A10 Networks, Inc. (ATEN)

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Note Regarding Forward-Looking Statements” and other risk factors contained in Part I, Item 1A “Risk Factors” in the 2025 Annual Report.

Overview

We are a global provider of secure application and network solutions that protect, optimize, and scale business-critical systems across on-premises, hybrid cloud, and edge environments. Our network infrastructure and security products are designed to enable large enterprises, service providers, and cloud platforms worldwide to deliver performance, reliability, and protection against cyber threats, while preparing their networks for the demands of AI and next-generation applications.

We sell our solutions globally to service providers and enterprises who are looking to modernize and secure their digital infrastructure. Our service provider customers rely on scalable, efficient, and secure networks to deliver connectivity, cloud and other services that may generate revenue to their customers. Our enterprise customers require secure application delivery, AI-ready infrastructure, and are increasingly concerned about the landscape of cybersecurity threats across their complex networks. Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown significantly.

In February 2025, we acquired the assets and key personnel of ThreatX Protect, which expanded our cybersecurity portfolio with WAAP protection (web application and application programming interfaces). We offer protection under A10 Defend ThreatX Protect.

In March 2025, the Company issued the 2030 Notes and received net proceeds from the offering of approximately $217.7 million.

In June 2026, we acquired TrojAI, an AI security company focused on helping organizations secure, test and govern AI applications and agentic workflows. The acquisition strengthens the Company’s ability to deliver sovereign AI security, helping customers control how and where their AI models, data and agents are protected.

On August 3, 2026, the Company issued a warrant to Microsoft Corporation in connection with the parties' commercial relationship. The warrant is designed to vest based on purchases by Microsoft and its affiliates of the Company’s products and services during measurement periods ending June 30, 2027 and June 30, 2028, and is intended to further align the parties' commercial interests.

A10’s portfolio brings together secure application delivery, DDoS and API protection, and unified management into a cohesive platform that integrates with existing network architectures and leading public cloud environments. We deliver these capabilities through flexible deployment models, including software, cloud-native, and hardware form factors that are tailored to the scale and requirements of our customers. We generate revenue primarily from the sale of our secure networking and cybersecurity solutions and related support services. These offerings are delivered through a combination of direct and channel-based sales, with most customers purchasing maintenance and support alongside their initial deployment and renewing that support as contracts expire.

We derive revenue from two sources: (i) products revenue, which includes hardware, perpetual software licenses and subscription offerings, which include term-based license agreements; and (ii) services revenue, which includes PCS, professional services, training and SaaS offerings. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our SaaS offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. A substantial portion of our revenue is from sales of our products and services through distribution channels, such as resellers and distributors. Our customers predominantly purchase PCS services in conjunction with purchases of our products.

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We operate worldwide across the Americas, EMEA, and Asia Pacific, supported by a hybrid go-to-market model that combines a direct, high-touch sales organization with a broad ecosystem of distributors, resellers, and system integrators. We believe this sales approach allows us to obtain the benefits of channel distribution, such as expanding our market coverage, while still maintaining face-to-face relationships with our end-customers. We outsource the manufacturing of our hardware products to original design manufacturers. We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

During the three months ended June 30, 2026, (i) 68% of our total revenue was generated from the Americas region, of which 65% was generated from the United States and 4% was generated from the Americas-other, (ii) 21% of our total revenue was generated from the APJ region and (iii) 11% of our total revenue was generated from the EMEA region. During the three months ended June 30, 2025, (i) 59% of our total revenue was generated from the Americas region, of which 55% was generated from the United States and 4% was generated from the Americas-other, (ii) 26% of our total revenue was generated from the APJ region and (iii) 15% of our total revenue was generated from the EMEA region. One of our priorities is to strengthen our sales efforts in North America. During the three months ended June 30, 2026 and 2025, our enterprise customers accounted for 60% and 40% of our total revenue, respectively, and our service provider customers accounted for 40% and 60% of our total revenue, respectively.

During the six months ended June 30, 2026, (i) 68% of our total revenue was generated from the Americas region, of which 64% was generated from the United States and 4% was generated from the Americas-other, (ii) 20% of our total revenue was generated from the APJ region and (iii) 12% of our total revenue was generated from the EMEA region. During the six months ended June 30, 2025, (i) 55% of our total revenue was generated from the Americas region, of which 50% was generated from the United States and 5% was generated from the Americas-other, (ii) 27% of our total revenue was generated from the APJ region and (iii) 18% of our total revenue was generated from the EMEA region. One of our priorities is to strengthen our sales efforts in North America. During the six months ended June 30, 2026 and 2025, our enterprise customers accounted for 58% and 41% of our total revenue, respectively, and our service provider customers accounted for 42% and 59% of our total revenue, respectively.

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of large customers, including service providers and enterprise customers, in any period. Purchases by our ten largest end-customers accounted for 58% and 46% of our total revenue for the three months ended June 30, 2026 and 2025, respectively, and accounted for 55% and 42% of our total revenue for the six months ended June 30, 2026 and 2025, respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.

As of June 30, 2026, we had $54.7 million of cash and cash equivalents and $302.7 million of marketable securities. Cash provided by operating activities was $31.3 million during the six months ended June 30, 2026, compared to $39.4 million in the same period of 2025.

We continue to invest in innovation that strengthens our leadership in secure infrastructure, expands our cybersecurity capabilities, and positions A10 at the intersection of network performance, protection, and AI-driven workloads. Our strategy is grounded in disciplined capital allocation and a commitment to deliver durable revenue growth, expanding recurring revenue, and strong cash flow generation.

