A10 Networks Q1 2025 Earnings Call Transcript

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May 1, 2025
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Operator

Good day, everyone, and welcome to the A10 Networks First Quarter twenty twenty five Financial Results. It is now my pleasure to turn the floor over to your host, Tom Bowen. Sir, the floor is yours.

Thomas Baumann
Vice President at FNK IR

Thank you all for joining us today. This call is being recorded and webcast live and may be accessed for at least one year via the ATN Networks website at a10networks.com. Hosting the call today are Drubert Trevetti, ATN's President and CEO and CFO, Brian Becker. Before we begin, I would like to remind you that shortly after the market closed today, ATN Networks issued a press release announcing its first quarter twenty twenty five financial results. Additionally, ATN published a presentation and supplemental trended financial statements.

Thomas Baumann
Vice President at FNK IR

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, 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, 05/01/2025. 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 a prediction of future events. A10 does not intend to update information contained in these forward looking statements whether as a result of new information, future events, or otherwise, unless required by law.

Thomas Baumann
Vice President at FNK IR

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 and have been adjusted to exclude certain charges. Non GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non GAAP financial measures presented by other 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. Now I would like to turn the call over to Dhrupa Trivedi, President and CEO of ATN Networks.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Tom, and thank you all for joining us today. ATN's first quarter financial results demonstrate continued execution as we deliver broad based growth and solid profitability. Our investments designed to expand our presence and capabilities with enterprise customers are delivering the desired results and the service provider market, especially in North America, has improved modestly. Overall, ATN remains well positioned, addressing nondiscretionary security and capacity requirements with a diversified approach that provides continued durability against ongoing market volatility. Overall, ATN delivered 9% revenue growth year over year.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Enterprise revenue grew 18% partly as a result of depressed 2024 and service provider revenue increased 3% year over year. More importantly, enterprise revenue grew 12% on a trailing twelve month basis, providing an increasingly durable foundation for future growth. Market trends and global demand is largely unchanged over the last few months, and customers continue to navigate evolving conditions related to higher interest rates and the growing trade policy dynamics in The United States. These various factors are creating friction, impacting order timing, but as I mentioned, our solutions are increasingly non discretionary and high priority in terms of spending. Our solutions impact capacity and security.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So while there may be delays, these delays can usually only be temporary. And over the past few quarters, the overall market conditions have improved and stabilized. Our service provider customer growth continues to be driven by the demand for greater data center capacity. The rise of AI is only adding to this demand. In addition, AI is power hungry, and our solutions provide industry leading efficiency in terms of throughput and low latency, and also include integrated security capabilities, enabling high capacity build outs with fewer A10 products compared to competitors.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

As such, we are often designed into large data center projects. This is serving not only as a catalyst for our business, but also a meaningful competitive advantage. We continue to allocate resources to address enterprise customers, and this includes the recent acquisition of the assets and key personnel of ThreatX Protect. This accretive acquisition will expand our cybersecurity portfolio with web application and API protection. Attacks against web applications and application programming interfaces or APIs are on the rise.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

In particular, these threats are significantly applicable to enterprise. ThreatX Protect provides a unique WAP solution, which harnesses behavioral and risk profiling to help protect enterprises from evolving threats, including threats to AI applications. We believe this capability, is delivered as a software as a service solution, represents an ideal complement to our existing AI firewall solution. This acquisition is another piece of our strategy to make ATN even more relevant in the enterprise vertical. We now offer advanced security solutions in a hybrid approach to protect apps and APIs running anywhere from public cloud to the private cloud to colocation facilities or on prem networks.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Our comprehensive AT and T FEND portfolio of solutions provides hybrid DDoS protection, DDoS threat intelligence, and web application and bot protection, and now adds a full featured WAP solution, all integrated into a single platform with end to end delivery and stronger security for mission critical applications. I'd note that the growth of AI is driving demand in the enterprise segment as well. This trend reinforces the benefit of the ThreatX Protect acquisition and underscores our overall strategic position in the market. I'm encouraged by our strategic position. Our presence with enterprise customers is strong and growing with solutions that are increasingly well aligned with current and near term customer needs.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Our solutions are also meeting the needs of tier one service providers, and this segment is stabilizing and returning to growth, although with continued short term volatility. We are navigating the ebbs and flows of short term market volatility with a strong balance sheet, delivering consistent profitability and returning capital to shareholders. As markets stabilize, we are well positioned to outpace the market in terms of revenue growth and increase our profitability. With that, I'd like to turn the call over to Brian for a detailed review of the quarter. Brian?

