | Operator: Thank you. Appreciate it. Thank you. Your next question is coming from Hamid Korsand from EWS Financial. Your line is live. Hamid Korsand | Analyst, EWS Financial: Hi. I was just wanting to see what kind of progress you've been making as far as expanding your service provider customer base? Drupal Trivedi | President and CEO: Yeah. No, good question. So I think, Ahmed, I would probably differentiate it in two ways. So one is, you know, we, during this year, with our existing large tier one service provider, I think there has been, like most companies have seen, a lot of pressure on CapEx. And so our efforts there have been more around improving share of wallets, and cross-selling, whether it's in U.S. or Europe or Asia, right? Where we are seeing a little bit more traction is on the Tier 2 service provider side, where it's not necessarily related to things like lead funding, but we are certainly seeing a little more activity and rollout. So our progress there is, I would say, gaining new customers that are in that category of independent or Tier 2 type service providers, with tier one, you know, in addition to waiting for CapEx, really trying to expand our footprint to sell into different business units or selling them multiple products. Hamid Korsand | Analyst, EWS Financial: Okay. And then just looking out to, you know, the clarity you're seeing as far as your service providers are concerned, do you have that clarity at all? You know, is it better? Drupal Trivedi | President and CEO: Yeah, so good question, Amit. So I would say on the service provider customer side, it probably varies. So on the ones that are exposed to more building out things like cloud infrastructure, the clarity is decent, I would say. And, you know, we have a six to nine month kind of cycle, so we generally have a reasonably good idea. On the tier one telcos in Europe, I think we have reasonably good clarity, a little slower than normal, but moving along. Japan is pretty slow, but their economy is still, you know, in a difficult spot, right? So that we, it's in line with what we expect. In the U.S. tier one service provider, I would say where they are exposed to cloud and infrastructure like that, that is good. But on the pure classic telco side, it's still a little bit choppy in the sense that They may still spend the same amount for the full year, but projecting it by quarter is still harder than it normally used to be. Hamid Korsand | Analyst, EWS Financial: Okay. And could you just talk about what drove that big outperformance this quarter in the EMEA region for you? Drupal Trivedi | President and CEO: Yeah. Sorry, Ahmed, I think you broke up for one second. Can you please repeat? Hamid Korsand | Analyst, EWS Financial: In the EMEA region, it seemed like on your presentation slides, that was a big revenue portion. What drove that? Drupal Trivedi | President and CEO: Oh, I think so in Q3, the EMEA portion, the step-up that you saw, was one big project that culminated in the period. So it's probably fair to look at that three-quarter portion and average it to be more indicative of it, and it's not like a new step level that you should expect to continue seeing that. Hamid Korsand | Analyst, EWS Financial: Very good. Thank you. Conference Operator | Operator: Thank you, Amit. Thank you. Your next question is coming from Christian Swab from Craig Hallam. Your line is live. Greg Corder | Analyst, Craig Hallam: Excuse me, Greg Corder. Can you give us an idea yet of – the percentage of product revenue that's tied to AI-related security products? Drupal Trivedi | President and CEO: Yeah, no, good question, Christian, and I think you mentioned that last time as well. So we are working internally on how to create a view that does that, and the complication for us is, you know, for many of our customers, they were, let's say, going to build 10 data centers, Now they're still building 10, but six are designed for AI and four were what they used to do before. And I think we are trying to get a better handle on that through our customers so that we are more specific and clear in how we represent that. So that's the tougher part of it. Now, when you look at our service provider growth improvement, I would say majority of it is related to because they are doing AI build out. But it's hard for me to say from the 10 data centers, they build, you know, four were AI and six were not AI, right? Because they don't market that way either. So, But that's something that's on our docket, Christian, and that we are working towards in our Q1, you know, comments to start figuring out a way to show some kind of a proxy for that. Greg Corder | Analyst, Craig Hallam: Great. And then, you know, when you talked about the momentum and the business sustaining itself in 26, you know, we kind of did 10%. Then you went back to high single digits. So should we just kind of assume – you know, sustaining the momentum in the business, you know, next year's top line growth objective would be, you know, 8% to 10%? Did I hear that right? Drupal Trivedi | President and CEO: Yeah, I think that's a fair way to look at it. So I think that sort of the line of sight we have, right, is in that range for next year as well. And as we navigate things up and down, right, it's hard to – kind of nail it down by quarter at this point, but on a full year basis, certainly we feel good that that's a good, yeah. Greg Corder | Analyst, Craig Hallam: Great. Now my last question, seeing the increased customer interest as an alternative given F5's recent issues, you know, when would be a logical time for those indications of interest to potentially turn to orders? Is that, you know, three months, nine months, how should we be thinking about that opportunity? Drupal Trivedi | President and CEO: Yeah, no, good question. So I think, yeah, as I said before, certainly we are having customer conversations and certainly, right, we wish all those customers and F5 to resolve those problems swiftly for themselves because good thing for the industry. Typical