8-K
A10 Networks, Inc. (ATEN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 8-K
____________________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 7, 2020
____________________________________________________________________________
A10 NETWORKS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________________________
| Delaware | 001-36343 | 20-1446869 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification Number) |
2300 Orchard Parkway
San Jose, CA 95131
(Address of principal executive offices, including zip code)
(408) 325-8668
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.00001 par value | ATEN | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On May 7, 2020, A10 Networks, Inc. (the “Company”) issued a press release regarding financial results for the quarter ended March 31, 2020. The Company also posted on its website (www.a10networks.com) slides regarding such financial results. Copies of the press release and slides are attached as Exhibits 99.1 and 99.2, respectively, and the information in Exhibits 99.1 and 99.2 are incorporated herein by reference.
The information in Item 2.02 and Item 9.01 in this Current Report on Form 8-K and the exhibits attached hereto shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 7, 2020
| A10 NETWORKS, INC. |
|---|
| By: /s/ Tom Constantino |
| Tom Constantino |
| Executive Vice President and Chief Financial Officer<br><br>(Principal Accounting and Financial Officer) |
Exhibit
EXHIBIT 99.1
A10 Networks Reports First Quarter 2020 Financial Results
First Quarter Revenue of $53.8 Million; Company Meets or Exceeds All Guidance Metrics
SAN JOSE, Calif., May 7, 2020 -- A10 Networks (NYSE: ATEN), a leading provider of intelligent and automated cybersecurity solutions, today announced financial results for its first quarter ended March 31, 2020.
First Quarter 2020 Financial Summary
| • | Revenue of $53.8 million, exceeded high end of guidance and up 7% year-over-year. |
|---|---|
| • | GAAP gross margin of 77.4%; non-GAAP gross margin of 78.3%, exceeded high end of guidance. |
| --- | --- |
| • | GAAP operating expenses of $41.8 million; non-GAAP operating expenses of $38.0 million, at the mid-point of guidance. |
| --- | --- |
| • | GAAP net loss of $(0.3) million, or $0.00 per basic and diluted share, compared with GAAP net loss of $(12.3) million, or $(0.16) per basic and diluted share in the first quarter of 2019; non-GAAP net income of $4.0 million, or $0.05 per basic and diluted share, exceeded the high end of guidance. |
| --- | --- |
| • | Adjusted EBITDA of $7.2 million, exceeded the high end of guidance and a positive swing of more than $10 million compared with $(3.7) million in Adjusted EBITDA in the first quarter last year. |
| --- | --- |
| • | Ended the quarter with $142.9 million in cash, cash equivalents and marketable securities, compared to $129.9 million dollars as of December 31, 2019 |
| --- | --- |
A reconciliation between GAAP and non-GAAP information is contained in the financial statements below.
“The strong first quarter, with revenue and profitability that exceeded our guidance, demonstrates that we are firmly on the right path, with an increasingly efficient organization, products that are increasingly in demand and a globally diversified presence,” said Dhrupad Trivedi, president and chief executive officer of A10 Networks. “To be sure, the Covid-19 pandemic is impacting our
customers and A10, but in the first quarter we were able to adapt as the situation unfolded to mitigate most of the negative impact and deliver results that exceeded guidance. Moving into the second quarter, accurately forecasting the timing of regional and customer order patterns within a 90-day window has become challenging. With approximately $143 million in cash on our balance sheet, including an increase of $13 million in cash, cash equivalents and marketable securities at the end of the first quarter, and a stable base of recurring revenues, we remain well-positioned to weather the current environment from a position of strength, as we advance efforts to drive profitability. Our diversified product suite remains in strong demand, as our service provider customers need to reinforce their critical communications infrastructure for unprecedented usage and security as a result of the work-from-home movement. I remain optimistic and confident about the long-term prospects for A10 and believe we are well-positioned to navigate these challenging times.”
“The near-term uncertainty has caused us to temporarily halt our practice of providing quarterly guidance, but we remain committed to advancing our goals for growth and profitability,” continued Mr. Trivedi. “We believe we can achieve our stated goal of eliminating $10 million in operating expenses on an annual basis, and we expect second quarter operating expenses to decline sequentially from the first quarter. In addition, we expect to maintain non-GAAP profitability in the second quarter as we continue to make progress on our long-term operating model. As the situation abates and our visibility improves, we hope to return to providing estimates about our expected results.”