Brian Becker
Brian Becker
CFO at A10 Networks

Thank you, Dhruvit. First quarter revenue was $66,100,000 an increase of 9% year over year. The growth was broad based, with enterprise revenue increasing 18% faster than consolidated revenue and service provider revenue increasing 3%. The results reflect the continued normalization of service provider spending patterns and the investments we have made in the enterprise segment. We continue to experience quarter to quarter volatility in the service provider sector.

Brian Becker
Brian Becker
CFO at A10 Networks

This quarter, North America was relatively strong. Asia Pacific results were impacted on a year over year basis mostly as a result of strong Q1 last year related to large infrastructure projects in Japan. The overall trends are increasingly positive and our global diversification continues to work in our favor. Product revenue for the quarter was $36,000,000 representing 54% of total revenue. Services revenue was $30,200,000 or 46% of total revenue.

Brian Becker
Brian Becker
CFO at A10 Networks

Total deferred revenue was 8% increase to 152,700,000.0 During 2024, ATN introduced several new products and refreshed certain other products. As a result, we have been entering into large long term service agreements, typically five years in length compared to three year terms previously seen. As a result, we are experiencing a short term impact on our service revenue as contracts are spread over five years rather than three. However, our long term deferred revenue is increasing providing us greater visibility into future revenues and demonstrating the confidence our customers have in ATN and our solutions as we are designed into longer term deployments. With the exception of revenue, all the other metrics on this call are on a non GAAP basis unless otherwise stated.

Brian Becker
Brian Becker
CFO at A10 Networks

Full reconciliation of GAAP to non GAAP results are provided in our press release and on our website. Gross margin in the first quarter was 80.9%, in line with our stated goal of 80% to 82%, inclusive of short term impact from the acquisition of FedEx Protect, which added hosting and support related costs. Adjusted EBITDA was 19,500,000 for the quarter, reflecting 29.5% of revenue. Non GAAP net income for the quarter was $15,000,000 or $0.20 per diluted share compared to $12,700,000 or $0.17 per diluted share in the year ago quarter. Diluted weighted shares used for computing non GAAP EPS for the first quarter were approximately 75,000,000 shares, down slightly year over year due to our continued share buyback.

Brian Becker
Brian Becker
CFO at A10 Networks

On a GAAP basis, net income for the quarter was $9,500,000 or $0.13 per diluted share compared to net income of $9,700,000 or $0.13 per diluted share in the year ago quarter. During the quarter, we generated $15,200,000 in cash from operations. As expected, cash generation normalized in the first quarter in line with historical patterns. Turning to the balance sheet, as of 03/31/2025, we had $355,800,000 in cash, cash equivalents and marketable securities compared to $195,600,000 at the end of twenty twenty four. On March 17, we issued $200,000,000 in convertible senior notes.

Brian Becker
Brian Becker
CFO at A10 Networks

Shortly after, we issued an additional $25,000,000 to the original purchaser. The notes will accrue interest at a rate of 2.75% per annum payable semi annually on April 1 and October 1 of each year beginning on 10/01/2025. The notes will mature on 04/01/2030 unless repurchased earlier, redeemed, or converted. Before 12/01/2029, note holders will have the right to convert their notes only upon the occurrence of certain events. As a result of this transaction, we ended the quarter with long term debt of 217,700,000.0 and increased our cash, cash equivalents and marketable securities to $355,800,000 or approximately $4.74 per share.

Brian Becker
Brian Becker
CFO at A10 Networks

During the quarter, we paid $4,400,000 in cash dividends and repurchased $47,000,000 worth of shares. As a result of the debt offering we used approximately $44,200,000 of the net proceeds to repurchase shares of common stock in privately negotiated transactions affected through one of the initial purchasers of the notes or its affiliate as the company's agent and a repurchase price of $19.55 per share. The Board has approved a quarterly cash dividend of $06 per share to be paid on 06/02/2025 to shareholders of record on 05/15/2025. We have nearly exhausted our prior 50,000,000 share repurchase authorization as of March 31, but the Board has now authorized a new $75,000,000 share repurchase program. We continue to target gross margins of 80% to 82% and adjusted EBITDA margins of 26 to 28% on a full year basis.

Brian Becker
Brian Becker
CFO at A10 Networks

I'll now turn the call back over to Drupid for closing comments.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Brian. ATN continues to deliver solid execution, navigating uncertain times with a strong balance sheet and innovative solutions. We have established a business model that enables us to reallocate resources to address changing market conditions and flex expenses to preserve profitability and shareholder returns. We continue to outperform our peer set, and our tight alignment with AI trends positions us for continued success. Operator, you can now open the call up for questions.

Operator

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. 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 one on your phone.

