A10 Networks, Inc. Q1 FY2026 Earnings Call

Greetings. Welcome to the A10 Networks First Quarter 2026 Financial Results Conference Call. I will now turn the conference over to your host, Tom Baumann. Sir, you may begin.

Thank you, and thank you all for joining us today. This call is being recorded and webcast live and may be accessed for at least 90 days via the A10 Networks website at a10networks.com. Hosting the call today are Dhrupad Trivedi, A10's President and CEO; and Michelle Caron, CFO. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its first quarter 2026 financial results. Additionally, A10 published a presentation and supplemental trended financial statements. You may access the press release, presentation and trended financial statements on the Investor Relations section of the company's website. During the course of today's call, management will make forward-looking statements, including statements regarding projections for future operating results, demand, industry and customer trends, macroeconomic factors, strategy, potential new products and solutions, our capital allocation strategy, profitability, expenses and investments, positioning and our dividend program. These statements are based on current expectations and beliefs as of today, April 28, 2026. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially, and you should not rely on them as predictions of future events. A10 does not intend to update information contained in these forward-looking statements whether as a result of new information, future events or otherwise, unless required by law. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-K and quarterly report on Form 10-Q. Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP basis, unless otherwise noted, and have been adjusted to exclude certain charges. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and on the trended quarterly financial statements posted on the company's website at a10networks.com. Now I'd like to turn the call over to Dhrupad Trivedi, President and CEO of A10 Networks.

Thank you, Tom, and thank you all for joining us today. A10 continued to deliver on our strategic plan centered around the current AI-driven demand cycle, while simultaneously focusing on disciplined execution. Our customers are seeking solutions to address two major challenges: accelerating traffic volume and complexity and emerging security threats in the rapidly evolving AI landscape. A10 is well positioned to address both these challenges. We delivered 13.4% revenue growth in the first quarter. This was our third quarter in the last four with double-digit growth. On a trailing 12-month basis, we have grown revenue by 12.1% and delivered TTM adjusted EBITDA margins of 29.7%, in line with the Rule of 40 we outlined several years ago. During the same period, we have grown service provider revenue by 11% and enterprise revenue by 13%, demonstrating the importance of the strategic shift we have made. A key contributor to our growth is the relevance of our core platform to the demands of AI infrastructure build-out, which creates new challenges with greater traffic within the networks. As a result, traffic management is returning to the forefront of build-out plans, and this trend is aligned with A10's history and core expertise. Second, AI is evolving rapidly, creating new threats and expanding the footprint of security concerns. For most of the last decade, A10 has prioritized security advancement in each of our solutions. During this period, we have built a security portfolio that is now directly in the path of AI-driven threat expansion. This quarter, we were selected as a technology partner for a new application at one of the most significant AI infrastructure build-outs in our industry. As a result, the customer behind this build-out represents 5% of total revenue this quarter. The expansion of the customer's commitment to their enterprise applications reflects our focus on and relevance to next-generation networking. Deployments of this scale are time-sensitive and technically demanding, and they required prioritized allocation of product inventory and engineering resources. This was a deliberate choice to support a strategic customer and partner through a time-sensitive deployment window. We believe capturing this opportunity at the right cadence creates long-term value for the business. I also want to highlight that dynamic; I believe it is increasingly important to our story. AI is transforming the distinction between how large enterprises and service providers build their networks. The workloads are the same, the performance demands are the same and security requirements are the same. What this means practically is that a Fortune 500 customer standing up an internal AI cluster is now evaluating the same architectural choices as a cloud provider. A service provider hosting AI workloads for their enterprise tenants is being held to the same standard as its customers' own data centers. We have built our platform for exactly this world: one architecture, one operating model, one security framework across both segments. That is a meaningful competitive advantage as this convergence accelerates driven by AI. Our disciplined operating model balances targeted investment with margin expansion, converting growth into profitability and cash while dynamically reinvesting in strategic priorities. We continue to meet our objectives for EBITDA margin, reflecting our ability to reallocate resources based on best business opportunities. This results in consistent revenue and EPS performance. With that, I'd like to turn the call over to Michelle Caron, our Chief Financial Officer, to review the numbers in more detail. Michelle?

