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Form 8-K A10 Networks, Inc. For: Jul 30

July 30, 2015 4:14 PM


 

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)
July 30, 2015
____________________________________________________________________________
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)

3 West Plumeria Drive
San Jose, CA 95134
(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))
 







Item 2.02. Results of Operations and Financial Condition.

On July 30, 2015, A10 Networks, Inc. (the “Company”) issued a press release regarding financial results for the second quarter ended June 30, 2015. The Company also posted on its website (www.a10networks.com) slides with accompanying prepared remarks regarding such financial results. Copies of the press release and slides with accompanying prepared remarks by the Company are attached as Exhibits 99.1 and 99.2, respectively, and the information in Exhibits 99.1 and 99.2 is 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

Exhibit
Description
99.1
99.2




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: July 30, 2015

 
By: /s/ Greg Straughn
 
Greg Straughn
 
Chief Financial Officer
(Principal Accounting and Financial Officer)












EXHIBIT 99.1

A10 Networks, Inc. Reports Record Revenue for Second Quarter 2015

SAN JOSE, Calif., July 30, 2015 -- A10 Networks, Inc. (NYSE: ATEN), a technology leader in application networking, today announced financial results for its second quarter ended June 30, 2015.

Total revenue for the second quarter grew to $47.5 million, compared with $45.1 million in the second quarter of 2014. On a GAAP basis, A10 Networks reported a net loss for the second quarter 2015 of $10.0 million or $0.16 per share, compared with a net loss of $1.3 million or $0.02 per share in the second quarter of 2014. Non-GAAP net loss for the second quarter of 2015 was $5.3 million or $0.09 per share, compared with a non-GAAP net loss of $5.3 million or $0.09 per share in the second quarter of 2014. A reconciliation between GAAP and non-GAAP information is contained in the financial statements below.

“Our solid second quarter results are a result of A10’s growing business momentum and improved execution across our operations,” said Lee Chen, president and chief executive officer of A10 Networks. “We achieved record revenue of $47.5 million, delivered record enterprise revenue, drove a significant sequential improvement in the bottom-line and generated positive cash flow from operations. The investments we made last year have contributed to a growing pipeline while our security-focused Thunder ADC, CGN and TPS offerings continue to gain traction with new and existing customers. We believe with our strong product portfolio and demonstrated technology capabilities, A10 is well positioned in the market and we look forward to further expanding our reach and advancing our growth strategy.”

Recent Highlights
Released a centralized management system for the Thunder ADC and Thunder TPS platforms. aGalaxy leverages the fully programmable policy engine in ACOS to provide strong configuration management, reporting, and real-time traffic analysis.

KDDI Corporation has selected A10’s virtual ADC, the A10 vThunder ADC, as its preferred application delivery controller for its corporate cloud infrastructure, KDDI Cloud Platform Service (KCPS). KCPS subscribers can now benefit from vThunder ADC features, including server load balancing, DDoS protection and high density multi-tenancy.

Added the vThunder ADC to the Microsoft Azure Marketplace, allowing Azure customers to integrate private and public cloud services with the full feature set of an advanced ADC for the first time.

Launched several new Thunder Appliance hardware models offering up to triple the SSL performance and twice the DDoS protection performance over previous generation models, enabling web giants and service providers to secure demanding data center applications and networks.






Partnered with cyber security developer ThreatSTOP to deliver the A10 Threat Intelligence Service to protect customer applications with a dynamic, real-time intelligence feed that helps prevent data theft, reduce network load, and minimize attack surface.

Prepared Materials and Conference Call Information
A10 Networks has made available a presentation with management’s prepared remarks on its second quarter 2015 financial results. These materials are accessible from the “Investors” section of A10 Networks website at investors.a10networks.com.