sales cycle for us in that kind of an enterprise market is six to nine months. And, you know, we are engaged or talking to customers, But roughly speaking, that's the window in which you would see it translate into incremental bookings if that were going to be the case. Greg Corder | Analyst, Craig Hallam: Great. No other questions. Thank you. Conference Operator | Operator: Thank you, Christian. Thank you. Your next question is coming from Michael Romanelli from Azuho Securities. Your line is live. Michael Romanelli | Analyst, Aizuho Securities: Yeah. Hey, guys, thanks for taking the questions here. Maybe to start off, I was wondering, hey, Tripit, I was wondering if you can comment on linearity in the corner and how activity has been through the month of October. Drupal Trivedi | President and CEO: Yeah. No, good question. And I think, Michael, that it varies a little bit by regions as well. So I would say that linearity for us, you know, outside of America has been not atypical or in line with what we expect to get to. Within America, I think there is a little bit of jitter around kind of political things and tariff and interest rate. But overall, we don't see a dramatic change in linearity relative to what we were expecting. Michael Romanelli | Analyst, Aizuho Securities: Got it. Okay, that's helpful. And then my follow-up, you know, it's nice to see the services revenue return to growth, you know, following consecutive quarters of decline. You know, as part of, you know, revenue algo, how should we be thinking about, you know, your services revenue growth going forward? Thanks. Drupal Trivedi | President and CEO: Yeah, no, good question. So you are right. I think, you know, There's a little bit of timing element to the service revenue because it's related to one-year, two-year, three-year kind of support contracts and so forth. The way you should think about it is if our product is growing at a certain rate, typically that is sold with one-year service or support contract. So one year from that date. we would have a larger eligible pool of renewals and support contract and revenue. So in that sense, product revenue growing faster means that a year from now, it could naturally lead itself to service revenue growing faster as well. Michael Romanelli | Analyst, Aizuho Securities: Got it. Very helpful. Thank you. Conference Operator | Operator: Well, thank you. Thank you, Mike. Thank you. Your next question is coming from Hendy Susanto from Gabelli Funds. Your line is live. Hendy Susanto | Analyst, Gabelli Funds: Good evening, Drupad and Michelle. Thank you for taking my questions. Drupad, would you talk about opportunity in AI? Like we are somewhat familiar with A10 like core application, but perhaps you can go deeper into use cases for AI for service providers, data centers. tier one service providers, like where you foresee ATEN in inferencing, for example, whether it is like what are the growth drivers in AI, whether it is traffic or security, and then whether there are things that are somewhat presenting new use cases for ATEN? Drupal Trivedi | President and CEO: Sure, yeah, Andy, thank you. Good question. So, you know, I think I'll do that briefly here, but For us, really, like we have done in the last several years, right, we connect everything back to our differentiation. So on the foundation level, we have hardware platforms and software that now also support higher throughput, lower latency, and GPU-based architecture. So those feed into people building out data centers, whether it's enterprise or service provider or telco or cloud, right? So that's the first foundation level. Second level is in our cybersecurity products, we have expanded coverage to where our products are able to detect and remediate threats that occur now because of AI traffic. And that would be things like prompt injection and loss of PII data and so forth, right? So that's a expansion of our networking know-how to now handle new kinds of threats that happen because of AI. Third is obviously we are working with our customers on a longer-term basis to understand how we can look at traffic data from a long period of time in complex networks and use AI tools to drive predictive analytics, which ultimately for them helps do better things around network planning, resource management, and which is ultimately their cost of building and running a network, right? So that's the range of things we do. So we don't come into it thinking we are a new AI startup. What we do is we know 20 years of networking. We know cybersecurity. We have a large team of people, a lot of young graduates as well, who are AI engineers. And what we are doing is we are taking our know-how in networking and security and using that as a foundation to create AI solutions that are value-creating for our customers. Hendy Susanto | Analyst, Gabelli Funds: Got it. And, Drupad, I think when you talk about U.S. service providers, you refer to tier one. What does the opportunity in tier two service provider look like at ATEM now? Drupal Trivedi | President and CEO: So I think, you know, broadly, so this is not AI, right? But broadly speaking, I think in the tier two service provider side, a few years ago, right, there was a lot of discussion of government spending, rural broadband, things like that. Obviously, that has changed quite a bit, particularly with the government actually in shutdown now. So it's not that, but it's more that for those kind of carriers, our solution does not require them to fully rip and replace everything they do and then figure out how to monetize it or pay for it, right? Our solutions are more aligned on getting more out of those networks, doing more virtualization, things like CGNAT, which allows them to reuse addresses cheaper. And so our progress there is more, on an economic value proposition based on our technology. It is not a substitute for a tier one who might spend, you know, five times as much, right? But it is something where we continue to see good resonance with our technology and solutions. Hendy Susanto | Analyst, Gabelli Funds: Okay. Thank you, Rupal. Drupal Trivedi | President and CEO: Thank you, Andy. Thank you, Andy. Conference Operator | Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to Drew Picciovetti for closing remarks. Please go ahead. Drupal Trivedi | President and CEO: Thank you. And thank you to all of our employees, customers, and shareholders for joining us today and for your continued support. I am increasingly confident in our strategy and about our future. Thank you for your time and attention. Conference Operator | Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation. jsPDF 3.0.3 D:20260606085947-00'00'

