A10 Networks, Inc.

Good afternoon and welcome to the A10 Network's second quarter 2019 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Maria Riley, Investor Relations for A10 Networks. Please go ahead.

Thank you all for joining us today. This call is being recorded and webcast live and may be accessed for one year via the A10 Networks website, www.atennetworks.com. Members of A10's management team joining me today are Lee Chen, founder and CEO of Chris White, EVP of Worldwide Sales, and Tom Constantino, CFO. Before we begin, I would like to remind you that shortly after the market closed today, ATIN Networks issued a press release announcing its second quarter 2019 financial results. Additionally, ATIN published a presentation along with its prepared comments for this call and supplemental trended financial statements. You may access the press release presentation and prepared comments and trended financial statements on the investor relations section of the company's website. During the course of today's call, management will make forward-looking statements, including statements regarding our projections for our future operating results, the capabilities of our sales team, our expectations regarding future opportunities, and our ability to execute on those opportunities, our commitment to innovation and bringing new solutions to market, our expectations for future revenue and market growth, the development and performance of our products, our current and future strategies, our beliefs relating to our competitive advantages, our expectations with respect to the 5G market, responses to new security threats, our partnerships with key technology providers and sales partnerships, our ability to penetrate certain markets, anticipated customer benefits, From use of our products, the refining of our marketing engine, improvements in productivity are priorities relating to 5G, growth in security solutions, expected product launches, and adoption of recent new product or software releases. The general growth of our business and our ability to incrementally grow operating margin annually and timeline to achieve our target operating margins. These statements are based on current expectations and beliefs as of today, July 30th, 2019. 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, and you should not rely on them as predictions of future events. A-10 disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-K and 10-Q. 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. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. and may be different from non-GAAP financial measures presented by other companies. The 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 2019 on a non-GAAP basis. However, we are unable to 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 these charges, which are excluded from the non-GAAP measures. Now, I would like to turn the call over to Lee Chen, founder and CEO of ATEN Networks. Lee?

Thank you, Maria, and thank you all for joining us today. Before we begin, I would first like to address the news of my planned retirement, which we announced today. I'm very excited about ATEM's future, the innovations we have brought to the market, and our position in security, 5G, and multicolor. Additionally, while our subscription revenue remains small, it is a rapidly growing part of ATEM's business. Subscription was 8% of total revenue for Q2. And on a year-over-year basis, it grew over 80%. This brings us to nearly $100 million in annualized run rate of recurring maintenance and subscription revenue. This revenue is high margin, creates customer loyalty, and afford improved visibility not present in hardware product sales. We continue to see early success in 5G. as we secure follow-on 5G orders during the quarter. Additionally, we are pleased with the level of engagement we see with several service providers across the globe as they prepare and ready their networks for 5G. However, I have decided that now is the appropriate time for me to transition the company to a new leader. I have reached agreement with the board that I will resign from my role as CEO of A10 once a newly appointed CEO begins. The board has formed a search committee for my replacement and I will work closely with the team to help ensure a smooth transition. The search has been focused on a strong leader who will bring a different perspective and industry expertise. I would also like to take a moment to welcome Eric Singer, our VAS capital advisor, to ATEM for our directors. Eric is one of our largest shareholders, and we have had an ongoing constructive dialogue with him for more than a year. He brings deep strategic insight to the board, and we look forward to his continued collaborations. As part of the election of Eric, the company has formed a strategic committee which consists of Eric and existing director Peter Chang and Paul Graham. The strategic committee is tasked and empowered with overseeing and executing specific activities with increasing shareholder value. Please note that we will not make any further comments on this matter. Moving to our Q2 performance. We delivered a revenue of $49.2 million. non-GAAP gross margin of 78.0% and reach breakeven on a non-GAAP per share basis. Value came in below our guidance of a number of large deals in our pipeline pushed into further future quarters or were downsized. These deals were primarily in North America and within the service provider and web giant verticals. And we continue to see this dynamic in Q3. Outside of North America, all of our major geographics met our exceeded expectations for Q2. One of the reasons for this divergence is that spending and deployment on 5G infrastructure is ahead in certain international markets as compared to the US markets. So we are seeing earlier and faster uplift in spending in Japan, South Korea, and the Middle East in comparison to the U.S. We believe that we are well-positioned to participate as U.S. customers move further into the 5G deployment phase. Quiz will discuss the market dynamics, customer wins, and go-to-market efforts in more detail. We continue to make progress on our major initiatives in security, 5G, and multi-cloud. On the solution front, we continue to innovate Act 2 on our roadmap for the year. In June, we announced the addition of zero-day automated protection of ZAP capabilities to our Thunder GPS family of DDoS defense solutions. The ZAP capability automatically recognized the characteristic of DDoS attack and applied mitigation filters without advanced configuration or manual intervention. In today's climate, with the dramatic increase in multi-vector attacks, coupled with a chronic shortage of qualified security professionals, organizations need intelligent automated defense that can accomplish the task automatically. A significant portion of the R&D investment we have made over the past couple of years having been focused on solving these critical problems for customers through behavior analysis, machine learning, and automation. This new eight-hand solution is already gaining strong industry recognition, including best offshore in the security category at Interop Tokyo, which is a premium industry event in Japan. During the portal, we also announced our cloud-ready lightweight set of container-based solutions. ATEM Thunder containers will be available starting this quarter and will offer industry highest performing container solutions with up to 200 gigabit per second throughput for Thunder, ADC, CGN, and CFW solutions. The addition of Thunder containers extended the company's multi-card portfolios and increases the performance security, and availability of applications, enabling customers to confidently run their critical workloads in multi-cloud environments at a hyperscale. This new API solution also shines as an interoperable tool, taking the grand prize in the NFV slash SDI category. On the partner front, We entered into two new important engagements with industry leaders to help extend our go-to-market leverage. One is a global reseller agreement with Bell EMC. The second partnership is joining the Oracle Cloud Marketplace. Chris will provide the details of this new partnership in a moment. Overall, While our revenue was below our guidance in Q2, we continued to make progress on our top priorities for 2019, which include driving growth and innovation in security, 5G, and multi-cloud. This is an exciting time for ATEM, and the company is in a strong position to expand its leadership and expand its addressable market to help further position the company for success. With that, I will turn the call over to Chris.