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 second quarter of 2015 results and outlook for its third quarter of 2015. Open to the public, investors may access the call by dialing +1-719-325-2455 or +1-888-430-8709. A live audio webcast of the conference call will be accessible from the “Investors” section of 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 +1-719-457-0820 or +1-888-203-1112 and entering the passcode 2693960. The press release and supplemental financials will be accessible from A10 Networks website prior to the commencement of the conference call.

Forward Looking Statements

This press release contains “forward-looking statements,” including statements regarding our product portfolio and demonstrated technology capabilities driving growth in future periods and being well positioned to expand our reach and executed on our growth strategy. 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 which may cause actual results to differ include the continued market adoption of our products, our ability to successfully anticipate market needs and opportunities, our timely development of new products and features, any loss or delay of expected purchases by our largest end-customers, our ability to attract and retain new end-customers, continued growth in markets relating to network security, our ability to hire, retain and motivate qualified personnel, the ability of our sales team to execute well, our ability to shorten our close cycles, the ability for our channel partners to sell our products, our ability to achieve or maintain profitability while continuing to invest in our sales, marketing and research and development teams, variations in product mix or geographic locations of our sales, fluctuations in currency exchange rates, risks associated with our significant presence in international markets, the cost and potential outcomes of existing and future litigation, increased cost requirements of being a public company and future sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, and litigation risks and costs.

More information about potential factors that could affect the company's business and financial results is included in our annual and quarterly reports on file with the SEC. These filings are available on the SEC's website at www.sec.gov and the company’s website.

All forward-looking statements in this press release are based on information available to the company as of the date hereof. We disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.







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 tables contain certain non-GAAP financial measures, including non-GAAP net income (loss). 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. We define non-GAAP net income (loss) as our net income (loss) excluding: (i) stock-based compensation and (ii) amounts paid in settlement of litigation, and other legal expenses associated with these settlements.

We have included non-GAAP net income (loss) in this press release. Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company's operating results. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. Please see the reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure attached to this release.

About A10 Networks
A10 Networks (NYSE: ATEN) is a leader in application networking, providing 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 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 property of their respective owners.

Investor Contact:
The Blueshirt Group
Maria Riley, 415-217-7722
[email protected]
or
Media Contact:
A10 Networks
Karen Richardson, 408-592-4663
[email protected]
Source: A10 Networks, Inc.












A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 

 
 

Products
$
33,331

 
$
34,122

 
$
63,847

 
$
70,539

Services
14,205

 
11,010

 
27,706

 
20,338

Total revenue
47,536

 
45,132

 
91,553

 
90,877

Cost of  revenue:
 

 
 

 
 

 
 

Products
7,909

 
7,410

 
14,972

 
14,837

Services
3,692

 
2,930

 
7,415

 
5,556

Total cost of revenue
11,601

 
10,340

 
22,387

 
20,393

Gross profit
35,935

 
34,792

 
69,166

 
70,484

Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
24,962

 
23,975

 
49,484

 
45,538

Research and development
13,671

 
11,869

 
27,980

 
23,074

General and administrative
5,703

 
5,531

 
13,230

 
10,894

Litigation expense (benefit)
1,025

 
(5,859
)
 
1,470

 
(4,013
)
Total operating expenses
45,361

 
35,516

 
92,164

 
75,493

Loss from operations
(9,426
)
 
(724
)
 
(22,998
)
 
(5,009
)
Other income (expense), net:
 

 
 

 
 

 
 

Interest expense
(104
)
 
(125
)
 
(231
)
 
(712
)
Interest income and other income (expense), net
(216
)
 
(138
)
 
(189
)
 
(163
)
Total other income (expense), net
(320
)
 
(263
)
 
(420
)
 
(875
)
Loss before provision for income taxes
(9,746
)
 
(987
)
 
(23,418
)
 
(5,884
)
Provision for income taxes
231

 
309

 
293

 
514

Net loss
(9,977
)
 
(1,296
)
 
(23,711
)
 
(6,398
)
Accretion of redeemable convertible preferred stock dividend

 

 

 
(1,150
)
Net loss attributable to common stockholders
$
(9,977
)
 