Conference Call Information
A10 Networks will host a conference call today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time for analysts and investors to discuss its first quarter 2020 financial results and outlook for its second quarter 2020. Open to the public, investors may access the call by dialing +1-844-792-3728 or +1-412-317-5105. A live audio webcast of the conference call will be accessible from the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. The webcast will be archived for a period of one year. A telephonic replay of the conference call will be available two hours after the call, will run for five business days, and may be accessed by dialing +1-877-344-7529 or +1-412-317-0088 and entering the passcode 10142879. The press release and supplemental financials will be accessible from the “Investor Relations” section of the A10 Networks website prior to the commencement of the conference call.
Forward-Looking Statements
This press release contains “forward-looking statements,” including statements regarding an increasingly efficient organization, an increase in demand for our products, the impact of Covid-19 on our business and near-term visibility, our position to weather the current environment, our continued efforts to improve our profitability, customer trends, our ability to achieve our stated goal of eliminating $10 million in operating expenses on an annual basis and our expectation for second quarter operating expenses to decline sequentially from the first quarter. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Factors that may cause actual results to differ include public health requirements in response to the outbreak of Covid-19 and the impact on our business and operations, which is evolving and beyond our control, and the timing of customer orders and product shipments; members of our management team or a significant number of our global employee base becoming ill with Covid-19; changes in government regulations and mandates to address Covid-19 that may adversely impact our ability to continue to operate without disruption; a significant decline in global macroeconomic conditions that have an adverse impact on our business and financial results; challenges to our infrastructure because of the number of employees working from remote locations; business interruptions related to our supply chain; our ability to manage our business and expenses if customers cancel or delay orders; execution risks related to closing key deals and improving our execution; the continued market adoption of our products; our ability to successfully anticipate market needs and opportunities; our timely development of new products and features; our ability to achieve or maintain profitability; any loss or delay of expected purchases by our largest end-customers; our ability to maintain or improve our competitive position; competitive and execution risks related to cloud-based computing trends; our ability to attract and retain new end-customers and our largest end-consumers; our ability to maintain and enhance our brand and reputation, changes demanded by our customers in the deployment and payment model for our products; continued growth in markets relating to network security; the success of any future acquisitions or investments in complementary companies, products, services or technologies; the ability of our sales team to execute well; our ability to shorten our close cycles; the ability of our channel partners to sell our products; variations in product mix or geographic locations of our sales; risks associated with our presence in international markets; weaknesses or deficiencies in our internal control over financial reporting; our ability to timely file periodic reports required to be filed under the Securities Exchange Act of 1934; and other risks that are described in “Risk Factors” in our periodic filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Commission on March 10, 2020. We do not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release and the accompanying table contain certain non-GAAP financial measures, including non-GAAP net income (loss), non-GAAP net income (loss) per basic and diluted share, non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses, and Adjusted EBITDA. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies.
A10 Networks considers these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the company, exclusive of unusual events or factors that do not directly affect what we consider to be our core operating performance, and are used by the company's management for that purpose.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures provided in the financial statement tables below. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis is not available due to high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures.
We define non-GAAP net income as our GAAP net income (loss) excluding: (i) stock-based compensation and related payroll tax, (ii) amortization expense related to acquisition and (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring facilities expense. We define non-GAAP net income per basic and diluted share as our non-GAAP net income (loss) divided by our basic and diluted weighted-average shares outstanding. We define non-GAAP gross profit as our GAAP gross profit excluding stock-based compensation and related payroll tax. We define non-GAAP gross margin as our non-GAAP gross profit divided by our GAAP revenue. We define non-GAAP operating income (loss) as our GAAP income (loss) from operations excluding (i) stock-based compensation, and related tax, (ii) amortization expense related to acquisition and (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring
facilities expense. We define non-GAAP operating margin as our non-GAAP operating income (loss) divided by our GAAP revenue. We define non-GAAP operating expenses as our GAAP operating expenses excluding (i) stock-based compensation, and related tax, (ii) amortization expense related to acquisition, (iii) non-recurring expenses associated with the litigation settlement expense and internal investigation, (iv) restructuring expense, and related tax, and (v) non-recurring facilities expense. We define Adjusted EBITDA as our GAAP net income (loss) excluding (i) interest expense, (ii) interest income and other (income) expense, net, (iii) depreciation and amortization expense, (iv) provision for income taxes, (v) stock-based compensation and related payroll tax, (vi) litigation settlement and internal investigation expense (vii) restructuring expense, and related tax, and (viii) non-recurring facilities expense.