Thank you, Dhrupad. As a reminder, with the exception of revenue, all of the metrics discussed on this call are on a non-GAAP basis, unless otherwise stated. A full reconciliation of GAAP to non-GAAP results is provided in our press release and on our website. So let me turn to the results. As Dhrupad noted, first quarter results were aligned with our business model goals and delivered revenue growth of 13.4% to $75 million. Turning to mix. Product revenue was $44 million or 59% of total revenue, growing 22.3% year-over-year with service revenue comprising the remainder. Security-led revenue was a strong driver of our product revenue growth and continues to meet or exceed our long-term goal of security-led revenue as a percentage of total revenue. Security remains the dominant revenue driver across our next-generation networking, legacy networking and network security solution areas. Turning to our major verticals. Enterprise customers represented 56% of first quarter revenues, with the Americas continuing to outpace overall enterprise revenue growth. While the first quarter benefited from timing of large orders, this segment continues to grow above company average in terms of results as well as outlook. Enterprise momentum reflects the combination of our focus on this segment as well as continued strong demand for our next-generation networking solutions as customers prioritize modernizing their infrastructure. Our customers across both segments are aligning on the same underlying requirements for performance, security and scale. From a financial lens, this convergence is showing up in larger opportunities with our enterprise customers. Service provider revenue was 44% of total revenue in the first quarter. Both verticals align with our strategy and reflect the alignment of our offerings with AI infrastructure build-outs. A10 has evolved its solutions to be well positioned to capture this next-generation networking demand while also addressing legacy refresh opportunities as this market transition progresses and customers resume investment while continuing to align the evolving priorities around performance, scale and security. From a geographical perspective, our Americas region represented 67% of global revenue, driven by continued investment in AI infrastructure build-outs. In EMEA, we saw headwinds related to regional conflicts. In APJ, spending remains conservative as customers navigate an uncertain capital environment. We're not losing market share or experiencing competitive displacement; rather customers are extending asset lives and deferring discretionary spend. First quarter operating results reflected our continued investment in our strategic initiatives as well as our financial discipline amidst temporary input cost pressures. Non-GAAP gross margin was 80.6%, in line with our stated goals. Operating expenses were $41.5 million as we prioritized investments in AI-facing innovation, next-generation networking and security. Operating margin was 25.2%, resulting in net income of $17.7 million or $0.25 per basic and $0.24 per diluted share. First quarter diluted weighted share count was 72.9 million shares. Operating cash flow and therefore free cash flow in the quarter was temporarily impacted by the timing of receivables as well as inventory investments. Neither item reflects a change in underlying business fundamentals, and we expect both to normalize over the course of the year. Full year free cash flow expectations remain unchanged, expanding on a year-over-year basis. Adjusted EBITDA was $22.5 million, 30% of revenue, consistent with our business model goals as we balance investment and growth initiatives with our commitments to sustained and expanding profitability. Turning to the balance sheet. Cash and marketable securities were $369.8 million as of March 31, and deferred revenue was $147.2 million. During the quarter, we paid $4.3 million in cash dividends and repurchased $2.5 million worth of shares, returning a total of $6.8 million to our shareholders. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on June 1, 2026, to shareholders of record on May 15, 2026. The company has $53.4 million remaining on its $75 million share repurchase authorization. As is true for everyone in the industry, we are seeing delivery and cost challenges related to pricing of certain components. We entered this environment with strong supplier relationships, and we will keep evaluating the evolving market and adapt as needed. I'll now turn the call back over to Dhrupad for an update on our 2026 outlook and closing comments.

Thank you, Michelle. A10 continues to strengthen its position as a partner of choice to address the evolving traffic and security needs of next-generation networks. The strong financial results, including double-digit growth and solid EBITDA margins validate the strategic investments we have made. As a result, A10 is well positioned in front of multiple durable secular catalysts. We continue to invest to enhance our position across our portfolio while preserving profitability and shareholder returns. We are reiterating our 2026 outlook with 2026 revenue growth within our guided range of 10% to 12% and adjusted EBITDA margins between 28% to 30% and EPS growth of 12% to 14%. In addition, we remain confident and committed to our long-term operating model. Operator, you can now open the call up for questions.

Our first question comes from Gray Powell with BTIG.

Okay. Great. And congratulations on the very strong set of results. It was really good to see the product revenue growth accelerate to 22% this quarter. So I guess my first question would just be, where do you think we're at in the investment cycle around AI? And if you start to see a further acceleration in traffic growth, would you think about prioritizing faster revenue growth over the historical 28% to 30% EBITDA margin framework that you've always talked about?