Operator

Please hold while we poll for questions. Your first question is coming from Gray Powell from BTIG. Your line is live.

Gray Powell
Managing Director at BTIG

Okay, great. Thanks for taking my questions. And I'm in the back of a car, so hopefully you can hear me okay.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yes.

Gray Powell
Managing Director at BTIG

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

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

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

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So there is a little bit more caution, particularly on larger SP projects, which have a longer horizon for getting the return on investment back. As it relates to enterprise customers, I would say the concern is a little bit less. And then including also, I would say US, so for all customers, I think we see two approaches, right? So one is, there are some customers who are waiting for July 7, if you will, as sort of magic date to know what that means, and kind of waiting it out to see where it ends up. And we have some customers who are concerned to where they are wondering if it's better for them to procure a little bit ahead and protect against that.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Right? So I would say net impact for us right now is neutral, but it's hard to say which of those forces is bigger than the other. And it's a I would say what is really unknown beyond sort of the tariff, which is a first level input, is how the subcomponent manufacturers, right, who make things like chips, etcetera, will react. So that's an unknown unknown, so can't do much about it. But overall, we are seeing caution in the spending pattern more so than a complete freeze.

Gray Powell
Managing Director at BTIG

Understood. Okay. I really appreciate the the transparency there. And just maybe one more question, if I may. What kind of visibility do you have on some of the large customer initiatives to build out AI data centers?

Gray Powell
Managing Director at BTIG

And just how should we think about that materializing in the form incremental demand?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Sure. So I think I would characterize it as the following. So we are maybe in the first wave of large AI build outs where the companies who you would expect, right, are building out big data centers as part of their AI initiatives to put in capacity, and that applies to obviously public cloud as well as private cloud kind of companies, but also large enterprises doing that. I would say the visibility we have into that is reasonably good. I think a lot of those companies tend to kind of modulate their plans, however, based on their financials and how they evolve.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So a little bit uncertain, but generally understanding of what is their long term play. The real value of the market, I think, is going to be in a year to two when enterprise customers are doing more inference models, on prem or private cloud, particularly outside of US. And I would say in that case, we are engaged with them on that roadmap and rollout, but they are not in the mode of actually, you know, building stuff yet, right? So but we think that's a bigger, more durable, longer opportunity, and are engaged early with a lot of them.

Gray Powell
Managing Director at BTIG

Understood. Okay, thank you very much.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thanks, guys.

Operator

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

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Hey, guys. Congrats on a solid quarter. Understanding the overall cautious pattern that you're seeing, but yet the outperformance in the current March, are you still anticipating high single digit revenue growth? Or maybe you weren't anticipating I guess that's where the street's at. But, are you comfortable with, you know, high single digit revenue growth, for the year in this environment?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Christian. Good good question. So I think, as I said before, as it stands now, we are comfortable with that expectation as it stands today. We don't expect that to change a whole lot until maybe we get through July. Right?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

And if there is macro shifts that are different than what we are expecting, that's hard for us or for anybody probably to predict. So but outside of anything being very unusual, we expect to be in that, similar ballpark. Yes.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Perfect. And then, can you can you just, remind us on the competitive front, on data center capacity, AI driven product portfolio, you know, who you face most often as far as competition, and and does it vary by geography?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. Sure. Good good question. So I think the competitive dynamic is not that different than the typical data center build outs. It does vary by geography, and what I mean by that is, we are partnering with many of our existing large service provider type customers, whether it's in Japan or Europe or US, and evolving with them as they are building out their own AI data centers, right?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So it's a logical evolution of what they were doing with us, and in that sense, right, we are not facing kind of a new wave of competitors from a technology provider perspective. I think there's more of the players in maybe as it relates to building the physical data centers. But as it relates to the core technology, I think, we are not in any, different competitive situation. It's just the same differentiation that has helped us before.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. No other questions. Thank you.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Krish.

Operator

Thank you. Your next question is coming from Hamed Khorsand from BWS Financial. Your line is live.

Hamed Khorsand
Principal at Beating Wall Street(BWS)

Hi. So first off on the enterprise side, is the growth that you saw this past quarter a dynamic from that large customer or large order you received last year? Or is there something else here that's helping you grow this past quarter?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. Good question, Ahmed. So I would say, if you look at our enterprise revenue by quarter in the trended numbers, The reason why that percentage looks really big has more to do with a bad or soft Q1 last year, and that's why I think it's more important to see that on a trailing twelve month basis versus the previous twelve months, that revenue is up about 12%. So so we think that number is more indicative of continued progress. We did get, you know, a small follow on repeat order from what we had talked last year, but that was not a major reason here, right?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So we had multiple kind of customers that drove that growth, and then we were comparing it to a soft Q1 last year, which made that number look bigger on a Q over Q basis. But even on a twelve month basis, I think the 12% is more reflective.

