Prepared remarks
Good afternoon, everyone, and welcome to the A10 Networks second quarter 2026 financial results. At this time, all participants have been placed in a listen-only mode. We will open the floor for questions following the presentation. It is now my pleasure to turn the floor over to your host, Tom Baumann of FNK Investor Relations.
Thank you, and thank you all for joining us today. This call is being recorded and webcast live and may be accessed for at least 90 days via the A10 Networks website at a10networks.com. Hosting the call today are Dhrupad Trivedi, A10's president and chief executive officer; and Michelle Caron, chief financial officer. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its second quarter 2026 financial results. Additionally, A10 published a supplemental presentation and trended financial statements. You may access the press release, presentation, 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 projections for future operating results, demand, industry and customer trends, macroeconomic factors, strategy, potential new products and solutions, our capital allocation strategy, profitability, expenses and investments, positioning, and our dividend program. These statements are based on current expectations and beliefs as of today, August 5, 2026. 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. A10 does not intend to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise, unless required by law. For a more detailed description of these risks and uncertainties, please refer to our most recent Form 10-K and quarterly report on Form 10-Q. Please note that, with the exception of revenue, financial measures discussed today are on a non-GAAP basis unless otherwise noted. They may 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. A 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 at www.a10networks.com. Now I would like to turn the call over to Dhrupad Trivedi, president and CEO of A10 Networks.
Thank you, Tom, and thank you all for joining us today. A10 continues to deliver top- and bottom-line growth driven by the increasing relevance of our platform to the demands of next-generation networking. From our foundation in advanced traffic management solutions to our more recent focus on integrating security into all our offerings, we have built exactly the platform that today's customers need to address the host of challenges impacting their operations. AI is creating new challenges for customers across the industry: greater traffic volume, expanding security threats, and the need for lower latency. Our focus on next-generation networking, which combines advanced application management with integrated security, represents the future of A10 and increasingly the standard our industry is being held to. Subsequent to the quarter, we announced a significant expansion of our relationship with Microsoft. This agreement reflects a shared commitment to a long-term partnership with mutual performance commitments on both sides. As a result, we are more firmly aligned with the long-term roadmap of this industry leader. It also serves as a powerful validation of A10's relevance to the customer and market and speaks to the depth of the relationship we have built over multiple years. We also continue to advance our product roadmap. In June, we acquired Troj.ai, an AI security company that helps organizations secure, test, and govern AI applications and agentic workflows. This acquisition adds two layers to our platform: red teaming, which uses AI to probe models and agents for vulnerabilities at build time, as well as real-time protection at run time. We generated 15% revenue growth in the second quarter on a year-over-year basis and 14.5% growth year to date. This marked our fourth quarter of double-digit growth in the last five, and as a result, we have increased our full-year outlook to 12% to 14% for the full year versus previous guidance of 10% to 12%, reflecting continued confidence in the demand environment ahead. AI continues to erase the distinction between how enterprises and service providers build their networks. Today, enterprises and service providers face the same workloads, performance demands, and security requirements. We have built our platform for exactly this world: one architecture, one operating model, one security framework across both segments. Through this period of improving demand, our operating discipline has remained constant. We balanced targeted investment with EPS expansion and we delivered on both goals in the second quarter. Our goal is to convert growth into profitability and cash while continuing to invest in the technical capabilities this demand environment requires, with earnings-per-share growth exceeding revenue growth, and we remain on track to do just that. With that, I would like to turn the call over to Michelle Caron, our chief financial officer, to review the numbers in more detail.
