A10 Networks, Inc. Q4 FY2024 earnings call

• Service providers: Spending is normalizing; there's accelerating interest in A10 solutions for AI data centers, with service provider revenue up 2.5% for the year after a slow first half.
• Enterprise customers: Grew revenue 6% for the year, with investments in new solutions like Bot Protection, DDoS mitigation, and GPU-based AI infrastructure products. AI is a catalyst, and security-led solutions are a focus.
• Regional performance: Growth in all key regions, with North America improving aligning with service provider market conditions.
• Profitability: Robust profitability, maintained margins, and returned capital to shareholders via buybacks and dividends, ending the year with nearly $200 million in cash and marketable securities.

Fourth quarter revenue was $74.2 million, a 5.4% year-over-year increase. Product revenue was $43.3 million (58% of total revenue), and services revenue was $30.9 million (42% of total revenue). Deferred revenue increased 5% to $148.3 million. Full year revenue was $261.7 million, up 4% year-over-year. Security-led revenue increased 6% in Q4 and 9% for the year, with security representing 63% of full year revenue. Revenue grew in all key regions including North America, Asia Pacific, Japan, and EMEA.

Expect continued growth in 2025 with service providers normalizing and enterprise investments paying off. Anticipate improvements in pipeline related to cybersecurity and AI investments. Target gross margins 80%-82% and adjusted EBITDA margins 26%-28% full year.

Macro environment uncertainties, including interest rates, tariffs, and other external factors that could impact results.

Q: How did seasonality in Q4 compare to the last couple of years and any dynamics around budget flush?

A: Seasonality was consistent with previous years, but less of a budget flush due to increased scrutiny on spending; typical seasonality is 48% front half, 52% back half.

Q: Timing of new products like Bot Protection, DDoS mitigation, and GPU-based AI infrastructure products?

A: Security products like DDoS and bot protection expected in next 6-12 months; AI-oriented products for build-outs in 2025 second half, with predictive analytics deployment further out.

Q: AI revenue breakdown and growth outlook?

A: Current products used in AI applications, early stage for AI-specific products; will communicate funnel growth in future quarters.

Q: OpEx run rate heading into 2025?

A: OpEx expected to pick up due to investments in cybersecurity and AI products within the gross margin and EBITDA target envelope.

Q: Orders from North American service providers - upgrade vs new sales?

A: Mix of new build-out orders and upgrades; more new build-out orders in Q4 than previous years.

Q: Accounts receivable up in Q4?

A: Reflects revenue balance in back half, normal course of business with significant AR balance at end of Q4.