- Earnings call transcript Q3 2022

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Operator

Good afternoon, and thank you for attending today's A10 Third Quarter 2022 Financial Results Conference Call. My name is Austin, and I shall be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Rob Fink. Rob,you may proceed.

Rob Fink

thank for and us operator you, you joining all today. Thank Networks webcasted is XX may AXX at being call live, days Relations aXXnetworks.com. recorded the least This at and and website for be via Investor accessed the and and President CFO, Trivedi, CEO; call today Becker. Hosting Dhrupad AXX's are Brian

that quarter Networks we press issued Before you release I XXXX market the announcing like would after begin, third financial a results. closed remind its to shortly today, AXX

presentation Additionally, supplemental and AXX statements. financial a published trended

release, and company's trended press on the Investor Relations the statements access of the website. may You presentation financial section

on today During infrastructure; repurchase the statements make on for and focus the to statements and capital and number which could opportunities; market M&A its the industry course of are that constraints future expectations uncertainties of statements projections trends; and today's customer some as an our beliefs share. call, allocation are expectations; strategy; forward-looking investment pandemic growth; management COVID-XX the results regarding These positioning impact current chain operations revenue for and forward-looking dividend supply will in operating the and and including results; cause XXXX. programs of beyond strategy including of differ based control as involve risks actual X, and such statements These potential materially. of its business a November go-to-market

statements in future forward-looking of unless predictions information, does You otherwise by these to as of as information rely future events. required AXX should contained them or on not not intend a events update law. new whether result

measures today the reconciliation have to a in measures not XX-K. today results between refer that's a intended by other be these as Please in uncertainties, non-GAAP or financial for measures non-GAAP A on financial financial recent discussed quarterly to and to companies. in are substitute exclude company's trended non-GAAP financial The be most detailed the on basis measures exception presented the different can more For be revenue description GAAP release please of from the and accordance found website. non-GAAP statements charges. adjusted and prepared and of GAAP issued a on note with considered certain been that with and isolation may are AXX's posted press risks

like the Now turn I over Dhrupad, would yours. Dhrupad call to to is Trivedi. call the

Dhrupad Trivedi

today. Thank and to deliver us you, earnings all revenue joining strong growth AXX Rob for you thank power. and continues

meeting expectations. third The of revenue our consensus consecutive quarter was EPS XXth quarter and

testament chain a achieving this is This pandemic, relentlessly to economic a business team technical that we global have upon foundation built challenges. rates volatility, We to a consistency and delivers and excellence. are despite the great supply higher interest a

are testing are security success deep proven from the have customer foreign spending, main consumption customer our while with from fact our In Provider Provider model. our groups, the quarter, of headwinds. and AXX And the balance our Enterprise impacted be faster-growing revenue Service infrastructure two a We Both economy margins first in business everything customer our see our is customer for sell business security-led segment, enterprises, while represented by To came or cyber from have secular amidst where aligned is business in customer XXXX, positioning our exceeding from region, large we design, gaining Providers. two of risk-mitigated model tailwinds, currency to any world Service global market of half and two AXX In strategy. operating criteria strong our secular insulated we best continued single the groups, for unprecedented Enterprises ability, our we building Enterprise networking Enterprise demand specific segments reliant segment, category and our in upon like reflect to for and that aligned within grew on these By with customers solutions. security-focused highlight Today in not Service model in built and as revenue into the third largely differentiators footprint. needs. in organization, gross infrastructure to security-led customer that Enterprise third a model. a continue expertise solutions despite US even and and a building grow This solutions. performance can balanced demonstrating proprietary product in durable, providing We cybersecurity. volatility the any is the share do, to superior generating wins solution cybersecurity to evident the leveraging region quarter and we we that business delivering customer, tailwind demand drive critical head-to-head is for and every I'd region geographic nearly growth challenges. two and

transactions largest AXX's platform top for QX of companies. of One one the advertising digital came via world's

rapidly need security across features infrastructure, streams, in expanding their added ability security high-throughput supports revenue to urgent new order enhanced encryption including to support customer customers. functionality, its and customer's streams. ensure while end network infrastructure, solution, existing for an its customer's also Our which to upgrade this AXX's generate revenue had low-latency the

service product six of five agencies in its small to Another wireless educational mandate tight an four AXX three dozens the online had government the with the solution giant's, Today, a existing ensure This with of the to had their capture and of top several while and critical improving to to customer of technological high ability very this a nine new came revenue streams, expand but example, enterprise performance. largest win support within from for actually AXX the and country's top Europe. key were this frame. the volume and helped expand to Similar security, banks, our able time on need in one solution deadline. footprint of and deliver AXX, works top citizens able need XX of businesses, and filing customer this web network financials first a deployment their customer's the urgent we to required institutions carriers, agencies. was new relatively government with