Hamed Khorsand
Principal at Beating Wall Street(BWS)

Okay. And then on the service provider side, you were talking about North America being strong, but then you're saying that there's caution. Is there caution among every one of your customer base within service provider, or is it just a particular subset?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. So I would say that, you know, service provider year over year grew just about 3%, right? So that's, I'd say that's better than not growing, but it's not a big number, right? So I would say it is improving and stable in the sense not declining. The caution I would say is broad based.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

I think there are a few of them who are more bullish, right, but I think the rest are kind of cautionary as it relates to macro conditions and how they evolve. So but there are a few who are pretty aggressive in what they are doing, and that has kind of helped us propagate. But when we see the long term plans, we say stabilization in the sense that most of the customers will spend something this year that we expect. We just don't know exactly which quarter maybe. Yeah.

Hamed Khorsand
Principal at Beating Wall Street(BWS)

And lastly, your your sales and marketing was down this year compared to last year. Is is there reason for that, or are you just managing costs?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. I think there's no there's no reason for that. I think we just continue to monitor that in terms of our EBITDA margin. And second, I would say, right, is to do that and continue to invest in new solutions like AI and other things, you can see R and D is up. And so, you know, we to get to the same EBITDA, right, it has to net out somewhere.

Hamed Khorsand
Principal at Beating Wall Street(BWS)

Great. Thank you.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you. Thanks, Anu.

Operator

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

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thank you very much for taking the question. A couple of things I wanted to check on. One was, in prior quarter, you had talked about targeting a full year EBITDA of 26% to 28%. Certainly,

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

there's a lot

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

of moving parts changing, but just want to check-in on how you're feeling about that target today.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. No. Thank thank you, Simon. The so I think we we feel pretty good, about, being in that range of EBITDA of 26 to 28%. And the way we think about it is we may face some fluctuation on input costs and so forth with tariffs, and we'll have to manage through that, we'll have to manage OpEx through that.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

But we are confident and committed to kind of getting to the 26% to 28%.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thanks. And then in terms of your contract manufacturing partners, think most, if not all of your exposures to Taiwan, I certainly appreciate the fluidity of the tariff environment. But how do you think about that strategically? I know you can't change overnight, but do you think about trying to diversify? And what would it take to do so?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. No. Good good question. And I think, I would say there are two layers to it. So one is as it relates to assembly and manufacturing, you are correct.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

We are engaged with those partners to understand how to build something, you know, more more resilient, more flexible footprint globally, because still 50% of our business is not The US, right? So their impact is different. And yeah, absolutely, we are continuing to work, and it takes time to requalify the line and things like that, right? But absolutely something we look at. The second layer that is a little harder to quantify is within that, right, there is a supply chain where you might be getting chips from a US company or etcetera, right?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So in those subcomponent level, it is hard to know where that lands after July, and we monitor that. But as it relates to diversity of sourcing and improving that kind of profile for us, absolutely something we are involved in, and we were already looking at that for things like disaster recovery, right? So it's a matter of accelerating some of those initiatives.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thanks. And then just one last one. We've seen quite a bit of movement in exchange rates in the last month or so. Could you help level set how we should think about that? Because you obviously have a lot of yen exposure and how to quantify that in terms of both the top line as well as operating aspects.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thank you.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. So so that's right. I think our business is conducted everywhere in US except Japan. In Japan, it's in yen. Typically, you know, from a demand perspective, I think we haven't seen a lot of movement because of that reason.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

I think the projects tend to be more driven by the project timeline and not very, very fluid based on exchange rate going up or down a little bit, right? So certainly, we see that as, now of course that translates to revenue risk for us, and I think about two years ago or three years ago, right, we don't FX adjust our top line, but we had about 200 basis points impact on growth from the exchange rate. So that's on the top line, we obviously focus on the customer and their project need, and we take that exposure. Below that, I think we certainly, on contracts we already have, and receivables and so forth, we tend to hedge against that so that we are protecting that exposure as much as we can.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thank you very much.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Very good. Thank you, Simon.

Operator

Thank you. Your next question is coming from Hendi Susando from Gabelli Funds. Your line is live.

Hendi Susanto
VP & Portfolio Manager at Gabelli Funds

Good afternoon, Dhrupad and Brian. Congrats on positive year over year growth.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Andy.

