Earnings call transcript Q1 2023

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Operator

Hello and welcome to the A10 Networks’ First Quarter 2023 Financial Results Conference Call. My name is Alex, and I will be your moderator for today. [Operator Instructions ]

I would now hand over to Tom Alan of FNK IR. Please go ahead.

Unidentified Company Representative

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

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

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

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

the statements, These repurchase course supply strategy, potential trends, for dividend and are results, of make During customer X, statements today's call, May our on current our based allocation our including future beliefs chain programs will in management expectations constraints including revenue forward-looking and capital and projections XXXX.. growth, and industry statements expectations, as today, markets. regarding our positioning, operating of our

in as intend future predictions you AXX a are forward-looking not cause pandemic uncertainties, business These to the events. and COVID-XX them information operations otherwise, forward-looking unless to or these on risks events control, a whether contained should update law. involve as and materially, of differ potential statements, results of the result could that our does number as and beyond statements impact of of which actual our of the some information, not such on rely future new by required

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

call Now I would Networks. President like Dhrupad Trivedi, turn CEO AXX to and of over to the

Dhrupad Trivedi

you, all Thank us today. you thank for joining Tom, and

the were April on results in quarter shared line with first estimates we Our X.

a impacted was levels slowing durable quickly part to changes, to team revenue business us by at to full the and While model. decisions, better profitability and driving EPS. on the positioning in historical and year to resilient purchasing maintain economy This large respond our the more achieve due moved was for we non-GAAP targets our these focus

first quarter move As expect previously we improvements year, we communicated, XXXX. of as through we this balance our for believe floor the the sequential will a and represent results

Tier service priority solutions economy, large discretionary are not providers a While of a controls to those robust attack. enterprises increasingly X especially remain carefully are security with due the security the processes an threat investments ever-growing cyber Companies consideration. are experiencing around considering and even more and and world,

Cyber year-over-year. that world the attacks to down support us rest revenue longer to the of we do to was are cadence. threats. simply during business even North are most even customers first believe this competitors, close, already challenging larger are to concerns America about not revenue have North forecasted X% We we longer customers we associated our the mitigate among economy. first further lost times. taking is the security others, deploying in the organization declined normal and disruptions our last a but deals they prepared I During and year, enable any against augmented solutions for and seeing meaningful cause to particularly American robust they a reality cycles, Indeed, due better X% quarter to our the impacting infrastructure priority compared risk in Like the to sales these quarter,

who X the buying Effectively, year. in due Tier was of the post of plan to quarter the decline this all resumption revenue in half of second customers with expectations

both geography we austerity these XX.X% by navigating operating in the macro the diversification, select we helped most, in of deployed headwinds. expenses as and note We of structure. I long-term customers not light believe we to immune we to growth better goals, as our to reviewed in near-term particularly environment we spending. economy mitigate measures us that QX align steps reduce the were year-over-year mindful terms have we Our were but our of want are related to Proactively, conditions. than from macro cost taken our

execution. term, long challenges trajectory, In multiyear believe normalize. cash targets effort achieve as our I ability impact the reality, will maintain profitability business a conditions revenue speaks to ability this our materially model to generation solid significant business and don't market during of Over the quarter our and durability with even our to

and we margins and model year's is expanded business line achieving our EBITDA XX% margin. gross excess XX% and of last This gross in XX.X%, with to in significantly to goals XX.X% XX% result, maintained a quarter. our versus our of As in margin EBITDA first adjusted XX%