NYSE:ATEN Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Tom Bauman of FNKIR. Sir, the floor is yours. Tom Bauman | IR Representative, FNKIR: 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 ATEN Networks website, atennetworks.com. Hosting the call today are Drupal Trivedi, ATEN'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 trended 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 5th, 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. ATEN 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.a10networks.com. Now, I'd like to turn the call over to Drupal Trivedi, President and CEO of A10 Networks. Drupad Trivedi | President and CEO, A10 Networks: Thank you, Tom, and thank you all for joining us today. A10 continued to deliver growth, and profitability in the second quarter. This performance demonstrates the continued validation of our strategy. We have strategically 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. two areas that are increasingly central to both the service provider and enterprise customers. This 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 ATEN's 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. ATEN is exceedingly well aligned with these two primary catalysts influencing IT and infrastructure spending. artificial intelligence, and cybersecurity. We believe we have the right technology, 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 balanced exposure across verticals and geographies is a core strength 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 EBITDA's percent of revenue grew year over year, even as we aggressively invest in new areas. As an indicator, we had two AI products win the top awards at the prestigious Interop event in Japan, competing against much larger players as well as startups. Our comprehensive ATA and DEFEND portfolio of solutions provide hybrid DDoS protection, threat intelligence, web application and bot protection, and now adds a fully featured WAP solution, all integrated into a single solution with end-to-end delivery and stronger security for mission-critical applications. Stepping back, I am increasingly confident in our strategic positioning. Our deliberate focus on aligning ATEN's growth and investment strategy with structural tailwinds of AI and cybersecurity continues to pay dividends. Our focus on systematically growing enterprise market adds another growth vector. We believe ATEN 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. Brian? Brian Becker | CFO, A10 Networks: Thank you, Drupad. 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 was $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 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 in the second quarter was 80%, in line with our stated goals of 80% to 82%. Adjusted EBITDA 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 GAAP 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 six months of 2025 was $135.5 million compared to $120.8 million, an increase of 12%. Non-GAAP gross margin was 80.4% year to date. We continue to navigate macro uncertainties and are aggressively supporting our key AI customers. Adjusted EBITDA 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 $0.41 per diluted share, compared to $26 million or $0.35 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, in the first six months of last year. Turning to the balance sheet, as of June 30, 2025, we had $367.4 million in cash, cash equivalents, and marketable securities, compared to $195.6 million in the end of 2024. 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. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on September 2, 2025, for shareholders of record on August 15, 2025. The company has 71.1 million remaining of its $75 million share repurchase authorization. I'll now turn the call back over to Drupad for closing comments. Drupad Trivedi | President and CEO, A10 Networks: Thank you, Brian. We are encouraged by the continued business execution and remain confident that ATEN 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. ATAN is positioned squarely in front of these two 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 allocate resources to address changing market conditions while preserving profitability and shareholder returns. Operator, you can now open the call for questions. Operator | Conference Operator: Certainly. 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, listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Gray Powell from BTIG. Your line is live. Gray Powell | Analyst, BTIG: Okay, great. Thanks for taking the question, and congratulations on the good results. Drupad Trivedi | President and CEO, A10 Networks: Thank you, Greg. Gray Powell | Analyst, BTIG: Yeah, absolutely. So, yeah, you posted the best product revenue growth in Q2 that we've seen in over five years. I realize that comps get tougher next quarter, but just how should we think about the potential to sustain your recent momentum and just the sustainability of the service provider segment? Do you think you've hit a turning point there? Drupad Trivedi | President and CEO, A10 Networks: Yeah, no, great question. So I'll probably address them. both separately. So you're right. I think, Gray, so obviously we are pleased with the progress and results on the product side because ultimately that builds a foundation for us, right, with a customer base and results in more sustained growth long-term. So that's one. The part of the driver for that, I would say two things. One is on the enterprise side as we are able to penetrate you know, larger enterprise customers. That's part of how we are able to grow that revenue profile and ultimately resulting in a stronger customer base. Second is related to your second point, I would say, when we look at our service provider performance, outside of North America, we continue to make good progress on service providers sustainability. 