We have included our non-GAAP net income (loss), non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP operating expenses and Adjusted EBITDA in this press release. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company's operating results.
About A10 Networks
A10 Networks (NYSE: ATEN) is a leading provider of secure application services and solutions, with a range of high-performance application networking solutions that help organizations ensure that their data center applications and networks remain highly available, accelerated and secure. Founded in 2004, A10 Networks is based in San Jose, Calif., and serves customers globally with offices worldwide. For more information, visit: www.a10networks.com and @A10Networks.
The A10 logo and A10 Networks are trademarks or registered trademarks of A10 Networks, Inc. in the United States and other countries. All other trademarks are the property of their respective owners.
Investor Contact:
Rob Fink
FNK IR
646.809.4048
aten@fnkir.com
Tom Constantino
Chief Financial Officer
investors@a10networks.com
Source: A10 Networks, Inc.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts, on a GAAP Basis)
| Three Months Ended <br> March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Revenue: | ||||
| Products | $ | 30,736 | $ | 28,230 |
| Services | 23,028 | 22,060 | ||
| Total revenue | 53,764 | 50,290 | ||
| Cost of revenue: | ||||
| Products | 6,941 | 7,516 | ||
| Services | 5,201 | 4,734 | ||
| Total cost of revenue | 12,142 | 12,250 | ||
| Gross profit | 41,622 | 38,040 | ||
| Operating expenses: | ||||
| Sales and marketing | 20,621 | 24,483 | ||
| Research and development | 15,315 | 16,166 | ||
| General and administrative | 5,895 | 8,358 | ||
| Total operating expenses | 41,831 | 49,007 | ||
| Loss from operations | (209) | (10,967) | ||
| Non-operating income (expense): | ||||
| Interest expense | — | (155) | ||
| Interest and other income (expense), net | 231 | (633) | ||
| Total non-operating income (expense), net | 231 | (788) | ||
| Income (loss) before provision for income taxes | 22 | (11,755) | ||
| Provision for income taxes | 319 | 517 | ||
| Net loss | $ | (297) | $ | (12,272) |
| Net loss per share: | ||||
| Basic and diluted | $ | (0.00) | $ | (0.16) |
| Weighted-average shares used in computing net loss per share: | ||||
| Basic and diluted | 78,061 | 74,809 |
A10 NETWORKS, INC.
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME (LOSS)
(unaudited, in thousands, except per share amounts)
| Three Months Ended <br>March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| GAAP net loss | $ | (297) | $ | (12,272) |
| Non-GAAP adjustments: | ||||
| Stock-based compensation and related payroll tax | 3,241 | 3,896 | ||
| Amortization expense related to acquisition | 253 | 253 | ||
| Litigation and investigation expense | 30 | 876 | ||
| Non-recurring facilities expense | 795 | — | ||
| Non-GAAP net income (loss) | $ | 4,022 | $ | (7,247) |
| GAAP net loss per share: | ||||
| Basic | $ | (0.00) | $ | (0.16) |
| Diluted | $ | (0.00) | $ | (0.16) |
| Non-GAAP adjustments: | ||||
| Stock-based compensation and related payroll tax | $ | 0.04 | $ | 0.05 |
| Amortization expense related to acquisition | $ | 0.00 | $ | 0.00 |
| Litigation and investigation expense | $ | 0.00 | $ | 0.01 |
| Non-recurring facilities expense | $ | 0.01 | $ | — |
| Non-GAAP net income (loss) per share: | ||||
| Basic | $ | 0.05 | $ | (0.10) |
| Diluted | $ | 0.05 | $ | (0.10) |
| Weighted-average shares used in computing non-GAAP net income (loss) per share: | ||||
| Basic | 78,061 | 74,809 | ||
| Diluted | 79,747 | 74,809 |
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts, on a GAAP Basis)
| March 31, <br>2020 | December 31, <br>2019 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 65,633 | $ | 45,742 |
| Marketable securities | 77,273 | 84,180 | ||