is diversified. clearly base customer Our

single customer, not reliant to or results. are our on We of group achieve customers, small any

near-term to revenue tailwinds product XX-month a by Overall, AXX. on revenue revenue, increased cybersecurity growth. being is Cybersecurity XXXX. to of continues viewed challenges, grow. as and our level XX% ability economic risk. This secular which driven due an up prioritized, indicator revenue, ongoing success which amidst versus needs security Our leading higher backed which is proprietary continues for future solutions to by delivered our is of trailing of of XX% need product basis interest customers. a QX by now growth as the networking series Global catalyst be and even combine this to these and threats are are The with continually events serve for security-led enterprise a infrastructure recurring evolve now expertise because were our rates innovations product geopolitical a

technology our and delivering product roadmap platform, value customers. infrastructure increasing a and Our and integrates deeply to security efficacy on needs common

revenues quarter. million EBITDA areas. increased functional nearly focus operating repurchasing gross than target This margin our after non-GAAP across million $XXX result in more And in our XX.X% on innovation ended cash, all customer-centric of quarterly quarter $XX.X the in of driving with even and than income We in line productivity delivering and year-over-year was of the with stock XX% XX.X%. Our levels is ranges. a better record non-GAAP operating

sheet. a to fortress continue maintain We balance

have the our proven growing We top line a bottom faster line. business also demonstrated model with than

We flexible an quarter this continue example to disciplined share this. was strategy. a maintain The of capital allocation opportunistic and purchase in

per announced that we Today example. share. another our is to share in increase XX% our from dividend $X.XX quarterly dividend Our approved per a $X.XX Board quarterly

share R&D marketing. we a Additionally, and increase sales and organic the authorization. new announced we in repurchase to same $XX continue At for growth investments our million time,

in to year-to-date Brian to for detailed that of outlook incorporates This the like growth the we customer over expectation traction year currency reinforces to to a I'd and With quarter. Our achieve and full our XX% range of XX% call headwinds. fully Brian? review that, can XX% turn performance the XX%. revenue foreign of our of target EBITDA

Brian Becker

Dhrupad. Thank you,

Services million, total million $XX.X of year-over-year. revenue revenue. Third total support XX.X% revenue, up million XX.X% XX.X% of for and year-over-year. Product XX.X% which maintenance $XX quarter the a representing revenue, revenue, up was quarter revenue was or $XX.X was record includes

increased revenue standpoint. $XX XX.X%. from our XX% Japan compared a year-over-year including to million including was XX.X% Japan $XX the year, in Latin up America QX. from from a to to year. basis, million, Revenue last was Americas, million $XX.X Revenue last Asia-Pacific $XX.X X%. $XX.X compared million in quarter Moving the up million, from in revenue currency constant was up On geographic third Revenue EMEA

For a approximately grown consolidated AXX on constant has currency XX% year-to-date. basis, revenue reference,

On XX% was a currency our line revenue As balance increased in you would with sheet, XX, September million $XXX of year-over-year. on revenue XXXX, deferred as have basis, up can growth. deferred X% see our constant overall year-over-year revenue

this discussed are in the With a website. full in non-GAAP was Gross GAAP exception on to our non-GAAP basis results call third of margin A the metrics unless release otherwise quarter revenue, press reconciliation XX.X%. stated. on provided our are of all and the on

the net we successfully strategic third quarter to in or computing shares up with quarter $X.XX XX.X% quarter. for operating Diluted income, input of per for basis, $X.XX with priorities year quarter. for compared GAAP the approximately impact ago operating $X.XX to year reflecting up $XX.X XX.X% share reported in reflecting year. or growth Adjusted Dhrupad in global compared or in per QX quarter quarter, industry-wide result was technology from the the $XX.X to third million execution. compared million continue in last income the share non-GAAP cybersecurity million income was commercial million for weighted revenue. quarterly million of shares As $X.XX a quarter shares million net expenses the in and last million were were and basis, $XX.X per $XX.X Non-GAAP We third $XX.X increases. EPS including XXXX. mentioned, the quarter XX.X cost in used third On for supply income $XX.X of of XX.X $XX.X Non-GAAP XX% our record, per net million a the million to-date, mitigate also was a investments in the constraints chain ago highest million the compared share non-GAAP on EBITDA share quarter $XX.X our year,

tax approximately recognized benefit EPS this $X.XX the in $X.XX we adjusted a tax share benefit, from which $XX.X per per quarter, nonrecurring income represented share to As reminder share. $X.XX of quarter. income per for increased this ago When a million, our year

to Turning sheet. balance the

XX, As of XXXX, to the quarter. million total million at September previous of we compared cash equivalents, $XXX.X in and cash $XXX.X the had end

we dividends issued cash of price third at in quarter, $XX.X the shares $X.X $XX.XX in in repurchased an million paid average During the million and quarter.