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 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 it could get better. But 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. And it's a lead indicator of growth now as well as in the future. Gray Powell | Analyst, BTIG: Really helpful. And then just some of the other vendors we cover, they've highlighted like a more back-end loaded June quarter as well as strength in July. Can you provide any commentary on how linearity played out this quarter or just any insights on what you saw so far in July? Just any color at all? Drupad Trivedi | President and CEO, A10 Networks: Sure, yeah. So I think I would say we did not see linearity very different in Q2 than we would like to see and we drive towards. So we did not see sort of an unexpected burst of activity in month three relative to month one and month two. I would say entering the third quarter, we see sort of 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. Gray Powell | Analyst, BTIG: Understood. Thank you very much. Operator | Conference Operator: Thank you. Thank you. Your next question is coming from Simon Leopold from Raymond James. Your line is live. Victor Chew | Analyst, Raymond James: Hi, thank you. This is Victor Chew in for Simon Leopold. Can you tell us how we should think about the potential materiality and contributions and the potential Microsoft Award that you announced recently? Drupad Trivedi | President and CEO, A10 Networks: Absolutely. Yeah, no, good question, Victor. So I think, you know, I think obviously we don't disclose revenue by customer. And so I would say two things to probably reflect on. One is the objective was, you know, that's a very, very, very important customer for ATN 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 infrastructure on cloud, but also how they think about AI and connectivity. And obviously, we appreciate the continued partnership there, right? So 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 that's probably the right way to think of it. We did have other customers who are also buying our products that go into their AI infrastructure. The key point to note is maybe six to nine months ago, our customer interactions were around building data centers that now would support AI. What is evolving and changing is 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's the importance and relevance of why we announced that, and we appreciate that partnership for a long time. Victor Chew | Analyst, Raymond James: Great. That's very helpful. And just one follow-up. Telcos have talked about raising CapEx somewhat following the big beautiful bill passage and the improved cash flow that they'll see from there. Does ATEN see this trend trickling down to them and seeing tailwinds from this over the longer term? Drupad Trivedi | President and CEO, A10 Networks: Good question, Victor. I would say you are correct. I think there's two factors that go into it. First, I would separate the notion of telcos in North America versus the rest of the world. So the rest of the world is kind of stable, not that different. North America, I think the two big factors that affect it are, one, these investments are typically based on what is the interest rate, what is the ROI, and is there consumer sentiment that's positive? And so based on that, I think if we see... you know, speculatively, a little bit of movement on interest rates, certainly it would probably encourage some of them 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 would certainly be the case. The second element of it is, I would say, the Telco spending patterns, what we have done strategically is there is, 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. But at the same time, what we are doing is continuing to work with them on other parts of their solutions, such as security, which are somewhat decoupled from the CapEx to just build out a new network, right? So as they spend more money on CapEx and build networks or upgrade, that's good. But our strategy is also to continue to improve share of wallet by selling them more security solutions. Great. Thank you. Operator | Conference Operator: Thank you. Thank you. And once again, everyone, if you have any questions or comments, please press star then one on your phone. Your next question is coming from Hamid Korsand from BWS Financial. Your line is live. Hamid Korsand | Analyst, BWS Financial: Hi, could you elaborate on the comment that was in your press release about the AI global leaders? Are these mainly North American companies? Are they international? I mean, you're using plural tense, so it sounds like you have multiple customers there. Drupad Trivedi | President and CEO, A10 Networks: No, no, that's right. Good question, Hamid. Thank you. So I would say two parts to it. I think certainly some of them are North American players and as obviously you can imagine, they are not all in the same type of company, but a lot of them are in the forefront of building new AI infrastructure, right? So that is correct. It's more than one. And the second part of it is, 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 as well is we have traction in EMEA as well as Japan with large global players who are evolving their plans around how do they take advantage of AI and not all of them want to depend on three American companies for AI, right? So we are partnered with those customers long-term in Asia as well as in Europe. Hamid Korsand | Analyst, BWS Financial: Okay. And then