Hendi Susanto
VP & Portfolio Manager at Gabelli Funds

Dhrupad and Brian, I would like to ask about the product refresh. Brian mentioned that. Like, can you compare and contrast what the refresh outlook looks like for this year compared to the past and maybe down the road?

Brian Becker
Brian Becker
CFO at A10 Networks

Yeah. Good question, Hendi. What I was referring to is normal cycle product upgrades. So, you know, customer buys products and typically would depreciate that product in our service provider segment between five and seven years. So at some point, the product becomes non serviceable and no longer performs to the spec.

Brian Becker
Brian Becker
CFO at A10 Networks

That's the product refresh cycle I was referring to. It wasn't that we suddenly had a revamp of our product line, nothing like that. It was just normal course of business. It just so happened that there was a pretty significant switch in two product lines at the same time, which usually we stagger over a smaller period. But again, it's normal course of business, nothing that really changed the outlook from our customers' perspective and really would just be considered a shift from service renewals to product, increase.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Yeah. And and the refresh cycle is driven by customer's usage cycle, not not necessarily us making them all change their product. Right? So

Hendi Susanto
VP & Portfolio Manager at Gabelli Funds

Yep. And then second question, Dhrupat, you mentioned that the longer and bigger opportunity is in the enterprise AI inferencing solutions. And then you made a comment particularly outside of US. May I know why you emphasize opportunity outside of US for the enterprise inferencing?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Oh, sorry. No. I think the opportunity is equal everywhere, and I think, obviously, US is a very big market. I think what I was highlighting is that in The US, the market has three or four major players, and that's what everybody does. Outside of US, many, many of our customers are in countries which have data sovereignty and other data privacy reasons.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

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

Hendi Susanto
VP & Portfolio Manager at Gabelli Funds

And then last question for me. If there's any tariff impact and then you need to negotiate price with the customers, like, the choice between, like, new new pricing or absorbing that, how should we think about the likely scenarios?

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

I I mean, I think that's a very, very difficult question to have a perfect answer for. So certainly, I think our expectation is if there is tariff impact, we would work with our customers to figure out how to how to share that. And, you know, it's somewhere between a hundred and zero, right, that they would share. And I think we would need to have a better view after July or whenever to be able to have those conversations, right? Because today, we don't know if that impact is going to be 0%, thirty %, or 150%.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

So it's hard to actually have those conversations. But of course, our goal will be that because the nature of our customers is also one where they are very worried about performance of the network. They want to make sure, of course, that ATN can continue to invest in R and D and drive more innovation versus buying the lowest cost commodity on the market, right? So we think that's the profile of our customers, that's our company profile, so we would jointly solve that problem once we know what the problem is.

Hendi Susanto
VP & Portfolio Manager at Gabelli Funds

Thank you, Drupat and Brian.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you, Andy.

Operator

Thank you. That concludes our Q and A session. I will now hand the conference back to Dhrupad Trivedi for closing remarks. Please go ahead.

Dhrupad Trivedi
Dhrupad Trivedi
President & Chief Executive Officer at A10 Networks

Thank you. And thank you to all of our shareholders and employees for joining us today and for your ongoing support. Thanks.

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.

Executives
Analysts
    • Thomas Baumann
      Vice President at FNK IR
    • Gray Powell
      Managing Director at BTIG
    • Christian Schwab
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Hamed Khorsand
      Principal at Beating Wall Street(BWS)
    • Simon Leopold
      Managing Director at Raymond James Financial
    • Hendi Susanto
      VP & Portfolio Manager at Gabelli Funds
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Key Takeaways

  • ATN Networks reported Q1 FY25 revenue of $66.1 million, up 9% year-over-year, with enterprise revenue rising 18% and service provider revenue up 3%, and trailing twelve-month enterprise growth at 12%.
  • Gross margin was 80.9% and adjusted EBITDA margin reached 29.5% ($19.5 million), while non-GAAP net income was $15 million, or $0.20 per diluted share.
  • Liquidity strengthened as cash and marketable securities grew to $355.8 million following a $225 million convertible note issuance, with $4.4 million in dividends paid and $47 million of stock repurchases, plus a new $75 million share buyback authorization.
  • Strategic acquisition of ThreatX Protect assets broadens the cybersecurity portfolio with a fully integrated Web Application and API Protection (WAP) SaaS solution, enhancing ATN’s hybrid security offering alongside its AI firewall.
  • Strong position in AI-driven data center capacity markets underpins durable demand, as ATN’s efficiency and integrated security capabilities remain high-priority for both enterprise and service provider customers despite macro volatility.
AI Generated. May Contain Errors.
Earnings Conference Call
A10 Networks Q1 2025
00:00 / 00:00

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