As external we even manage to communicated, have certain previously revenues expenses enables pressure. profitability to proactively under when us our maintain and investments ability robust are

improve and can cloud environment. in strengthens our plan to first-to-market and a provide leader next-generation web WAC. announced effort web strategic within enterprise hybrid solution large defenses By our investments these enhance strategic partnership partnership across Fastly unlocks next-generation methodically marketing hybrid our revenue and R&D. to we or diversification their [ph] a hardware ADC an believe We and further customers, security supply actions, integrated industry solution application sales continued including investment RAP, software appliances recently single and leading this combining resiliency in chain, with to our the cloud stream. an portfolio In of our selected this of firewall offering, have with solution their We

both for the strategy our AN type Fastly of this and leverage we teams. as of should go-to-market and collaboration Additionally, capability solution broaden our reach

to QX is operations And package. a experience security offices efforts, user Additionally, these with designed diversification enterprise Networks of cloud proxy cloud. into provide in cloud partner line access Japan service and performance AXX's enhanced in introduced center a large their help access controller into in complete and their organizations and the comprehensive optimize branch solution SaaS and visibility the applications, specifically security

of company profitability. priorities execution on model negatively preserve internal the multiple revenue to the by posture. enabling service, and our With customers. us to was our that is quarter, But continue it as focus a headwinds partner impacted business factors our macroeconomic this security combination we solutions in security a for delivered form strengthen our further In and comprehensive our proof to first enabled invest through

We year the are move improvement confident expansion. continue we that expect full as show through we to EPS and will we year,

We disciplined, and per I'd share. capital the With turn also call to Brian? $X.XX detailed flexible that, Today, a maintain continue strategy. Board our to opportunistic of quarter. a dividend Brian the allocation like approved of for over quarterly to a review

Brian Becker

Thank you, Dhrupad.

revenue, support million of revenue Dhrupad earlier. First or Services maintenance representing year-over-year, XX% total quarter quarter decrease revenue. revenue. Product million, revenue of headwinds the million, revenue $XX.X described reflecting X.X% XX% was total includes was a $XX.X the and which was of for $XX.X

geographic a from standpoint. revenue to Moving

from Revenue million, was the X.X%. Americas $XX down

to primarily larger slowing purchasing concerns. this from due Grupa described, reflects providers service customers, economic the As

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

the our in With provided the of on XX.X%. a our non-GAAP call on are basis, discussed website. to first results press stated. the A this all reconciliation mix. strong of and was overcoming pressures revenue, and unless to our exception This of reflects input execution quarter cost GAAP are release on due for product metrics margin otherwise non-GAAP Gross full

normalize revenue $XX.X XX.X% non-GAAP up operating the quarter. EBITDA with $XX.X We quarters. in million for ago income, $XX.X quarter, future million of our expect reported the million Adjusted mix was year to XX.X% revenue. in compared reflecting We in

We to million the flat by quarter earnings the ago is in Maintaining million a net $X.X our the able adjusted to even business. X%. compared per X% demonstrating Non-GAAP is per our into the quarter. share, revenue we income built nearly $XX non-GAAP revenue year lower was $X.XX significant were relatively targeted power accomplishment, or for income net $X.XX as or on declined share have EBITDA margins achieve which

the in per quarter $X.X the shares used Diluted non-GAAP were quarter year GAAP $X.XX computing On for year compared or in million the with million income was shares weighted $X.XX quarter. of for approximately net the basis, EPS first ago a per million income XX.X for or compared share XX.X ago quarter. million to share shares net $X

sheet. balance the to Turning

compared As marketable we of to March XX, and cash million end $XXX.X $XXX.X in of total had securities million at the XXXX, XXXX.

$X.X and paid we we to dividends, continue carry debt. in the During cash no quarter, million

of XXXX, indicated, believe We anticipate dividend cash quarterly on a approved XX, year. share on and record Board be XXXX. floor May improvements results, X, financial we first $X.XX the sequential mentioned, the shareholders paid Dupin as throughout June we to Juan represents for As our of quarter per the to the --

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

Dhrupad Trivedi

doubt year, delivering but solid responded Ryan. headwinds. challenging the you, effectively, profitability no our There revenue is to Thank a was this team despite strong start and execution

of all call our across Operator, solutions you in secular up each and durable now questions. open and are segments aligned demand for with in the customer target are solutions can geographies security-led Our catalyst. our