how much of a benefit did you see from foreign exchange this quarter? Drupad Trivedi | President and CEO, A10 Networks: So I think if you, you know, you, you know, this Hamid, but obviously for us, the only foreign exchange exposure is with Japanese yen. Everything else is conducted in U S dollars. And actually I think this quarter, uh, foreign exchange was a small, very small advantage, like not less than 100 basis points, a lot less. Hamid Korsand | Analyst, BWS Financial: Okay, great. Thank you. Operator | Conference Operator: No problem. Thank you, Ahmed. Thank you. Your next question is coming from Christian Swab from Craig Hallam. Your line is live. Christian Swab | Analyst, Craig Hallam: Hey, can you, great quarter, by the way, but Could you help us just, again, what percentage of revenue is AI-driven? And I'm kind of thinking maybe some of your firewall products to secure AI and large language model inference environments. Given the growth that we're seeing there, how long before that kind of drives double-digit plus type of year-over-year growth for you? Drupad Trivedi | President and CEO, A10 Networks: Yeah, no, great. Good question. Thank you, Christian. So maybe two points. One is 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. Where we are engaged with customers on things like AI firewall and predictive analytics, is in the early phase of where those customers are deciding how to take advantage of AI, what does this mean for them, etc. So that will translate into revenue probably in 26 and beyond. But it's really important to be engaged with them on that roadmap today. 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 four 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. Christian Swab | Analyst, Craig Hallam: Fantastic. No other questions. Thank you. Thank you, Prashant. Operator | Conference Operator: Appreciate it. Thank you. Your next question is coming from Michael Romanelli from Mizuho. Your line is live. Michael Romanelli | Analyst, Mizuho: Yeah. Hey, guys. Thanks for taking the questions, and congrats on 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 a 10 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 geo perspective? Drupad Trivedi | President and CEO, A10 Networks: Uh, sure. Yeah. So I think, you know, if you look at, uh, our results, uh, by geography, first thing you'll notice is if you look at even our enterprise growth on a TTM basis of 8%, which we think on a peer group basis is still stronger, our growth in enterprise in North America was significantly higher than 8%. So our investments have been aligned with growing with large enterprise segment not small and medium, but large enterprise segment in North America. And our growth reflects effectively that result, right? Where even if the global number is eight, North America, particularly the U.S. number is much higher. So that's one element of it. 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 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, gaming and technology companies, for example, where you have a lot of users, high risk of security and data breach and mission critical things such as 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 on Wall Street. So that's our focus area. That's where we made investments around product, product roadmap, as well as commercially. And that's where we expect and hope we continue to execute well to build that foundation. Michael Romanelli | Analyst, Mizuho: Got it. Super helpful. And then I just wanted to touch on ThreadX. I appreciate it's still early days, but I was wondering how those conversations are going with both existing prospective customers, how it's been integrated, and if you guys think that it could help drive hire net new business for your cybersecurity portfolio, particularly within the larger enterprise. Any color here would be helpful. Drupad Trivedi | President and CEO, A10 Networks: Thanks, guys. Yeah, Michael, thank you. Good question. So I think absolutely right. So I think for us, obviously with ThreadX, 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 cybersecurity, that's a big premium because typically people are just confused by 20 acronyms thrown at them. So I think the fact that they are easy to set up and run is actually a differentiator and one of the reasons we really like their solution. The second part is, as you said correctly, as we think of the evolution of network architecture and cybersecurity, what is important is when the world moves to more of a networking and AI and learning centers all distributed, it becomes more of an API and WAP security story. And with ThreadX now, we are able to integrate our strength in DDoS, bot, all those components already, alongside with a contemporary API and WAP solution that helps us not just be aligned today on a product side, but actually be aligned from a roadmap perspective long-term. So in terms of scale, it's hard to say how important ThreadX 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, you know, so you are correct. It's pretty early days to know one 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, that we are able to start taking it to more and more of our customers. And it's a process we have started already. And we think it's promising. relative to what we were expecting. But obviously, those cycles typically take six to nine months, so it's hard to declare victory or not. But certainly, our early indicators are it has clearly helped us access different types of buyers and expand kind of the aperture of what we discuss with customers. Michael Romanelli | Analyst, Mizuho: Perfect. Thanks for the call. Drupad Trivedi | President and CEO, A10 Networks: Thank you. Operator | Conference Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to Drupal Trivedi for closing remarks. Please go ahead. Drupad Trivedi | President and CEO, A10 Networks: 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. Operator | Conference Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation. jsPDF 3.0.3 D:20260606085948-00'00'