Enhanced U.S. tariffs, import/export restrictions and countermeasures taken by affected countries are contributing to macroeconomic volatility which in turn is impacting demand and our cost inputs. Spending patterns remain uneven due to the unpredictable impact of trade policies, and we may need to implement tariff-related input cost increases.

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Results of Operations

A summary of our condensed consolidated statements of operations for the three and six months ended June 30, 2026 and 2025 is as follows (dollars in thousands):

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, those matters discussed under the heading “Forward-looking Statements.” Our actual results could differ materially from those anticipated by these forward‑looking statements due to various factors, including, but not limited to, those set forth under Item 1A. Risk Factors of this Annual Report on Form 10-K and elsewhere in this document.

This section of this Annual Report on Form 10-K generally discusses fiscal 2025 and 2024 items and year-to-year comparisons between fiscal 2025 and 2024. Discussions of fiscal 2024 items and year-to-year comparisons between fiscal 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on February 25, 2025.

Overview

We are a global provider of secure application and network solutions that protect, optimize, and scale business-critical systems across on-premises, hybrid cloud, and edge environments. Our network infrastructure and security products are designed to enable large enterprises, service providers, and cloud platforms worldwide to deliver performance, reliability, and protection against cyber threats, while preparing their networks for the demands of artificial intelligence (“AI”) and next-generation applications.

We sell our solutions globally to service providers and enterprises who are looking to modernize and secure their digital infrastructure and application. Our service provider customers rely on scalable, efficient, and secure networks to deliver connectivity, cloud and other services that may generate revenue to their customers. Our enterprise customers require secure application delivery, AI-ready infrastructure, and are increasingly concerned about the landscape of cybersecurity threats across their complex networks and emerging AI workloads. Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown significantly.

A10’s portfolio brings together secure application delivery, DDoS and API protection, and unified management into a cohesive platform that integrates with existing network architectures and leading public cloud environments. We deliver these capabilities through flexible deployment models, including software, cloud-native, and hardware form factors that are tailored to the scale and requirements of our customers. We generate revenue primarily from the sale of our secure networking and cybersecurity solutions and related support services. These offerings are delivered through a combination of direct and channel-based sales, with most customers purchasing maintenance and support alongside their initial deployment and renewing that support as contracts expire.

We derive revenue from two sources: (i) products revenue, which includes hardware, perpetual software licenses and subscription offerings, which include term-based license agreements; and (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service (”SaaS”) offerings. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. A substantial portion of our revenue is from sales of our products and services through distribution channels, such as resellers and distributors. Our customers predominantly purchase PCS services in conjunction with purchases of our products.

We operate worldwide across the Americas, EMEA, and Asia Pacific, supported by a hybrid go-to-market model that combines a direct, high-touch sales organization with a broad ecosystem of distributors, resellers, and system integrators. We believe this sales approach allows us to obtain the benefits of channel distribution, such as expanding our market coverage, while still maintaining face-to-face relationships with our end-customers. We outsource the manufacturing of our hardware products to original design manufacturers. We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

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We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers, which accounted for 60%, 57% and 58% of our total revenue during 2025, 2024 and 2023, respectively, and enterprise, which accounted for 40%, 43% and 42% of our total revenue during 2025, 2024 and 2023, respectively. While we expect total demand to remain strong as the need for cybersecurity solutions continues to increase, we expect the demand shift trend from service provider to enterprise to continue in the near term. We report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the U.S. and all other countries in the Americas (excluding the U.S.). The APJ region comprises Asia Pacific region including Japan. The EMEA region comprises Europe, Middle East and Africa. We believe this vertical and geographic view aligns with how we manage the business and maps our product portfolio to customer verticals.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly.

We sell substantially all of our solutions through our high-touch sales organization as well as distribution channels, including distributors, value-added resellers and system integrators, and fulfill nearly all orders globally through such resellers. We believe this sales approach allows us to obtain the benefits of channel distribution, such as expanding our market coverage, while still maintaining face-to-face relationships with our end-customers. We outsource the manufacturing of our hardware products to original design manufacturers. We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of large end-customers, including service providers and enterprise customers, in any period. Purchases from our ten largest end-customers accounted for 40%, 38% and 33% of our total revenue for 2025, 2024 and 2023, respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict and rely upon customer growth and network enhancements. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest end-customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.

In February 2025, we acquired the assets and key personnel of ThreatX Protect, which expanded our cybersecurity portfolio with WAAP protection (web application and application programming interfaces). We offer protection under A10 Defend ThreatX Protect.

In March 2025, we issued $225.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2030 (the “2030 Notes”). The Company received net proceeds from the offering of approximately $217.7 million. The 2030 Notes will mature on April 1, 2030, unless earlier converted, redeemed or repurchased.

We continue to invest in innovation that strengthens our leadership in secure infrastructure, expands our cybersecurity capabilities, and positions A10 at the intersection of network performance, protection, and AI-driven workloads. Our strategy is grounded in disciplined capital allocation and a commitment to deliver durable revenue growth, expanding recurring revenue, and strong cash flow generation.

Enhanced U.S. tariffs, import/export restrictions and countermeasures taken by affected countries are contributing to macroeconomic volatility which in turn is impacting demand and our cost inputs. Spending patterns remain uneven due to the unpredictable impact of trade policies, and we may need to implement tariff-related input cost increases.

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Results of Operations

A summary of our consolidated statements of operations for the years ended December 31, 2025 and 2024 are as follows (dollars in thousands):

Revenue

We derive revenue from two sources

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