Yes. First of all, thank you, good question. So in terms of the investment cycle, as I think we have said in the past, we see this as there is a large build-out phase, and where we are actually focused with customers is in that phase, but also with customers who will, over time, deploy their own solutions, whether it's around sovereign AI and things like that. So the second part of that cycle, I think, is very early stage, and we expect to see that benefit over the next few years. The first part of the cycle, I think, is pretty active build-out. I don't know how much higher it will go or lower it will go, but it is pretty solid and stable in terms of the significant commitment to the build-out, and even though the build-out itself takes several quarters. So I think we are in the midst of that build-out phase, and we are at a very early stage of where enterprise and other entities will use AI for their own business more directly, whether it's on-prem, cloud or combined. And I think your second question is correct and appropriate. So we certainly continuously look at that trade-off. And I would say the focus for us is if there are opportunities to grow faster, typically, that also helps in growing EPS faster. So we look at it from the point of view of revenue and EPS being the ultimate top and bottom line. The EBITDA margin is a reflection of our ability to drive OpEx productivity as well as maintain sufficient margin so the fall-through is good. But absolutely, as we navigate the market, if we see opportunities for significantly faster growth while still delivering EPS expansion, we will continue to look at those opportunities.

That's perfect. And then just my follow-up question, if that's okay. So you called out the large customer win. I'm assuming that hit in the enterprise segment because the revenue growth there really spiked. Is there any additional detail you can give? Like was that one of the larger frontier models? And if not, just how should we think about sort of the split between growth in enterprise and service provider going forward?

Yes. No, look, a perfect question. And I think I touched on it very briefly, but that's a great question. So I think, first of all, what we are seeing is that many of our large customers that were traditionally service provider or enterprise, there is a complication where a lot of our service provider customers when they are doing AI are sort of also doing a lot of enterprise applications. And so that's really where that becomes hard to segregate completely. And then enterprise customers are planning to build their own on-prem inference models and build out. In that case, they look like a service provider. So that's the demarcation. And I think this is the case of an existing large customer expanding their deployment. It's really around an enterprise application, so it's not the DDoS-type product. It's an enterprise application that enables their delivery of AI.

The next question comes from Hamed Khorsand with BWS Financial.

Just for clarification purposes, was the accounts receivable build all related to this one large project? And did you receive payment for it?

Good question. Michelle, you can answer that.

So this is a timing event and not a credit event. Our business fundamentals remain strong. There was no meaningful uptick in our aged receivables and there was no deterioration in our payment behavior. There were no concessions on standard payment terms with any customers. So we see the business fundamentals as favorable.

And I think, Hamed, you are correct. We expect it to normalize in Q2 in addition to the original Q2 timing. We expect it to normalize over the course of the next couple of quarters and expect the full year to be on track.

And then just given the growth that you saw in Q1, why the hesitation to keep guidance unchanged if you're growing in excess of 10% to 12%?

Yes, I think it's more that we are still in Q1, and we want to see the progression through the year. If we see that momentum continuing in Q2 and beyond, obviously, we will revisit guidance. So it's not that we are hesitating, it's just that we are navigating timing factors across the year, including supply lead times and cost challenges for some components, and obviously, our EMEA business has some impact from regional conflicts. So we feel really good about 10% to 12%. If we see progress in terms of pipeline growth and execution into Q2, we will revisit it as appropriate.

The next question comes from Michael Romanelli with Mizuho.

So in the press release, you noted that you're seeing expanded commitments from some of your top customers. Just wanted to dive a bit deeper into that comment. So outside of this large project, how is business activity across the installed base to get a feel for the magnitude or size of this and how the business was excluding that large project? And then I have a follow-up.

Yes. So the intent of that comment was to highlight that many of our existing customers who are service providers or large enterprises are all beginning to allocate more spending and priority to AI, whether it's building it or using it. In general, even if they were buying certain other product categories from us, AI is an area of expansion for us, and that's the basis for the expanded commitments. So it could be a service provider in Europe who is also now doing enterprise work, or it could be an enterprise customer who is now deploying or expanding their AI infrastructure and build-out. So it could be any of those kinds of situations.

Okay. Got it. That's helpful. And then just as my follow-up, you touched on this in the prepared remarks, but can you maybe just characterize demand and business activity across your primary geographies? It sounds like some parts of the business are still challenged. Anything worth highlighting or calling out this quarter?