Thank you, Dhrupad. As a reminder, with the exception of revenue, all of the metrics discussed on this call are on a non-GAAP basis unless otherwise stated. A full reconciliation of GAAP to non-GAAP results is provided in our press release and on our website. Let me now turn to the results. As Dhrupad noted, Q2 results were aligned with our business model goals. We delivered revenue growth of 15.5% to $80.1 million. Year to date, our revenue was $155.1 million, an increase of 14.5%. Turning to mix, product revenue in the second quarter was $49.0 million, or 61% of total revenue, while service revenue was $31.1 million, or 39% of total revenue. From a product mix perspective, security-led revenue continues to drive product revenue growth and meet our long-term goals as a percentage of total revenue. From a vertical perspective, enterprise customers represented 60% of Q2 revenues. On a trailing 12-month basis, enterprise represents approximately half of total revenue, in line with our previously stated corporate goals of driving balanced growth. Service provider spend in the Americas has begun to normalize. EMEA service provider demand was impacted by the geopolitical environment, while Japan within our APJ region continues to experience macroeconomic pressures that are impacting spending cycles. We remain confident that our service provider relationships around the world remain a strong foundation for continued growth within international markets. Both verticals align with our strategy and reflect the strength of our offerings supporting AI infrastructure buildout. From a geographic perspective, our Americas region represented 68% of global revenue. This reflects our deliberate focus on the Americas as a growth region driven by AI infrastructure buildouts and strength in the enterprise market. Non-GAAP gross margin was 80.3%, in line with our stated goals. Operating expenses were $43.9 million as we continue to prioritize investments in AI-facing innovation, next-gen networking, and security. Operating margin was 25.5%, resulting in net income of $18.7 million, or $0.26 per basic share and $0.25 per diluted share, compared to $0.21 in the year-ago period. Q2 diluted weighted average share count was 75.7 million shares. We generated $26.9 million in free cash flow in the quarter as the Q1 timing items we noted recovered as expected. On a year-to-date basis, free cash flow was $20.2 million. We continue to expect full-year free cash flow to grow year over year from approximately $65 million in 2025. Adjusted EBITDA was $25.4 million, or 30.5% of revenue, consistent with our business model goals. Turning to the balance sheet, cash and marketable securities were $357.3 million as of June 30, and deferred revenue was $104.8 million. We continue to return meaningful capital to shareholders. During the quarter, we paid $4.3 million in cash dividends and repurchased $2.4 million worth of shares, returning a total of $6.7 million to shareholders. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on September 1, 2026, to shareholders of record on August 15, 2026. The company has $53 million remaining on its $75 million share repurchase authorization. Consistent with the industry, we continue to navigate cost and delivery challenges related to the supply chain. Customer satisfaction and on-time delivery remain our top priorities, and the strength of our business model gives us the confidence to raise our EPS outlook even as we navigate near-term cost dynamics. I will now turn the call back to Dhrupad for an update on our 2026 outlook and closing comments.
Thank you, Michelle. A10 continues to strengthen its position as a partner of choice for next-generation networks, and we are positioned to benefit from multiple durable secular catalysts. We continue to invest to enhance our position across our portfolio while preserving profitability and shareholder returns. Based on the results through six months and our visibility ahead, we are increasing our full-year 2026 outlook. We now expect 2026 full-year revenue to increase by 12% to 14% on a year-over-year basis, up from 10% to 12%. And EPS growth of 14% to 16%, up from 12% to 14% previously. Operator, you can now open the call up for questions.
Questions and answers
Thank you very much. We are now opening the floor for questions. If you have any questions, you can press 1 on your phone keypad now to join the queue. We ask that while you are posing your question, you please pick up your handset if you are listening on speakerphone to provide optimum sound quality. Please wait a moment while we poll for questions. Thank you. Our first question is coming from Gray Powell of BTIG. Gray, your line is live.
Hi Gray Powell here. Thanks for taking the question, and congratulations on the really strong set of results. On product revenue growth, it has consistently been strong over the last 18 months, and you had 25% growth in product revenue in Q2 versus a tough comp last year. I thought that was particularly impressive. Can you talk about how the drivers of growth on the product side have been changing this year versus last year? And how should we think about the duration of the spending cycle that you are currently benefiting from?