| Accounts receivable, net of allowances of $267 and $52, respectively | 42,862 | 53,566 | ||
| Inventory | 20,764 | 22,384 | ||
| Prepaid expenses and other current assets | 12,518 | 15,067 | ||
| Total current assets | 219,050 | 220,939 | ||
| Property and equipment, net | 7,462 | 7,656 | ||
| Goodwill | 1,307 | 1,307 | ||
| Intangible assets | 1,944 | 2,305 | ||
| Other non-current assets | 40,294 | 41,846 | ||
| Total assets | $ | 270,057 | $ | 274,053 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 3,937 | $ | 7,592 |
| Accrued liabilities | 24,243 | 27,756 | ||
| Deferred revenue | 62,718 | 62,233 | ||
| Total current liabilities | 90,898 | 97,581 | ||
| Deferred revenue, non-current | 38,560 | 38,931 | ||
| Other non-current liabilities | 27,347 | 28,754 | ||
| Total liabilities | 156,805 | 165,266 | ||
| Commitments and contingencies | ||||
| Stockholders' equity: | ||||
| Common stock, $0.00001 par value: 500,000 shares authorized; 78,710 and 77,580 shares issued and outstanding, respectively | 1 | 1 | ||
| Additional paid-in-capital | 403,650 | 398,600 | ||
| Accumulated other comprehensive income (loss) | (37) | 251 | ||
| Accumulated deficit | (290,362) | (290,065) | ||
| Total stockholders' equity | 113,252 | 108,787 | ||
| Total liabilities and stockholders' equity | $ | 270,057 | $ | 274,053 |
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands, on a GAAP Basis)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash flows from operating activities: | ||||
| Net loss | $ | (297) | $ | (12,272) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||
| Depreciation and amortization | 3,311 | 2,447 | ||
| Stock-based compensation | 3,040 | 3,896 | ||
| Other non-cash items | (13) | (246) | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | 10,767 | 9,285 | ||
| Inventory | 1,472 | (3,325) | ||
| Prepaid expenses and other assets | 2,426 | (2,409) | ||
| Accounts payable | (3,718) | (492) | ||
| Accrued and other liabilities | (4,919) | (3,616) | ||
| Deferred revenue | 114 | 603 | ||
| Other | — | 71 | ||
| Net cash provided by (used in) operating activities | 12,183 | (6,058) | ||
| Cash flows from investing activities: | ||||
| Proceeds from sales of marketable securities | 1,914 | 8,674 | ||
| Proceeds from maturities of marketable securities | 10,175 | 4,500 | ||
| Purchases of marketable securities | (5,518) | (13,859) | ||
| Purchases of property and equipment | (868) | (936) | ||
| Net cash provided by (used in) investing activities | 5,703 | (1,621) | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of common stock under employee equity incentive plans | 2,005 | 1,027 | ||
| Other | — | (2) | ||
| Net cash provided by financing activities | 2,005 | 1,025 | ||
| Net increase (decrease) in cash and cash equivalents | 19,891 | (6,654) | ||
| Cash and cash equivalents - beginning of period | 45,742 | 40,621 | ||
| Cash and cash equivalents - end of period | $ | 65,633 | $ | 33,967 |
| Non-cash investing and financing activities: | ||||
| Inventory transfers to property and equipment | $ | 149 | $ | 303 |
| Purchases of property and equipment included in accounts payable | $ | 63 | $ | 485 |
A10 NETWORKS, INC.
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
(unaudited, in thousands, except percentages)
| Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| GAAP gross profit | $ | 41,622 | $ | 38,040 | ||
| GAAP gross margin | 77.4 | % | 75.6 | % | ||
| Non-GAAP adjustments: | ||||||
| Stock-based compensation and related payroll tax | 501 | 325 | ||||
| Non-GAAP gross profit | $ | 42,123 | $ | 38,365 | ||
| Non-GAAP gross margin | 78.3 | % | 76.3 | % |
RECONCILIATION OF GAAP TOTAL OPERATING EXPENSES TO
TO NON-GAAP TOTAL OPERATING EXPENSES
(unaudited, in thousands)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| GAAP total operating expenses | $ | 41,831 | $ | 49,007 |
| Non-GAAP adjustments: | ||||