$
(1,296
)
 
$
(23,711
)
 
$
(7,548
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.16
)
 
$
(0.02
)
 
$
(0.38
)
 
$
(0.21
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
61,945

 
59,711

 
61,690

 
36,712










A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited, in thousands, except per share amounts)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Other Financial Measures / GAAP to Non-GAAP Reconciliation
 
 
 
 
 
 
 
GAAP net loss
$
(9,977
)
 
$
(1,296
)
 
$
(23,711
)
 
$
(6,398
)
Stock-based compensation
4,005

 
3,006

 
8,638

 
4,776

Litigation and settlement expense (benefit)
686

 
(6,993
)
 
686

 
(6,973
)
Non-GAAP net loss
$
(5,286
)
 
$
(5,283
)
 
$
(14,387
)
 
$
(8,595
)
Non-GAAP net loss per share, basic and diluted
$
(0.09
)
 
$
(0.09
)
 
$
(0.23
)
 
$
(0.16
)
Weighted average shares used in computing Non-GAAP net loss per share, basic and diluted (1) (2)
61,945

 
59,711

 
61,690

 
55,274

 
 
 
 
 
 
 
 
(1) For the six months ended June 30, 2014, the non-GAAP share counts assume preferred stock was outstanding at 12-31-2013 (as-if converted basis)
(2) In connection with our initial public offering in March 2014, we issued 9.0 million shares of common stock and converted all of its outstanding convertible preferred stock into 40.0 million shares of common stock.






A10 NETWORKS, INC.
Reconciliation of Selected GAAP to Non-GAAP Financial Measures
(Unaudited, in thousands)

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Weighted average shares used in computing GAAP net loss per share, basic and diluted
 
61,945

 
59,711

 
61,690

 
36,712
Preferred stock adjustment
 

 

 

 
18,562
Weighted average shares used in computing Non-GAAP net loss per share, basic and diluted (1) (2)
 
61,945

 
59,711

 
61,690

 
55,274
 
 
 
 
 
 
 
 
 
(1) For the six months ended June 30, 2014, the non-GAAP share counts assume preferred stock was outstanding at 12-31-2013 (as-if converted basis)
(2) In connection with our initial public offering in March 2014, we issued 9.0 million shares of common stock and converted all of its outstanding convertible preferred stock into 40.0 million shares of common stock.











A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
 
June 30,
2015
 
December 31,
2014
ASSETS
Current Assets:
 
 
 
Cash and cash equivalents
$
96,197

 
$
91,905

Accounts receivable, net of allowances
46,165

 
54,003

Inventory
17,653

 
20,701

Prepaid expenses and other current assets
5,031

 
4,732

Total current assets
165,046

 
171,341

Property and equipment, net
9,253

 
10,780

Other long-term assets
4,484

 
4,859

Total Assets
$
178,783

 
$
186,980

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 
 
 
Accounts payable
$
6,089

 
$
8,994

Accrued liabilities
20,897

 
22,435

Deferred revenue, current
45,271

 
39,256

Total current liabilities
72,257

 
70,685

Deferred revenue, long-term
20,508

 
17,964

Other long-term liabilities
1,425

 
1,766

Total Liabilities
94,190

 
90,415

Stockholders’ Equity
Common stock and additional paid-in capital
290,089

 
278,350

Accumulated deficits
(205,496
)
 
(181,785
)
Total Stockholders' Equity
84,593

 
96,565

Total Liabilities And Stockholders' Equity
$
178,783

 
$
186,980












A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 

 
 

Net loss
$
(23,711
)
 
$
(6,398
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
4,673

 
4,738

Stock-based compensation
8,638

 
4,776

Gain on settlement of contractual liability

 
(6,993
)
Other non cash items
273

 
(61
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable, net
7,723

 
(2,644
)
Inventory
1,861

 
(4,265
)
Prepaid expenses and other assets
44

 
(2,860
)
Accounts payable
(3,048
)
 