carry continue We no to debt.

to dividend cash November Board the has per also repurchase be mentioned, Board shareholders X, share $X.XX The to plan. XXXX. new increase million XX% on $XX Dhrupad in quarterly XXXX a December record approved of As on share a approved to our paid XX,

to turn Dhrupad the back achieve margin target comments. for to and we are XX% full to As I'll of our XX%. XX% now year still of full to mentioned, XX% well-positioned year EBITDA Dhrupad closing adjusted growth call over revenue

Dhrupad Trivedi

Thank you Brian.

to with performance want highly combined for all in to I proud to diversification due sometimes challenging employees platform and a perform all to of continued AXX business. thank part First, of is the technical large aspects than our ability industry. achieve I'm This continue differentiated global the in of overall to performance AXX's situation. better our ability in difficult

our customer all target Our security-led across solutions demand segments geography. of and are each in

We successfully also navigating differentiation managing bolster ongoing our while our maintained costs chain to and challenges. supply in investing discipline execution,

solutions the you open now for sustainable secular Operator, questions. call Session durable catalysts, results performance. in are with well-aligned can Our which Question-and-Answer

Operator

from Our is Schwab Instructions] Christian open. question is first [Operator your you. Craig-Hallum. from line Thank Christian,

Christian Schwab

another you. Thank on Congrats solid quarter.

experiencing? As to like the strong you calendar enterprise guys to next would drive we been double-digit growth year, security-led solutions in anticipate the a look we've

Dhrupad Trivedi

enterprise our Thank And that don't more outlook. think service say, necessarily I provider I view continuing balanced would do way, see we you the with although we segment it Christian. large be to

for regardless the is, goal deliver to us I the vertical. performance consistent obviously, think of

see definitely in just security. traction North expect in that think not momentum And globally. led the by but to see large also and enterprise we I America, segment, we

to we're and in it So XX% we well-positioned to FX XX% on to range a headwinds. get are certainly to the about overcoming good feel addition that combined optimistic we basis

Christian Schwab

year? customer be spending the the Great. could that patterns look in Is calendar service there or particular provider company patterns any we area positive as into for the next spending

Dhrupad Trivedi

it’s No, Yeah. a question. good

look provider predominantly build-out So is when at there you is an that infrastructure service patterns CapEx-driven. spending

forth, and but nature to as rate more that right? because be maybe challenging subscribers of fear it's not and So of as as might network. However, the of CapEx we our of continue balance expansion the product, drive data to right them or an we add now, to a so when more handle enhancement they even relevant do interest of see

think, I to providers cybersecurity, revenue. monetize their more-and-more that, in ability right performance Beyond network service as we it about concerned directly be it their certainly and generate and general impacts see therefore

that's something the to to but see a with to So are can CapEx The is we them a them. secular not do build-out first cyclical more follows just we little trends, to to And us. bit relevant we as continue things pattern. in the degree, important try we expand more obviously

Christian Schwab

for M&A stock, are buying Great. or congratulations allocation still blocking and you Thank a capital then, own product business? raising beginning complement at to explore our tackling And look potential potential continuing the running back another continually focused way job your a guys on just company, to you. strong to on growth do or dividend, we the the as expand reupping are buyback, great portfolio or the

Dhrupad Trivedi

Yeah.

think think the I good right. ability market a So on And saw, in environment is having we right? opportunistic that gives watching when buyback, you programmatic question. therefore, but were of as the buyback such kind And well the the as as certainly not volatile timing respond to us I

goal I other -- that, and patterns, we G&A you look marketing and penetration. our our When think expanding X% while a portfolio the fair our to is invest do As priorities, priority because productivity we base non-GAAP for continue efficient. because look around X% year-over-year, that product of at up X,XXX first we sales us our we about at is there our organic about spending generate if to amount think, growth our is customer and look the in functions our at most customers in is of customer to different in room and world is verticals, many R&D

think, lot in wins looking and As made the do. we not apparent growth, months, new innovations XX is our we to fueling from deliver releases a and same So continue strategy. have what add is to of time, profile to it we've from at At course, the accelerate that I more-and-more software, are are, to the we interested to what last we right? second, but have a growth as of right, invent the financial came well. XX it has to we there be what and ways perspective filters deliver aligned be to means, inorganic open would on that with And through right our has can to the

going, But of So, in of we roles we look growth find is before, at good have of deals. we'll something them. at continue those done kind organic a course comfort a so to if idea we looking conclude high-degree keep till I And better.