Operator

from Christian?. Christian Our ] Craig-Hallum. today Instructions [Operator for comes first question Schwab of

Christian Schwab

Great.

year, the revenue you here we through sequential that about would kind So a that? to as growth we think of expect Or about linear rest of think be the how should event? from

Dhrupad Trivedi

Yes.

that, noted by last let certainly normal add Brian think I I'll context our economy. we call, as in being So the seasonality impacted is the right? to

I loaded. half year this And to are our back-end so first be think to likely half results for second from more

planned we not the now orders by at right, that if see earlier. some scheduled or that the reflecting as So are least of second half, certainly

historic probably that in I expect perspective, so from we better improvements would into that certainly beyond or slightly and sequential sequential line And QX say seasonality. than and improvements are

Christian Schwab

know, Brian, don't anything... I

Brian Becker

Yes.

where a I script, of second cancellations seen in first Rupa I pattern talked half half the much second recognized I year revenue think mentioned we had revenue think a terms And pattern and similar as growth we the or we of pandemic to But XXXX first as was year, of saw meaningful with half 'XX first be Last half. about challenging the a bit any believe start. XXX% how was the in slow a will similar haven't year. little we pullback. in said in we've this as to half saw we mix

will sequential think we be So quarter. it growth a

Christian Schwab

of highlighted and Japan. year? that helpful? could that some in directionally and then this things Or come revenue And mentioned partnership Great. that material a Okay. is that large Is you the partnerships Fastly

Dhrupad Trivedi

But think and for as at the we we continue differentiating are obviously, I is, ways. an good right? see would maintain to large it also Yes, world. Christian. of pause solutions maybe economy, we around enterprise of service to providers to One in X our time, different same more question, their So in the in or be example partnering. are to where that's accelerating we more spending relevant related customers, uncertainty invest efforts large

compelling we months X proposition. be could sales. in value large time of So enterprise Typical have sales enterprise or cycle a frame an kind

consumption but So that highlights customers that and we pipeline, And more of certainly sense other on-prem, that's of customers are also out in that optimistic a progress makes be hybrid in differentiation. gaining partnership mode in related of on be in to well, supporting generation able of partners. could more us revenue diversification and -- more applications sort kind relevant So to durability as near line in in we but meaningful as any and the revenue and where the our our certainly right? of to but which vertical pipeline the that with either the in leading And in broadening year. the not of are again, the deliver environments, that irrelevant cloud, we term, of mode example for cloud are building the gives us expect, call certainly terms that Japan next a we to

Christian Schwab

up? with that operating to And one targeting last you just operating we Or should this about will on grow a do we revenue expenses, operating going revenue How be tight basis? expenses should Great. operating growth on have you're anticipate The year? expenses a sequential level a sequential on Okay. either question. controls of thinking then basis expenses

Dhrupad Trivedi

Yes.

like X So there's right? there's and that, shortfall reduction in one obviously, things expenses costs and our revenue, in think on partner I sales natural commission side. marketing a with and is, So right, reasons,

third or is, line of spreading making Second is, equally. the and it potential be we to it on linearly are product hybrid are completely spending adjust more are And I we able discretionary to that versus with and in and is it side. revenue commute decisions by portfolio driven older doing a the much just and think pipeline prudent kind the relates maybe to little we we more security our protecting being ensuring on growth how and product bit how in long-term investments solutions more as spend

still a lower model XX% structure XX% percent, a a growth and than So right we focused flexing OpEx our certain the went on that than certain in model right? think those think when revenue grows, way drops philosophy are our unfortunately, doing and in lower flexes it really So delivering direction, woes. EBITDA revenue cost are gross kind opposite is our we that. OpEx business too, is of when to our that with business margin, I And percentage, we XX%

Christian Schwab

Perfect. Great.

Operator

comes question from of Gray Powell BTIG. next Our

Gray Powell

Okay. Great.