Gray, good question. As we said before, when we win new customer business, product revenue is the lead indicator. Relative to your question, two things: first, over the last several quarters, we have strengthened on the commercial side and the product side to be able to better address and win opportunities, including in the enterprise segment. That is one aspect of why product growth is a lead driver and grows faster than service at that point. Second, as we have continued to engage customers with longer-term roadmaps and solutions related to AI deployments they plan over the next two to three years, that has led to broader conversations about other products they could engage with us on today while preparing for those deployments. Those two dimensions have helped drive product growth more substantially, and our goal is to continue to maintain that as much as we can.
That is really helpful. The last quarter you called out some pull-forward dynamics with your largest customer, so I was a little surprised to see product growth accelerate in Q2. Can you talk about what surprised you the most in the quarter? And was there any similar pull-forward dynamic in Q2 to what you saw last quarter?
Fair point. The pull-forward dynamic last quarter was not a relocation of demand; it had to do with supporting a significant project that had a timeline that needed to be completed. For Q2, we continued to balance customer needs and deployment timelines, but there is no concern that Q2 demand was pulled forward from other quarters. I hope that is helpful.
That is really helpful. Thank you very much.
Thank you very much. Our next question is coming from Christian Schwab of Craig-Hallum Group. Christian, your line is live.
Great, thanks for taking my question. Great quarter and outlook. Can you give a better description of the growth drivers, which appear to be to a large degree increased traffic going through the network, particularly through enterprises as AI adoption is accelerating? Is that also part of the expansion of the Microsoft relationship? Additionally, as more traffic becomes localized on the enterprise and as enterprises deploy specific AI applications that they run dedicated on their networks versus going to the cloud, should we think of that as a meaningful growth driver for you over time?
Great question, Christian. I'll address it in three parts. First, our approach helps any company facing more complicated traffic, latency concerns, or higher traffic volumes—these are good fits for our solutions regardless of the specific application. The growth in traffic driven in part by AI is characterized by burst, high-volume traffic, which leads to two needs: managing that traffic efficiently with low latency, and addressing new kinds of threats that arise because of AI usage across the network. We see that as a sustainable multi-year driver because it is tied to the broader adoption of AI. Second, regarding Microsoft, we have been partnered with them for a long time. The expansion means that over the next couple of years we are increasingly aligned on roadmap and more embedded in broader areas of their architecture and infrastructure than before. This reflects a joint commitment to work operationally and technically together over an extended period, provided we continue delivering the technology they need. Third, on enterprise localization: this is not an immediate large demand driver, but over the next two to three years, as large enterprises choose to run their own models for sovereign or performance reasons and run more AI on-prem, our solution's ability to operate across those environments is a strength. That should be a growth contributor as enterprises increase on-prem AI inference and related workloads.
I have one more question. Regarding your first sustainable growth driver—more complicated traffic, latency, and security threats—who are your primary competitors for those products?
There are two classes of competitors. One is traditional infrastructure and networking companies that are adding similar capabilities. The second is a set of smaller startups that are focused on niche AI and security features. Our differentiation is in combining networking, application management, and integrated security at scale. For large, mission-critical customers, trust and operational maturity matter a lot, and that plays to our strengths relative to very small teams or startups.
No other questions.
Thank you very much. Our next question is coming from Hamed Khorsand of BWS Financial. Hamed, your line is live.
Hi. First, were there any pre-buy requirements on the part of Microsoft for the expanded relationship? And how are you going to manage the business given that Microsoft is such a large percentage of revenue at this point?
The agreement is linked to their demand and to working jointly with them over a much longer timeframe. There were no pre-buys. It is aligned with their business needs and rollout forecasts and involves us being more operationally intertwined on both the product and operational sides. Regarding the concentration question, if you exclude one or two countries where there are macro issues, our overall business is also growing close to double digits. So this is not the only source of growth. Our objective remains to increase relevance in enterprise, including cloud and AI use cases, while maintaining our positions with service providers so we can benefit when their CapEx rebounds. We are not losing those slots; we are maintaining them while taking advantage of current customer spending profiles.
Is there a higher drag on earnings because of where memory prices are? Or have you been able to stabilize that?