Christian Schwab

on again questions. Congrats results. solid other Great. the No good Thank you.

Dhrupad Trivedi

Thanks.

Operator

Financial. question Hamed, open. from next BWS Khorsand Hamed with your is Our is line

Hamed Khorsand

Hi.

spending or more in there's, competition? spot long a bid there you weren't really pricing a how primary compression the seeing So customers the of you because time, is taking are entrants Are first gravity more same given new just question was, that cybersecurity the before? seeing

Dhrupad Trivedi

Hamed. Good Thank question. you,

the participate think endpoint phenomenon security. you So we So general management. I are different for segments security, as at is, of there cybersecurity us if in have And a it, several category, you right? networking identity look

That about hear hundreds of one spot all think new you endpoint not the us. where sweet is security for is the competing time with I buzzwords. the companies

what is implied where detected and into affects understanding re-mediated impact networking bring can quickly. performance be can what focus our we Our of and take intelligence performance, traffic,

not competitive change I the in would landscape. certainly, So we segment any in seeing are say, that

continue So gross to us customers. stable. is platform as we we where other productivity any more I manage capabilities maintain that to that it gross more a our add not competitive to allow price in to our margin, goal are for remain into see there maybe think with the think offset us positive the right? way see There's margins I always in slightly and – still it can but compression measures for we you is dynamic able

think area any concern. tomorrow me will would I I we to the in earlier impossible improving that and we what But every for say It's where those the positioning of risk predict see some lastly, participate a about normalizing. or advance would deal cycles happen are generally saw a certainly see that's announcement you in don't slowdown we try in talked from But after Fed. cycle, And So don't certainly we the say focus our right I as to vertical. competitive year.

where generate are We differentiated. are targeted we value where on we highly very

anything anything see stronger. far. getting don't we If negative see position so we So our

Hamed Khorsand

Okay. you spending their anymore. don't squeezed Did have with or It a growing XX% you? their customers more customer with out of they been have other spending, just sounds your like reduce they

Dhrupad Trivedi

Yes.

I XX-point-something a always But not right? the XX% but not we I one the So usually that one category. quarter. quarter typically had think it's like it's this same in we have And customer, had Brian same they think one, are every and

Hamed Khorsand

saying that do make you're five given of sales And your concentration of customers XX% customers, more that? on your there's diversification the top or is up no there

Dhrupad Trivedi

Yes.

top I XX%. XX like make customers think up roughly

Brian Becker

Yes. on make a the between portion It of revenue sometimes depending cycles. customers up a quarters number larger of varies large

Dhrupad Trivedi

average it eight kind that's you is there. quarters probably of over if But where

Hamed Khorsand

Okay. That's helpful. Thank you.

Dhrupad Trivedi

Thank you.

Operator

from Soderstrom your Anja Sidoti. is open. from is question next The Anja, line

Unidentified Analyst

right. Anja. All for How Stefan is on are This Gill you? [ph]

Dhrupad Trivedi

you. Thank Welcome. Hi.

Unidentified Analyst

you my question inflationary guess are is seeing any I first pressures?

Dhrupad Trivedi

Yes of are right. course, you

normal immune to not the are environment. we So

engineering, and So inflationary the we are logistics, we as else. to everyone right? in warehousing, not labor, see pressures same shipping chain, supply immune pressure course, inflationary Of

and have generally we offset I that we for always productivity. try generating continue is goal to think offset to measures new how And ideas with our that. to

and have definitely on pressures materials same So people cost. the yes we

Unidentified Analyst

do into head basically how question will think recession? Thank we you if you a you. fare My next is

Dhrupad Trivedi

Yes.

So you positioned our building we and helping say, a in I new products at our are think, customers product I are way the the is we successful without portfolio, is or everything would one, look ripping network. typically because if where security capacity are today most way efficient add

X. to pretty not that still nice think a a and CFOs do CIOs proposition this to value they that's it operate, prudent we approach a concerned downturn I So ability outlook are lot are of critical on if because is about based be and take right? will wouldn't to of their

need mandates you the of of of in prescriptions people are we to at of need what that of and around a volume value that operations, be do We look as in do line, protect kind in one And kind growth the the and when will of proposition believe think the of I right? do still case lot that to a cyber-attacks X, to sophistication of we categories that as red above infrastructure, recession. be well the will

our we tread and as how in customers, our footprint we So on, that's the very we where same then create face focused are world plan all diversification expect the how have for to time. don't do line all it. global further they GDP, value we to do And course, regions that helps of the

Unidentified Analyst

taking All right. much for you Thank questions. so my

Dhrupad Trivedi

Thank you.