| Stock-based compensation and related payroll tax | 2,740 | 3,571 | ||
| Amortization expense related to acquisition | 253 | 253 | ||
| Litigation and investigation expense | 30 | 876 | ||
| Non-recurring facilities expense | 795 | — | ||
| Non-GAAP total operating expenses | $ | 38,013 | $ | 44,307 |
RECONCILIATION OF GAAP LOSS FROM OPERATIONS
TO NON-GAAP OPERATING INCOME (LOSS)
(unaudited, in thousands, except percentages)
| Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| GAAP loss from operations | $ | (209) | $ | (10,967) | ||
| GAAP operating margin | (0.4) | % | (21.8) | % | ||
| Non-GAAP adjustments: | ||||||
| Stock-based compensation and related payroll tax | 3,241 | 3,896 | ||||
| Amortization expense related to acquisition | 253 | 253 | ||||
| Litigation and investigation expense | 30 | 876 | ||||
| Non-recurring facilities expense | 795 | — | ||||
| Non-GAAP operating income (loss) | $ | 4,110 | $ | (5,942) | ||
| Non-GAAP operating margin | 7.6 | % | (11.8) | % |
RECONCILIATION OF GAAP NET LOSS TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(unaudited, in thousands)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| GAAP net loss | $ | (297) | $ | (12,272) |
| Exclude: Interest expense | — | 155 | ||
| Exclude: Interest and other (income) expense, net | (231) | 633 | ||
| Exclude: Depreciation and amortization expense | 3,311 | 2,447 | ||
| Exclude: Provision for income taxes | 319 | 517 | ||
| EBITDA | 3,102 | (8,520) | ||
| Exclude: Stock-based compensation and related payroll tax | 3,241 | 3,896 | ||
| Exclude: Litigation settlement and investigation expense | 30 | 876 | ||
| Exclude: Non-recurring facilities expense | 795 | — | ||
| Adjusted EBITDA | $ | 7,168 | $ | (3,748) |
a10investorpresent1q20ea
Q1 2020 Financial Results & Commentary May 7, 2020 Always Secure. Always Available.
Cautionary Statements & Disclosures This presentation and the accompanying oral presentation contain “forward-looking” statements that are based on our management’s beliefs and assumptions, including statements regarding the impact of COVID-19 on our business, including demand for our products and near-term disruption in our supply chain, our positioning and recurring revenues, our strategy and objectives, our expectations as to future operating results, including as to non-GAAP profitability and operating expenses, our plans with respect to issuing guidance. Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from those anticipated or implied by our forward-looking statements. These factors include, but are not limited to, the impact of COVID-19 on our business, on the business of our customers and suppliers, and on the global economy in general, execution risks related to closing key deals and improving our execution, successfully executing our strategies, market adoption of our products, successfully anticipating market needs and opportunities, timely development of new products and features, achieving or maintaining profitability, loss or delay of expected purchases, our ability to maintain or improve our competitive position; competitive and execution risks related to cloud-based computing trends, attracting and retaining new end-customers, maintaining and enhancing our brand and reputation, changes demanded by our customers in the deployment and payment model for our products, growth in markets relating to network security, the success of any future acquisitions or investments, the success of our partnerships with technology providers, the ability of our sales team to execute well, our ability to shorten our close cycle, the ability of our channel partners to sell our products, variations in product mix or geographic locations of our sales, our presence in international markets, and other factors described in our quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings made with the Securities and Exchange Commission, to which