SDN Technology

A10 Slides Despite Strong Carrier Spending

Improved spending from service providers couldn't save A10 from a non-GAAP net loss of about $12 million, or 20 cents per share, in its fourth-quarter earnings, reported late Tuesday.

Revenue for the fourth quarter was $45.2 million, "slightly above the high end of our guidance" of $41-$45 million," Lee Chen, A10 Networks Inc. CEO, president and founder, said, reading from a prepared statement on an earnings call. (See A10 Reports $179.5M 2014 Revenue, Up 27%.)

A10, which designs application delivery controllers, recorded a fourth-quarter 2014 GAAP net loss of $16 million, or $0.20 per share, compared with $5.6 million, or $0.08 per share, in the previous year. The GAAP net loss for the full year was $34.7 million, or $0.51 per share, compared with $27.1 million, or $0.31, for 2013.

The fourth quarter's improved service provider sales reversed the third quarter, when soft carrier sales contributed to a net loss for A10 of $12.3 million. (See A10 Latest Victim of Carrier Spend Slowdown.)

The recovery in service provider sales was due to pending deals closing, as well as service providers spending out their budgets, A10 CFO Greg Straughn said. A10 will "remain cautious" and not expect the recovery to be permanent. "As they say in Britain, one swallow does not a spring make." [I think you'll find it's usually "summer," but hey, we get the drift - Ed.]

"At some point I think the business will bounce back. I just don't know when," Chen said.

Overall, service provider spending "hit us hard in 2014," Chen said.

Service providers accounted for 48% of total revenue in the fourth quarter, with enterprise making up the remaining 52%. Service provider revenue was $21.7 million, up 27% from the previous quarter and 30% from the fourth quarter of 2013, Straughn said. But enterprise revenue was $23.5 million, down 11% from the previous quarter and 8% year-over-year.

Full-year revenue was $179.5 million, up 27% from 2013, Straughn said.

A10 executives painted a picture of A10 as a company whose weaknesses and costs were special circumstances -- even one-time situations -- with strengths that will drive long-term growth.

One big cost was added staff. A10 ended the quarter with 759 staff, about the same as Q3 and up from 630 year-over-year.

Sales and marketing expenses increased to $24.9 million in Q4, compared with $23 million in Q3. "This increase was partially driven by end of year sales commissions and bonuses as top-performing sales staff exceeded their quotas," Straughn said. "On a percentage basis, sales and marketing expense was 55% of revenue as we continue to grow our sales and marketing team to further build and expand our reach."

R&D also represented an increasing share of expenses. "In Q4, R&D expense totaled $13.1 million or 29% of revenue, compared with $11.2 million and 25.8% in Q3," Straughn said.

On the positive side: In addition to improved service provider spending, A10 saw a record number of new customers, and launched two strategic products -- ACOS 4.0, the company's network operating system for application delivery controllers, and its security-focused Thunder Threat Protection System TPS 3.1. (See A10 Goes Beyond the Command Line.)

In the enterprise, A10 is landing new accounts and expanding its existing customer base, and the win rate for the quarter increased. Despite that, enterprise revenue declined about 11% sequentially. The decline reflects a longer sales cycle for large deals, Chen said.

In total for the quarter, A10 added over 280 new customers, bringing its total served to around 3,900 customers.

For 2014 overall, A10 increased the customer base by 34%, adding nearly 1,000 new customers; and increased revenue 27% -- well above the growth of the market, Chen said.

Customer engagements for the fourth quarter included a hosting services provider which selected Thunder TPS for DDoS protection; an international financial institution that selected Thunder ADC for server load balancing and DDoS protection; and a Japanese Internet content provider that purchased the Thunder 100GB to provide high-performance Layer 4-7 SSL offload and CGN, Chen said.

Chen was confident about the outlook for this year. A10 expects to see revenue growing faster than costs this year, though not in the first quarter. A10 will leverage the investment in R&D and sales and marketing made last year.

A10 expects first-quarter 2015 revenue to be $41 million to $45 million, with expenses roughly flat quarter-to-quarter, and therefore to report a non-GAAP net loss of $0.18 to $0.23 per share.

Find out more about key developments related to the systems and technologies deployed in data centers on Light Reading's data center infrastructure channel.

In other vendor quarterly results so far:

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

Mitch Wagner 2/11/2015 | 12:27:13 PM
Missing piece A10 executives painted a compelling picture of a company with strong fundamentals that's beset by temporary economic problems. 

But key information is missing: How competitive are their products and services? How satisfied are their customers? And what direction is the market moving -- if you make the best buggy whips in the world, that doesn't help when it's automobile time. The ADC market is shifting rapidly to virtualization. 

Also, we have an expression in the US: One swallow does not make a whole slice of pizza. 
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