Operator

is Gabelli Funds. from Susanto next from line your is Our open. Hendi question Hendi,

Hendi Susanto

offerings. in areas has mentioned My Dhrupad, of In AXX What Dhrupad, Brian the and question your growth opportunity. are mentioned Good major investments? major evening, AXX, security the subscription first you investment Rob. a past

organic you you on So where opportunity? elaborate to growth invest more would able for be

Dhrupad Trivedi

Sure yes.

of otherwise. be capabilities, investing typically things where products So as to a addition managing is are like by the in North-South, add whether algorithms in would stand-alone capabilities, offering products, range new by SSLi relates it we for right to to a DNS wide start-up think done protection it cybersecurity I our East-West relates continue which encryption it's we us obviously that to way

customers at on So align these to us. expand, why the are our the roadmap. they reasons, They continue what look and do

needs lot to to and it lowest investment That's of in the way relates investments right? deliver performance. security for the cutting-edge high of that program trading example, drive, with to best it's very products and An with are -- As combine infrastructure, frequency latency research. engineering. a combining It innovation software is, network example of a to hardware our that a for lot and needs high performance long ways

And drive to so teams our that. continue technical

examples, with investments of our those our So some aligned are where are differentiation.

detect the is differentiation and and cyber-attacks, latency remediate provide highest ability Our throughput better infrastructure. to to lowest

Hendi Susanto

And do appreciation? appreciation, Japan? manage USD do did one AXX then appreciation customers, the mitigate between it. like how about the strong you strong in Got the How Brian, currency is you USD – how split question or Like AXX currency. and essentially,

Brian Becker

Yes. deal us difficult No, been customers we yen. Japan, Most our in for of Japanese in It's great to question. do very navigate.

provider the Given of Japan, it's surprising. in clientele nature our service not

the deferred I and line. that both magnitude mentioned, revenue think I accordingly X% and in total, overall of on revenue we to lost deferred top

we've it and about But, it So accomplished. were yes, easy overcome I verticals allowed to was of But able escape. think an diversification geographies us headwinds. that Dhrupad's not that point, wasn't customer some we across navigation to to that those something

Dhrupad Trivedi

mean And Well, in regions. by absorbed AXX growing it's XXX% Hendi. by growth we delivered I other still faster the

Hendi Susanto

may you and revenue the end Brian, then this. And is see. What quarter? I may third of I missed have the the have mentioned recurring Yes. by this

Brian Becker

a The it's No, it a Yeah. our support and a portion both contracts part income small revenue our our and revenue it, business. contracts. is on little half combination but continues statement stable about right less be subscription of of pretty to portion subscription than revenue recurring a recurring is of is

Hendi Susanto

top then gaining point execution growth winning Yeah. like shares? where is the believe it reasonable line market it. shares have out you will you could Dhrupad, Got been AXX market be yes, then delivering? are if considering you that And that And you to assume

Dhrupad Trivedi

Yeah. Sure.

tell what market that lead think we I the at of or market indicators it us the way So the growing type. at and we is our measure is drive look performance internally indices

you and guys were look asked always course about. group we of all peers I Second, those that know at peer being we our think

represents or IT year-over-year that faster. indices as look this growing at we and us and CapEx to like at well things XX% when So at look believe Gartner growth product as Spending that you to the year, helps improving that like relative telcos execution we market revenue and commercial portfolio us XX% peer driving, if group grow

average peer with at as before, is a pretty even when continue customer or customers, replace didn't So we win to we exist mathematically, think growing share for group importantly, feel right, if gain good about that's it. And we competitors single-digits, to that low business are market as well. just we most way us another new our

So space. I think well in obviously typical know guys the on you players the

So that and we in Enterprise both and are generally we well segment, SP feel pretty we making continue well to execute progress. good

Hendi Susanto

thank Thank Brian. you, Drupad, you,

Dhrupad Trivedi

Hendi. you, Thank

Brian Becker

Thank of Q&A you. End

Operator

our concludes That Q&A.

I Dhrupad the back any like So conference remarks. closing would to hand to for

Dhrupad Trivedi

Thank you, today Thank your and thank our for us you for continued of to shareholders support. all you. joining and

Operator

your That today's Thank you for concludes call. participation.

now You may your disconnect lines.

A10 Networks (ATEN) 2 Nov 222022 Q3 Earnings call transcript