2,105

Accrued liabilities
(1,619
)
 
3,632

Accrued litigation expenses
60

 
(6,119
)
Deferred revenue
8,559

 
4,610

Other
24

 
(239
)
Net cash provided by (used in) operating activities
3,477

 
(9,718
)
Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(1,811
)
 
(3,791
)
Net cash used in investing activities
(1,811
)
 
(3,791
)
Cash flows from financing activities:
 

 
 

Proceeds from initial public offering, net of offering costs

 
122,312

Principal payments on revolving credit facility

 
(20,000
)
Proceeds from issuance of common stock under employee equity incentive plans, net of repurchases
2,626

 
2,658

Other

 
(153
)
Net cash provided by financing activities
2,626

 
104,817

Net increase in cash and cash equivalents
4,292

 
91,308

Cash and cash equivalents—beginning of period
91,905

 
20,793

Cash and cash equivalents—end of period
$
96,197

 
$
112,101



A10 Networks – Q2 2015 Earnings 7/30/2015 1 | P a g e


 
A10 Networks – Q2 2015 Earnings 7/30/2015 2 | P a g e Thank you all for joining us today. I am pleased to welcome you to A10 Networks second quarter 2015 financial results conference call. This call is being recorded and webcast live and may be accessed for 90 days via the A10 Networks website, www.a10networks.com. Joining me today are A10’s Founder & CEO, Lee Chen; A10’s CFO, Greg Straughn; and our VP of Global Sales, Ray Smets. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its second quarter 2015 financial results. Additionally, A10 published a presentation along with its prepared comments for this call and supplemental trended financial statements. You may access the press release, presentation with prepared comments, and trended financial statements on the investor relations section of the company’s website www.a10networks.com.


 
A10 Networks – Q1 2015 Earnings 7/30/2015 3 | P a g e During the course of today’s call, management will make forward-looking statements, including statements regarding our projections for our third quarter operating results, our expectations for future revenue growth, profitability and operating margin, expectations of customer buying patterns and the growth of our business generally. These statements are based on current expectations and beliefs as of today, July 30, 2015. A10 disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise. 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. We disclaim any obligation to update these forward-looking statements as a result of future events or otherwise. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-Q filed on May 6th.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 4 | P a g e Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain charges. 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. We will provide our current expectations for the third quarter of 2015 on a non-GAAP basis. However, we will not make available a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward- looking basis due to high variability and low visibility with respect to the charges, which are excluded from these non-GAAP measures. Before I turn the call over to Lee, I’d like to announce that management will attend the Pacific Crest Annual Global Technology Leadership Forum in Vail on August 10th, the Oppenheimer Annual Technology, Internet, & Communications Conference in Boston on August 12th, and the Jefferies Semiconductors, Hardware & Communications Infrastructure Summit on August 25th. We hope to see many of you there. Now I would like to turn the call over to Lee for opening remarks.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 5 | P a g e