No problem. I'll go in reverse order. In APJ, and particularly in Japan, that market shows caution given the macro factors and spending patterns. What we see is typical spending profiles of large customers are being pushed out; customers are being cautious on ROI and timing, so we expect recovery there but not imminently. In EMEA, there are sections that are challenged due to regional activity and international events; parts of Europe continue to make progress, but the Middle East part is tougher right now. In the Americas, we see categories: customers leaning into AI are optimistic and spending more. On our traditional telco customers, we see stability — it's not declining and not growing significantly; it's stable and could improve as those customers determine their AI spending patterns. Overall, the biggest AI spending is in the Americas, followed by EMEA, then Japan, and we continue to focus on ensuring customer satisfaction across all regions.

Next question comes from Anja Soderstrom with Sidoti.

Congrats on the quarter. In the past, you said that product revenue is indicative of services growth. We've seen product growing quite nicely over the past couple of quarters, but services has been lagging. What's causing the lag and when do you expect services to pick up?

Good question, Anja. Typically, when product grows, service revenue follows because support and maintenance renewals occur after a product install cycle. Product growth is a lead indicator; service revenue usually shows up roughly four quarters later as those contracts come up for renewal. Our renewal rate is stable. We do see timing fluctuations due to large contracts and renewal timing, and sometimes collections happen early or late. But in general, product being up should drive services growth about four quarters later.

Okay. And then in the past, you also talked about taking share from competitors. Have you seen any changes to the competitive dynamics recently?

Good question. No, we have not seen significant changes in the competitive dynamics over the last quarter or two. I feel confident in our trajectory and what we are doing. If you look at peers and recent reports, our target of 10% to 12% growth is a bit north of many of them. If we continue to execute and improve, we believe we are in a good competitive position. There is no material change in the landscape we are seeing at the moment.

Next question comes from an analyst with Craig-Hallum.

I'm on for Chris Schwab here, just a quick question on the 10% to 12% reiterated guidance. Is that going to be kind of a step function every quarter? Or is it a stronger second half? And then with that, is that tied just to continued growth and market share gains? Or is that concentrated on a few customers?

No, that's a good question. It's a broad market approach. We reiterated guidance this year because we had our Investor Day subsequent to the earnings call in Q1, and we recaptured guidance in one place. This is not indicative of us changing cadence to guide every quarter. The objective is to reflect our view post-Analyst Day. The growth is driven by broad market participation and mix shift toward next-generation networking and security rather than being concentrated solely on a few customers, although some large opportunities do contribute.

All right. And then just thinking about the longer-term targets, I believe you guys said 12% was a long-term target. With legacy decreasing and stronger CAGRs in next-gen areas that were previously stated at mid-teens, is there a path to exceed that 12%? Is there anything that needs to happen to get there?

Yes. The factors to exceed 12% include continued stability in demand and supply, further participation in AI spending, and the mix shift toward next-generation networking and security as legacy declines. If we see stability in demand and supply through the year, and more embedding into AI build-outs — infrastructure or applications — that helps. Also, if service provider spending resumes toward more normal rates, that will help. We don't need all of those factors to improve, but one or two of them materially would increase confidence in raising the long-term growth target.

Next question comes from Raymond James.

This is Victor in for Simon Leopold. Can you provide some color around the supply chain and memory shortages? You mentioned you observed some impacts around that this quarter. Have you adjusted pricing around this? And if so, how is that impacting the demand dynamics that you're observing?

Yes, good question. The biggest component constraint we see is memory, particularly DDR categories, and there are other component shortages as well. We've seen price increases, and it's more than just price — there are lead time and allocation issues from suppliers. We are actively working to secure supply, manage costs and fulfill customer needs. In the next few quarters, we do not expect this situation to improve markedly; it may take four quarters or longer to materially ease. We try to share the cost with customers where possible, but it doesn't always work. We continue to navigate these issues while pursuing our 10% to 12% guidance.

Okay. Great. And I think you also mentioned the benefit of timing, you had some large orders. Was that related to that large enterprise order specifically? Or was there maybe some pull-ins from customers pulling in orders ahead of these shortages?

No, I don't think it's a case of customers overbooking to secure capacity. In our case, customers are building out fast and we are trying to keep up with them to make sure we get them everything they need. So it's driven by customer build-out velocity rather than panic pull-ins or double bookings.

We have reached the end of the question-and-answer session, and I will now turn the call over to Dhrupad Trivedi for closing remarks.

Thank you, and thank you to all of our employees, customers and shareholders for joining us today and for your continued support. I am increasingly confident in our strategic orientation with security and AI infrastructure spending patterns. Thank you for your time and attention.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.