We have been able to manage memory pricing and supply dynamics over the last couple of quarters. Memory supply and pricing constraints are expected to last for a while, and we continue to navigate that. Our bias is toward customer satisfaction and delivery. If forced to make difficult choices, we will prioritize delivery while managing EPS outcomes. So far, we have been able to manage, but the environment remains uncertain and may last several more quarters.
Thank you.
Our next question is coming from Michael Romanelli of Mizuho Securities. Michael, your line is live.
Thanks for taking the questions. The new Microsoft agreement provides validation around demand and deployment activity—congrats on that. Beyond that relationship, can you talk about the broader pipeline today and how it compares to perhaps 90 days ago? Specifically size, quality, and visibility, particularly for larger enterprise and any AI-related opportunities outside of Microsoft? And then a follow-up on Troj.ai.
Good question. I'll answer in two ways. First, on our overall pipeline compared to 90 days ago, separated by enterprise and service provider: on the service provider side, we are seeing slight improvement in the North America market. The products we sell help them run networks better, cheaper, and faster, whether they replace core infrastructure or optimize it, so we see pipeline improvement there. On the enterprise side, we've put a lot of effort into selling to large enterprises; those sales cycles are typically six to nine months and complex. The pipeline is good and trending positive, but we expect results to show up later this year and into early next year rather than immediately. The quality of deals is improving, and execution is the critical part. Regarding AI, many companies are engaged in proof-of-concepts now as they determine AI use cases. Our measure of success is how deeply we are engaged with customers and how we can solve their business problems.
And a follow-up: congrats on the acquisition of Troj.ai. What made this the right asset for A10? Where does it fit within the portfolio? Could AI security become a meaningful growth vector for A10 over time, or should we think of it primarily as an important capability that enhances the existing portfolio?
Troj.ai's team developed a strong technical solution that aligned with our roadmap and complemented other capabilities we were building. It strengthens our portfolio as a stand-alone capability and can be bundled into broader solutions. In the near term, it enhances our overall solution set. Over time, as the market matures, it could be both a standalone growth vector and a capability that increases the relevance of our existing portfolio. We are investing in native AI solutions to bring to market in the next one to two years that are not dependent solely on our other products.
Yep.
Thank you very much. Our next question is coming from Simon Leopold of Raymond James. Simon, your line is live.
That is okay. Historically, you have included Microsoft within your service provider vertical, I believe. I want to confirm that and verify whether that is still how you categorize it. I want to make sure the shift in mix is not reflective of recategorization of a customer.
Good question. Historically we have characterized Microsoft as service provider, and we have not recategorized that portion of the business. We are doing different and new business with Microsoft and others, and sometimes it's difficult to split enterprise and service provider mix because many customers do both. What is sold to them as a service provider is still counted in the service provider segment. In the most recent quarter there is Microsoft business that we do categorize as enterprise because it is based on a completely different product set.
That makes sense. Stepping back, last quarter you disclosed you had a 37% end-customer concentration. Can you give us some metrics for the June quarter? Will it be a similar number? I know you'll publish the 10-Q in a day or two, but is it similar given the rollout?
It will be a similar number for Q2, linked to completing the rollout. It may change in the future, but as of Q2 it will be similar for those reasons. Regarding service provider performance excluding Microsoft: service provider revenue excluding Microsoft declined in 2025 and we expect it to normalize. We expect it to be slightly better than the 2025 level in 2026. The puts and takes are: North America improving, Japan equal or slightly worse, and Europe neutral. Overall, we expect a slight improvement versus 2025.
Thank you. Appreciate the clarification.
Thank you very much. We appear to have reached the end of our question-and-answer session. I will now hand back to the management team for any closing comments.
Thank you, and thank you to all of our employees, customers, and shareholders for joining us today and for your continued support. I am increasingly confident in our strategic orientation around security and next-generation networking spending patterns. Thank you for your time and attention.
Thank you very much, everybody. This concludes today's conference call. You may disconnect your phone lines at this time. Have a wonderful rest of the day, and thank you for your participation.