 
A10 Networks – Q2 2015 Earnings 7/30/2015 6 | P a g e We delivered a strong second quarter with good execution and growing momentum as the investments we made last year in our channel, field activities and product development are taking hold. We achieved record revenue of 47.5 million dollars, above our guidance of 44 million to 47 million dollars and up 5% year-over-year and 8% from Q1. We also continued to drive leverage through our operating structure, resulting in a 42% sequential improvement in our bottom line. From a demand perspective, we added 200 new customers, delivered record enterprise revenue, grew product revenue 9% over Q1 and won a multi-million dollar order from a current service provider customer in North America as they continued to enhance their CGN infrastructure. We also saw continued strength for our security- focused solutions including our Thunder TPS DDoS mitigation solution and our ADC with advanced security features. Our pipeline of channel initiated deals continues to grow and we are encouraged by the continued progress we see from the channel investments we made last year. In addition, we have started to roll out our Affinity channel program globally and we believe we are on track to have it launched in our key international markets by year-end. Bookings in the quarter were strong and we ended the quarter with a backlog of approximately 5 million dollars, which is more than 50% above our 2014 average.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 7 | P a g e Cybersecurity, network resources and services management are growing priorities for our customers and for A10. Customers at the high-end of the market want products that are rich in features, fast performing and in a small form factor, which are key attributes of our Thunder products that are based on our flexible and scalable ACOS platform. This is why some of the most demanding enterprise and service provider customers already trust A10 with their networking and security needs. We believe that with our strong product portfolio and the strategic value we bring with our continued innovations and superior technical support, we are well positioned to grow within the high-end of the market, especially as the security threat to business is on the rise.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 8 | P a g e As we mentioned last quarter, we are seeing growing demand for ADC with advanced security features such as web application firewall and SSL insight. Gartner estimates that less than 20% of organizations with a security device are currently inspecting encrypted traffic. This creates a security blind spot where malware and hackers can enter a network through uninspected encrypted traffic. While firewalls and dedicated security devices provide in-depth inspection and analysis of network traffic, they are not designed to decrypt SSL traffic at high speeds. Our Thunder ADC equipped with SSL security hardware offers a powerful and scalable decryption solution to enable policy enforcement and redundancy as well as load balance security devices. The initial launch of our Thunder ADC with SSL Insight solution has been very successful, is attracting attention among both customers and partners and is helping drive growth in our pipeline. In particular, we are gaining traction within the government, higher education, and financial services verticals with our SSL Insight capabilities. Additionally, our Thunder TPS DDoS mitigation security solution continues to build momentum. Our Q2 TPS growth was driven by both new customers and follow-on orders from existing customers as they look to A10 to protect more of their network from high-volume and sophisticated DDoS attacks. For the first six-months of 2015, TPS product revenue has contributed approximately 10% of total product revenue.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 9 | P a g e We continue to strengthen our product portfolio and bring added flexibility and functionality to our customers. In the second quarter:  We enhanced our Thunder TPS and ADC platforms with the release of aGalaxy centralized management system that leverages the fully programmable policy engine in ACOS. Our aGalaxy provides strong configuration management, reporting and real-time traffic analysis.  We launched new mid-range and high-end Thunder ADC models with dedicated hardware for SSL performance and DDoS protection, providing up to 2 to 3 times better performance than the prior generation.  We partnered with ThreatStop to create the A10 Threat Intelligence Service. This add-on subscription service is now available on both our Thunder ADC and TPS products.  And we added our virtual ADC to the Microsoft Azure marketplace, enabling enterprises to outsource their data center operations with A10 Networks. Additionally, as we announced yesterday, our vThunder ADC was selected by KDDI as the preferred ADC for its corporate cloud infrastructure, KDDI Cloud Platform Service. Customer driven innovation has been a cornerstone of the A10 vision from our inception and we intend to continue to invest responsibly to bring new functionality, features, products and superior technical support to market including a hardware refresh throughout 2016. Overall, I’m pleased with our business momentum. We delivered a solid second quarter and are seeing the benefits from the significant investments we made last year in our channel, field activities and product development, which are all driving our growing pipeline.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 10 | P a g e


