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A10 Networks, Inc. Reports Second Quarter 2014 Financial Results

[July 30, 2014]

A10 Networks, Inc. Reports Second Quarter 2014 Financial Results

SAN JOSE, Calif. --(Business Wire)--

A10 Networks, Inc. (NYSE:ATEN), a technology leader in application networking, today announced financial results for its second quarter ended June 30, 2014. Total revenue for the second quarter grew 50 percent year-over-year to $45.1 million, compared with $30.1 million in the second quarter of 2013.

"Our strong 50 percent year-over-year revenue growth demonstrates the progress we have made in growing our market footprint and diversifying our customer base," said Lee Chen, president and chief executive officer of A10 Networks. "U.S. revenue more than doubled year-over-year and grew 44 percent over the first quarter, however, total revenue was slightly below our guidance as a result of lower service provider spending in Japan where several deals pushed into future quarters.

"Our recently introduced high-end Thunder products are gaining momentum in the market, validating the increased customer demand for higher scalability and throughput as well as greater price performance. We are very pleased with the significant increase in the number of deals currently in the pipeline, and we will continue to expand our market presence by investing in our sales team and expanding our channel partner program," continued Chen.

A10 Networks second quarter 2014 GAAP net loss was $1.3 million compared with a net loss of $10.2 million in the second quarter of 2013. Non-GAAP net loss for the second quarter of 2014 was $5.3 million, compared with non-GAAP net loss of $5.0 million in the second quarter of 2013. A reconciliation between GAAP and non-GAAP information is contained in the financial statements below.

Recent Highlights

The A10 Thunder Threat Protection System (TPS) product line won two prestigious Best of TechEd 2014 awards: The "Breakthrough Technology" category and the "Attendees' Pick: Microsoft Partner" award. The Best of TechEd awards recognize Microsoft partners that offer innovative products and services for the industry.
A10 received the 2014 Frost & Sullivan Japan Excellence Award in the category of "Japan Market Leadership Award for Application Delivery Controller."
A10 Thunder Series application service gateways received two Interop Tokyo 2014 Best of Show Awards. A10's vThunder CGN received a special award in the Carrier/SP Networking Category, and Thunder 6630, the industry's first application delivery controller (ADC) equipped with a 100 Gigabit Ethernet, received a special award in the ShowNet Product Category.
The A10 Thunder and AX Series application delivery controller (ADC) product lines received web application firewall (WAF) version 2.1 certification from ICSA Labs, an independent division of Verizon which offers vendor-neutral testing and certification.

Prepared Materials and Conference Call Information

A10 Networks has made available a presentation with management's prepared remarks on its second quarter 2014 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 2014 results and outlook for its third quarter of 2014. Open to the public, investors may access the call by dialing +1-719-457-1512 or +1-888-417-8465. 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 2198307. 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 ability to expand our market presence, including by investing in our sales team and expanding our channel partner program. 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, 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.

More information about potential factors that could affect the company's business and financial results is included in our quarterly report on Form 10-Q filed with the SEC on May 13, 2014. 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, and other expenses associated with, the Brocade litigation. The change in the company's share count should be considered when comparing net income (loss) per share to prior periods. In connection with its IPO, the company issued 9.0 million shares of common stock and 40.0 million shares of preferred stock converted into common stock. A10 ended the second quarter with 60.0 million shares of common stock outstanding on a weighted average pro forma basis reflecting the full conversion of preferred stock into common stock.

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 accelerate and secure data center applications and networks of thousands of the largest enterprise, service provider and hyper-scale web providers around the world. Founded in 2004, A10 Networks is based in San Jose, Calif., and serves customers globally with offices worldwide. For more information, visit: http://www.a10networks.com

A10 Networks, A10 Thunder, vThunder, ACOS, aCloud, aFleX, aXAPI, aVCS, Virtual Chassis, AX, SoftAX, and aFlow are trademarks or registered trademarks of A10 Networks, Inc. in the United States and other countries. All other product and service names mentioned are the trademarks of their respective companies.