your attention is directed. The forward-looking statements included in this presentation are based on current expectations and beliefs as of May 7, 2020 only. We do not intend to update this information contained in the forward-looking statements, except as required by law. This presentation and the accompanying oral presentation also include certain non-GAAP financial measures. Non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under U.S. GAAP. We consider these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the company, exclusive of unusual events or factors that do not directly affect what we consider to be our core operating performance, and are used by the company's management for that purpose. Definitions of our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures can be found in the appendix to this document and in the accompanying financial results press release. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis is not available due to high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. 2
Agenda • Introduction • 1Q Overview and Business Update • 1Q 2020 Financial Results 3
A10 Core Purpose, Mission and Vision CORE PURPOSE VISION MISSION Enabling a secure To empower our We enable service and available digital customers to providers and world provide the most enterprises to secure and deliver business- available digital critical applications experience that are secure, available and efficient for multi-cloud transformation and 5G readiness 4
Large Installed Base Trusts Us With Their Critical Applications and transition to Cloud Provide always Protect investments Support seamless Secure multi- Protect networks Simplify IT ops with available application for enterprises and migration to the generational from cyberattacks connected intel, delivery and security service providers cloud and cloud- networks through that threaten automation, ML on-prem and in the native with hybrid the transition to 5G network availability and DevOps/ cloud solutions and cloud SecOps tools ALL AT HYPERSCALE 9 of Top 10 8 of Top 10 21 of Top 50 15 of Top 25 5 of Top 10 Telecom Operators Cloud Providers Fortune Global 500 Video Gaming Companies Media Companies 5
Market Trends driving our Solutions IoT Shift to 5G/4G+ Operational Security Proliferation Cloud Deployment Complexity Threats 6
A10 Advantage – Performance, Flexibility, Security Security Flexible Automation & Performance Technical Stack Form Factor & Analytics @ Scale Support Consolidation Pricing Multi-cloud Lower Capex Future Better Business Trusted Efficiency & Opex Proof Outcomes Advice Simplification without Compromise @ Hyperscale 7
Q1’20 Overview • Responding to COVID-19 • Delivering Results • Near Term Expectations • Result of Operations 8
Responding to COVID-19 Environment • Priority • Protecting the health and safety of our employees • And our global community • Catalyst • Increasing demand for bandwidth as a result of work from home / shelter in place mandates • Increasing need for the critical communications infrastructure solutions we provide • Bolstering long-term tailwinds that drive our business • Position of strength • Stable base of recurring revenues and large installed base running critical applications • $142.9 million in cash • No debt 9
Q1’20: Delivering Results • Delivered strong operating results in Q1 while diligently navigating a rapidly changing economic environment • Exceeded high end of Q1 guidance for: • Revenue • Adjusted EBITDA • Diluted EPS • Met Opex (middle of range) guidance • Met gross margin (high-end of range) guidance • Objectives • Remain laser focused on improving our execution, our efficiency and long-term objectives • Clear goal of maximizing profitability and building shareholder value 10