 
A10 Networks – Q2 2015 Earnings 7/30/2015 11 | P a g e Second quarter revenue grew to 47.5 million dollars, up 5% compared with 45.1 million dollars in the prior year. In general, our deferred revenue primarily consists of customer maintenance and support contracts, but this quarter it included a larger than usual product element and increased 43% year-over-year and 10% sequentially to reach a record 65.8 million dollars.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 12 | P a g e Second quarter product revenue totaled 33.3 million dollars, representing 70% of total revenue, compared with 34.1 million dollars or 76% of total revenue in the prior year second quarter. Service revenue was 14.2 million dollars, accounting for 30% of total revenue, compared with 11.0 million dollars or 24% in the second quarter of 2014. Second quarter revenue from the United States grew 20% sequentially and 5% year-over-year to reach 27.4 million dollars, representing approximately 58% of total revenue. Second quarter revenue from Japan was 6.6 million dollars, or 14% of total revenue, compared with 8.5 million dollars or 19% of total revenue in the same quarter of the prior year. EMEA generated record revenue of 6.8 million dollars, a 74% year-over-year increase versus 2Q of 2014 and representing 14% of total revenue. Revenue from APAC (excluding Japan) was 5.5 million dollars, up 27% year-over-year, when compared with 4.4 million dollars in the same quarter of the prior year. Our enterprise and service provider revenue split this quarter was 58% and 42% of total revenue, respectively. We generated record enterprise revenue of $27.5 million dollars, representing a 10% increase from the prior quarter. Service provider revenue came in at 20.0 million dollars, compared with 19.0 million dollars in the prior quarter and 17.7 million dollars in the second quarter of 2014. As Lee mentioned, we secured a large win with an existing service provider customer, helping this customer to become our single “greater than 10% customer” in the quarter, contributing a total of 14% of Q2 revenue.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 13 | P a g e Moving beyond revenue, all further metrics discussed on this call are on a non-GAAP basis, unless expressly stated otherwise. We delivered a second quarter total gross margin of 76.3%, within our expected guidance range of 76% to 78%. On a constant currency basis versus Q2 of 2014, gross margin was impacted by a 40 basis point decrease year-over- year due to changes in the Yen-to-dollar conversion rate. Product gross margin was 76.4% in Q2 of 2015, compared with 77.0% in the prior quarter and 78.3% in the second quarter of 2014, with the major portion of this decrease related to shifts in our geographic mix. Our services gross margin came in at 76.1%, up 63 basis points over Q1’15 and represents a 98 basis point improvement over Q2 of 2014.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 14 | P a g e We ended the quarter with a staff of 800, up from 761 at the end of Q1, with most of the 39 additions in sales and marketing and R&D. In Q2 Sales and marketing expense was 23.1 million dollars, compared with 22.5 million dollars in Q1 of 2015. On a percentage basis, sales and marketing expense decreased to 48.6% of revenue, compared with 51.0% in the prior quarter. In Q2 R&D expense totaled 12.4 million dollars or 26.1% of revenue, compared with 12.7 million dollars or 28.9% of revenue in the prior quarter. Second quarter combined G&A and litigation expense was approximately 5.5 million dollars or 11.6% of revenue, compared with 7.5 million dollars or 17.0% of revenue in Q1. The decrease is primarily related to lower bad debt expense, reversal of a reserve for certain sales tax matters and reduced professional services fees. In total, second quarter non-GAAP operating expenses were 41.0 million dollars. Second quarter non-GAAP operating loss was 4.7 million dollars, compared with 8.9 million dollars in the first quarter. Our non-GAAP net loss in the second quarter was 5.3 million dollars or 9 cents per share, ahead of our guided range of 14 to 18 cents per share. Q2’s net loss represents a 42% sequential improvement, compared with a net loss of 9.1 million dollars or 15 cents per share in Q1. Basic and diluted weighted outstanding shares for the quarter were approximately 61.9 million shares.


 
A10 Networks – Q2 2015 Earnings 7/30/2015 15 | P a g e Moving to the balance sheet, at June 30, 2015 we had 96.2 million dollars in total cash and equivalents. During the quarter, cash generated from operations was $9.0 million dollars, reflecting strong billings and collections activities and expense management. Although cash flow was strong in Q2 we do not necessarily expect to remain cash flow positive in the near-term. Looking into Q3, we expect to use up to $3 million dollars in cash for operations. Additionally, inventory levels were reduced for the second consecutive quarter as we continue to refine our supply chain operations. We ended Q2 with 46.2 million dollars of net accounts receivable, compared with the Q1’15 balance of 52.8 million dollars. Average days sales outstanding declined to 95 days compared with 110 days in the prior quarter.


 
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