A10 NETWORKS, INC.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Revenue:
Products	$	34,122		$	23,064		$	70,539		$	46,333
Services		11,010			7,067			20,338			13,379
Total revenue		45,132			30,131			90,877			59,712

Cost of revenue:
Products		7,410			4,894			14,837			9,800
Services		2,930			2,020			5,556			3,718
Total cost of revenue		10,340			6,914			20,393			13,518
Gross profit		34,792			23,217			70,484			46,194

Operating expenses:
Sales and marketing		23,975			15,723			45,538			31,312
Research and development		11,869			8,336			23,074			16,108
General and administrative		5,531			3,697			10,894			7,527
Litigation		(5,859	)		4,800			(4,013	)		8,204
Total operating expenses		35,516			32,556			75,493			63,151
Loss from operations		(724	)		(9,339	)		(5,009	)		(16,957	)

Other income (expense), net
Interest expense		(125	)		(33	)		(712	)		(46	)
Interest income and other income (expense), net		(138	)		(683	)		(163	)		(1,364	)
Total other income (expense), net		(263	)		(716	)		(875	)		(1,410	)
Loss before provision for income taxes		(987	)		(10,055	)		(5,884	)		(18,367	)
Provision for income taxes		309			158			514			379
Net loss		(1,296	)		(10,213	)		(6,398	)		(18,746	)
Accretion of redeemable convertible preferred stock dividend		-			(33	)		(1,150	)		(33	)
Net loss attributable to common stockholders	$	(1,296	)	$	(10,246	)	$	(7,548	)	$	(18,779	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.02	)	$	(1.12	)	$	(0.21	)	$	(2.07	)

Weighted-average shares used in computing net loss per share attributable to common shareholders, basic and diluted		59,711			9,144			36,712			9,075

Other Financial Measures / GAAP to Non-GAAP Reconciliation
GAAP Net loss	$	(1,296	)	$	(10,213	)	$	(6,398	)	$	(18,746	)
Stock-based compensation		3,006			864			4,776			1,727
Brocade litigation		(6,993	)		4,311			(6,973	)		7,265
Non-GAAP Net loss	$	(5,283	)	$	(5,038	)	$	(8,595	)	$	(9,754	)
Non-GAAP Net loss per share, basic and diluted	$	(0.09	)	$	(0.11	)	$	(0.16	)	$	(0.21	)

Weighted average shares used in computing Non-GAAP net loss per share, basic and diluted ⁽¹⁾		59,711			45,606			55,274			45,537

(1) Non-GAAP share counts assume Preferred stock was outstanding at 12-31-2012 (as-if converted basis)


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

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013

Weighted average shares used in computing GAAP net loss per share, basic and diluted ⁽¹⁾	59,711	9,144	36,712	9,075

Preferred stock adjustment	-	36,462	18,562	36,462

Weighted average shares used in computing Non-GAAP net loss per share, basic and diluted ⁽¹⁾	59,711	45,606	55,274	45,537


(1) Non-GAAP share counts assume Preferred stock was outstanding at 12-31-2012 (as-if converted basis)


A10 NETWORKS, INC.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)

	June 30,			December 31,
	2014			2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	112,101		$	20,793
Accounts receivable, net of allowances		40,455			37,704
Inventory		18,541			17,166
Prepaid expenses and other current assets		4,370			3,056
Total current assets		175,467			78,719

Property and equipment, net		11,945			9,801

Other long-term assets		4,784			5,274
TOTAL ASSETS	$	192,196		$	93,794


LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	10,805		$	9,228
Accrued liabilities		19,645			15,514
Accrued litigation expenses		1,368			10,407
Deferred revenue, current		31,315			28,448
Total current liabilities		63,133			63,597

Revolving credit facility		-			20,000
Deferred revenue, long-term		14,527			12,784
Other long-term liabilities		2,162			6,118
TOTAL LIABILITIES		79,822			102,499

Redeemable convertible preferred stock		-			81,426
Convertible preferred stock		-			44,749

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock and additional paid-in capital		265,837			12,185
Accumulated deficit		(153,463	)		(147,065	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		112,374			(134,880	)

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)	$	192,196		$	93,794


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)

	Six Months Ended
	June 30,
	2014
Cash flows from operating activities:
Net loss	$	(6,398	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,738
Stock-based compensation		4,776
Gain on settlement of contractual liability		(6,993	)
Provision for doubtful accounts and sales returns		(267	)
Other		(120	)
Changes in operating assets and liabilities:
Accounts receivable, net		(2,318	)
Inventory		(4,265	)
Prepaid expenses and other current assets		(3,070	)
Accounts payable		2,105
Accrued liabilities		3,632
Accrued litigation expenses		(6,119	)
Deferred revenue		4,610
Other		(29	)
Net cash used in operating activities		(9,718	)
Cash flows from investing activities:
Purchases of property and equipment		(3,791	)
Net cash used in investing activities		(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 exercise of common stock options, net of repurchases of common stock		2,658
Other		(153	)
Net cash provided by financing activities		104,817
Net increase in cash and cash equivalents		91,308
Cash and cash equivalents-beginning of period		20,793
Cash and cash equivalents-end of period	$	112,101

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Inventory transfers to property and equipment	$	2,891

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