-- on talk any since linearity you about slipped March a QX? Or my side closed. I the can you throughout this hit over into have you Just you maybe activity the in And that on see deals from course that material think but improvement so April? April any couple of did saw already,

Dhrupad Trivedi

question. good Yes,

had -- slower line, and we probably so linearity with we by of more than January we what in been and right, in QX, think March right, would I QX was saw being expected. in expected, have we probably worried terms what about in which

is as than start But to was probably from what March order completely linearity where we in we perspective, the quarter, say, everything would certainly, linearity that a from which et would of normal. line. the little January I So we trend not exited things was certainly were a have suggest quarter, saw expected, cetera, better -- beginning rate worse, and to

been of So seeing versus so we we'll goes we not the We kind obviously, and have quarter. with what through continue are in monitor right? to and far, have entering a we quarter gone as the line that's into quarter -- certainly that the expectation, expecting -- it, So worsening on. as

Gray Powell

should take year? Okay. level, blended think it you normalize? to sort out primary of just how high think is the Really we like And helpful. growth And then were once should markets, we shake then what a across your do if things target -- how it average this

Dhrupad Trivedi

I infrastructure of think, and just cybersecurity -- that you I'm on are markets thinking so so relative to clear our geographically... I Greg, the market question, or

Gray Powell

that... is What

Dhrupad Trivedi

Yes, exactly.

Okay.

is lead resilient what adjustment, are for canceled. a certainly, where think, of approach more of need I So now or top budget, now. And portfolio It's But right it's sort the security-driven continues we push that the being more much to are the where portfolio, maybe significantly it x be conversations seeing rest our is we there. we than some seeing discretionary but do right? and to we not is not month rescoped can X, that or of probably the

scrutiny to new nice category tie side, bit related And think affected and more moving negatively replace I infrastructure the them, projects would most slower around customer I slightly have that little revenue along, a projects still moving the to along. to say to and are projects. infrastructure On generation, but

so. rates I And the think term, side, infrastructure so on but at still half on first from I unchanged, shifting still or half digits the expect challenging annual look to when relative half basis, looks security that near on portfolio, I supporting our to and single term to slightly low better. be first the maybe And an second we those growth think long more

impact, So half impacted But Asia America and that, projects right? that of line the recession, inflation, We all sight where in infrastructure projects we of concerns capital, where we see of year. by the of EMEA certainly, our second are most have is North less have phenomenon. of to cost with the

kind the that's we market. perspective back would resume So a long-term half of blended to mid-single-digit an us gets second to point where area then probably it or where this certainly phenomenon that's better our to expect But say we and on growth. that's the one at

Gray Powell

a lot color. That's of Okay.

Dhrupad Trivedi

sorry, thing to Yes. add. last just And Chris, Obviously. one

commercial better, those right, a than so expect you there. If rates, those rates do slightly to with but at as little execution, look growth market better

Gray Powell

Understood.

good Okay. A lot there. of color

Operator

from Our BWS next comes Khorsand Hamed from Financial. question

Hamed Khorsand

just revenue the be is the -- you a to starting And as levers a to slow your that quarter? you you cost Could waited specific is pulled levers pull in those more in why little it of that bit until good environment? to instead

Dhrupad Trivedi

Yes.

our certainly XX good improved trajectory I for quarters, a you question, right. say if it's So last of look Hamir. at we And have continuously, EBITDA not matter right? not. So obviously the would

environment, ago, responding certain think a to that way the it linked growth market supported right? profile a are really to is year was spending think environment So to I rate. changing about X market our we a

we change I but to And growth to faced profitability on continue flexed to than rate. that in responsible When respond and maintain it's us spending, market support circumstance help think our on we EBITDA. that, for slower so our are spending us customer and grow to commitments a with external

that aligned, on they continue and our more translating the priorities, long-term into be R&D investing as I for sharper goals improves, those revenue in will pipeline and And to And even focus obviously, us. more is. spending. expect revenue now we receptivity with us and So spending, the I actually and see to other is we where it marketing partners all of and with on nature more in quarters that of growth if and less, it and line customer outer that, when discretionary more what reductions, side, will be basically it think, events on right, continuing to saves commissions portfolio rebates we think I it's more is deferred fully and but

Hamed Khorsand

average decline the then in or quarter? has for sales request And the Okay.