Near-term Expectations • Expect to see some near-term delays related to COVID-19 • Well-equipped to mitigate any related disruption • Strong pipeline and win rate with lower visibility of order patterns in the next 90-day period related to changing global business environment • Guidance • Temporarily suspending practice of providing quarterly guidance • Expect to maintain non-GAAP profitability in Q2 • On track to achieve goal of reducing annual opex by $10 million 11
Revenue & Non-GAAP Operating Income (Loss) The company adopted ASC 606 accounting standard effective January 1, 2018, all prior periods are based on ASC 605 standard. Operating Profit is a Non-GAAP Financial Measure. See Appendix for reconciliation to most comparable GAAP financial measures. 12
Revenue by Customer Vertical $52.8 1Q 2020 $50.3 $49.2 $53.8 million 35% 65% The company adopted ASC 606 accounting standard effective January 1, 2018, all prior periods are based on ASC 605 standard. 13
Revenue by Geography $50.3 $49.2 $52.8 The company adopted ASC 606 accounting standard effective January 1, 2018, all prior periods are based on ASC 605 standard. 14
Financial Performance Highlight Trends $ Millions (except EPS) 1Q'18 2Q'18 Q3’18 4Q'18 FY 2018 1Q'19 2Q'19 Q3’19 4Q'19 FY 2019 1Q’20 Revenue $49.2 $60.7 $60.5 $61.8 $232.2 $50.3 $49.2 $52.8 $60.3 $212.6 $53.8 Non-GAAP Gross Margin % 77.7% 78.6% 78.8% 78.2% 78.3% 76.3% 78.0% 78.1% 78.5% 77.8% 78.3% Non-GAAP Operating Margin % (15.0%) 4.0% 4.2% 5.3% 0.4% (11.8%) (1.9%) 3.5% 12.7% 1.2% 7.7% Adjusted EBITDA (non-GAAP) ($5.5) $4.1 $4.2 $4.9 $7.7 ($3.7) $1.3 $4.0 $10.0 $11.6 $7.2 Non-GAAP EPS ($0.10) $0.02 $0.03 $0.05 $0.01 ($0.10) $0.00 $0.02 $0.10 $0.03 $0.05 Ending Cash & Marketable Securities $130.7 $127.4 $123.6 $128.4 $128.4 $122.8 $119.3 $122.6 $129.9 $129.9 $142.9 Numbers may not sum due to rounding. Please refer to the supplemental financials posted the “Investor Relations” section of the A10 Networks website at investors.a10networks.com Gross Margin %, Operating Margin %, Adjusted EBITDA and EPS are Non-GAAP Financial Measures. See Appendix for reconciliation to most comparable GAAP financial measures. 15
Appendix 16
GAAP to Non-GAAP #DIV/0! #DIV/0! #DIV/0! % of Revenue except EPS Q1'18 Q2'18 Q3'18 Q4'18 FY 2018 Q1'19 Q2'19 Q3'19 Q4'19 FY 2019 Q1'20 Gross Margin % - GAAP 75.8% 78.3% 78.5% 77.7% 77.7% 75.6% 77.1% 77.4% 77.7% 77.0% 77.4% Stock-based compensation 1.8% 0.3% 0.3% 0.5% 0.7% 0.6% 1.0% 0.6% 0.8% 0.7% 0.9% Gross Margin % - Non-GAAP 77.7% 78.6% 78.8% 78.2% 78.3% 76.3% 78.0% 78.1% 78.5% 77.8% 78.3% EPS $ - GAAP $ (0.27) $ (0.06) $ (0.02) $ (0.02) $ (0.38) $ (0.16) $ (0.08) $ 0.00 $ 0.00 $ (0.23) $ (0.00) Stock-based compensation 0.11 0.04 0.03 0.05 0.23 0.05 0.07 0.04 0.05 0.21 0.04 Litigation and Investigation expense (benefit) 0.06 0.05 0.02 0.02 0.14 0.01 0.00 (0.03) 0.00 (0.01) 0.00 Amortization expense related to acquisition 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.01 0.00 Restructuring expense, and related tax - - - - - - - - 0.03 0.03 - Non-recurring facilities expense - - - - - - - - 0.01 0.01 0.01 EPS $ - Non-GAAP $ (0.10) $ 0.02 $ 0.03 $ 0.05 $ 0.01 $ (0.10) $ 0.00 $ 0.02 $ 0.10 $ 0.03 $ 0.05 Numbers may not sum due to rounding. EPS data is presented on a basic and diluted basis. Please refer to the supplemental financials posted the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. 17
GAAP to Non-GAAP 69.467 73.933 74.321 $ Millions Q1'18 Q2'18 Q3'18 Q4'18 FY 2018 Q1'19 Q2'19 Q3'19 Q4'19 FY 2019 Q1'20 Total operating expenses $ - GAAP $ 57.3 $ 51.2 $ 49.1 $ 50.4 $ 208.0 $ 49.0 $ 44.3 $ 40.7 $ 46.8 $ 180.8 $ 41.8 Stock-based compensation (7.3) (2.4) (2.1) (3.7) (15.4) (3.6) (4.6) (3.2) (3.9) (15.2) (2.7) Litigation and Investigation expense (benefit) (4.2) (3.3) (1.5) (1.5) (10.5) (0.9) (0.2) 2.2 (0.0) 1.1 (0.0) Amortization expense related to acquisition (0.3) (0.3) (0.3) (0.3) (1.0) (0.3) (0.3) (0.3) (0.3) (1.0) (0.3) Restructuring expense - - - - - - - - (2.5) (2.5) - Non-recurring facilities expense - - - - - - - - (0.4) (0.4) (0.8) Total operating expenses $ - Non-GAAP $ 45.6 $ 45.3 $ 45.1 $ 45.1 $ 181.1 $ 44.3 $ 39.3 $ 39.4 $ 39.7 $ 162.7 $ 38.0 0.14124189 0.12177458 0.12284057 % of Revenue Total operating expenses % - GAAP 116.5 % 84.4 % 81.1 % 81.6 % 89.6 % 97.4 % 90.1 % 77.0 % 77.6 % 85.1 % 77.8 % Stock-based compensation (14.8)% (3.9)% (3.5)% (5.9)% (6.6)% (7.1)% (9.3)% (6.0)% (6.4)% (7.1)% (5.1)% Litigation and Investigation expense (benefit) (8.6)% (5.4)% (2.5)% (2.4)% (4.5)% (1.7)% (0.4)% 4.1 % (0.1)% 0.5 % (0.1)% Amortization expense related to acquisition (0.5)% (0.4)% (0.4)% (0.4)% (0.4)% (0.5)% (0.5)% (0.5)% (0.4)% (0.5)% (0.5)% Restructuring expense —% —% —% —% —% —% —% —% (4.2)% (1.2)% —% Non-recurring facilities expense —% —% —% —% —% —% —% —% (0.7)% (0.2)% (1.5)% Total operating expenses % - Non-GAAP 92.6 % 74.6 % 74.6 % 72.9 % 78.0 % 88.1 % 80.0 % 74.6 % 65.8 % 76.5 % 70.7 % Numbers may not sum due to rounding. Please refer to the supplemental financials posted the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. 18
GAAP to Non-GAAP 2.765 0.701 0.619 $ Millions Q1'18 Q2'18 Q3'18 Q4'18 FY 2018 Q1'19 Q2'19 Q3'19 Q4'19 FY 2019 Q1'20 Income (loss) from operations $ - GAAP $ (20.0) $ (3.7) $ (1.6) $ (2.4) $ (27.7) $ (11.0) $ (6.4) $ 0.2 $ 0.1 $ (17.1) $ (0.2) Stock-based compensation 8.2 2.6 2.3 4.0 17.0 3.9 5.0 3.5 4.3 16.8 3.2 Litigation and Investigation expense (benefit) 4.2 3.3 1.5 1.5 10.5 0.9 0.2 (2.2) 0.0 (1.1) 0.0 Amortization expense related to acquisition 0.3 0.3 0.3 0.3 1.0 0.3 0.3 0.3 0.3 1.0 0.3 Restructuring expense - - - - - - - - 2.5 2.5 - Non-recurring facilities expense - - - - - - - - 0.4 0.4 0.8 Income (loss) from operations $ - Non-GAAP $ (7.4) $ 2.4 $ 2.5 $ 3.3 $ 0.9 $ (5.9) $ (0.9) $ 1.8 $ 7.7 $ 2.6 $ 4.1 % of Revenue Income (loss) from operations % - GAAP (40.7)% (6.1)% (2.6)% (3.9)% (11.9)% (21.8)% (13.1)% 0.4 % 0.1 % (8.0)% (0.4)% Stock-based compensation 16.6 % 4.2 % 3.9 % 6.4 % 7.3 % 7.7 % 10.3 % 6.6 % 7.2 % 7.9 % 6.0 % Litigation and Investigation expense (benefit) 8.6 % 5.4 % 2.5 % 2.4 % 4.5 % 1.7 % 0.4 % (4.1)% 0.1 % (0.5)% 0.1 % Amortization expense related to acquisition 0.5 % 0.4 % 0.4 % 0.4 % 0.4 % 0.5 % 0.5 % 0.5 % 0.4 % 0.5 % 0.5 % Restructuring expense —% —% —% —% —% —% —% —% 4.2 % 1.2 % —% Non-recurring facilities expense —% —% —% —% —% —% —% —% 0.7 % 0.2 % 1.5 % Income (loss) from operations % - Non-GAAP (15.0)% 4.0 % 4.2 % 5.3 % 0.4 % (11.8)% (1.9)% 3.5 % 12.7 % 1.2 % 7.6 % Numbers may not sum due to rounding. Please refer to the supplemental financials posted the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. 19
GAAP to Non-GAAP $ Millions Q1'18 Q2'18 Q3'18 Q4'18 FY 2018 Q1'19 Q2'19 Q3'19 Q4'19 FY 2019 Q1'20 GAAP net income (loss) $ (19.7) $ (4.5) $ (1.8) $ (1.6) $ (27.6) $ (12.3) $ (5.8) $ 0.2 $ 0.1 $ (17.8) $ (0.3) Exclude: Interest expense 0.0 0.0 0.0 0.0 0.1 0.2 0.0 0.0 0.0 0.2 - Exclude: Interest income and other (income) expense, net (0.6) 0.4 0.1 (1.3) (1.3) 0.6 (0.8) (0.3) (0.5) (0.9) (0.2) Exclude: Depreciation & amortization expense 2.1 2.0 1.9 1.9 7.9 2.4 2.5 2.5 2.6 10.0 3.3 Exclude: Provision for income taxes 0.2 0.4 0.1 0.4 1.1 0.5 0.1 0.3 0.5 1.4 0.3 EBITDA (17.9) (1.7) 0.3 (0.6) (19.8) (8.5) (3.9) 2.7 2.7 (7.1) 3.1 Exclude: Stock-based compensation 8.2 2.6 2.3 4.0 17.0 3.9 5.0 3.5 4.3 16.8 3.2 Exclude: Litigation settlement and investigation expense 4.2 3.3 1.5 1.5 10.5 0.9 0.2 (2.2) 0.0 (1.1) 0.0 Exclude: Restructuring expense - - - - - - - - 2.5 2.5 - Exclude: Non-recurring facilities costs - - - - - - - - 0.4 0.4 0.8 Adjusted EBITDA - Non-GAAP $ (5.5) $ 4.1 $ 4.2 $ 4.9 $ 7.7 $ (3.7) $ 1.3 $ 4.0 $ 10.0 $ 11.6 $ 7.2 Numbers may not sum due to rounding. Please refer to the supplemental financials posted the “Investor Relations” section of the A10 Networks website at investors.a10networks.com. 20
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