Dhrupad Trivedi

not improvement. in anything, mean a it's improved. meaningful I Sorry that it's - our margins, no. but If average,

it does think expected. I

Hamed Khorsand

size in packet a not it's the sales size. deterioration or Yes,

Dhrupad Trivedi

Yes. spend competitive were still the pressure We We weren't just spending same the And seeing from either customers, the size is of taking not getting situations. they're delays. in longer? just declining really the amount,

Hamed Khorsand

then as you that far that gives given the the And see -- that what further the commentary hiccup Okay. improvement, into and about confidence as happened you could January. sequential your in QX the QX

Dhrupad Trivedi

Yes.

mean, I se, customer the confidence we deals, is that to and side. is -- good if that, and higher big in QX, based it wins cycle as And confidence connect as one that's and that diversify X why that, have out I right, pipeline right? sales with EMEA looking not or customers our by were environment, question. when So well. think QX, when is I and be of could back, now, add think to I broad right, the is we longer that think the we have continues think typically the deals to in where we sales when on X about at projected we lot mix more on months, or a right when product Japan, reason So it's region have into QX per at you a region, or projected set seeing customers is to and as and we look of driven pipeline out continued one security-led a Asia which coming certainly QX and like and started right? solutions concern we our our QX, that So And

Operator

go open. Odometer Ana ahead. question next Please now line your is from comes Our

Unidentified Analyst

is Gianni. All right. Good Stefan This afternoon.

So it's go you Can strong. over...

Dhrupad Trivedi

Very well. Yes.

Unidentified Analyst

the of couple change question weeks. over is, the customer sentiment has past first My

Dhrupad Trivedi

So me question. the number the over weeks. of if behavior Customer see let can last I sentiment yes, answer

have clarity say seen QX, change. cycle. have little more is into budget we we bit entering I'd So around seen what a a

customers' were their I in on a time because we cycles of think visibility own having QX, into as just budgeting difficult processes. we delays walked through

seeing more visibility to versus I think we're last Hamid's quarter. the also lot point, clarity now now a what's different and

gone quarters. bit the quarter. shift to budget the internal I better more that our just the little through... biggest think cycles bit that's think seen is clarity we little have customers this of It's coming we've We the pipeline our next visibility up out on But have really pretty plans nicely a few visibility. over a and shaping deliver

Brian Becker

there point. those of reduction add, have are events, or normal And had themselves of that a size I that and now. got lot that just out is the a to through we clarity customers time, think, we And seeing other to not going Yes. January in pushed but would that clarity more Brian, was good And typically, a right? where February, with little

Unidentified Analyst

can And you allocation priorities? capital about your speak

Dhrupad Trivedi

Unchanged Sure. largely. really

is to looking to look continue the We're that Investor presentation back we've Day little again, hit in first fund But in organic ensure growth, to We Obviously, at up and that growth want term targets XXXX. outlined year. in a We we February are our in growth our priorities. long investing continue foremost. this differently things of priority. to organic bit shaping first

return through Second value employees continues. which shareholders dividends, is and and to repurchases to

lastly, Board dividend being As our with $X.XX I opportunistic always about we're mentioned, for on this quarter. approved cash another then do we And hand. what

Unidentified Analyst

you. Thank

Operator

time, have further questions. no we this At

to back remarks. any hand Patravedi I'll So Drew for further

Dhrupad Trivedi

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

Operator

for joining call. you Thank today's

now may lines. disconnect You your

A10 Networks (ATEN) 6 May 232023 Q1 Earnings call transcript