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| And so certainly from a depressed base, we should see a positive cycle on SP spending come back |
| We are navigating these longer sales cycles and customer uncertainty, and I'm encouraged by the sequential improvement in both revenue and profitability from the third quarter into the fourth quarter |
| In the interim, our focus on revenue diversification continues to benefit our business |
| Enterprise revenue was up 23% in the fourth quarter, partially mitigating the 24% decrease in service provider revenue, and validating our strategy to increase our focus on enterprise customers in addition to our service provider customers, which will return to strength in the future |
| Once again, A10 is poised to navigate this challenging cycle better than others in the industry |
| The teams remain very excited about the new solutions that drive an even deeper customer centric approach, and one that aligns with their dynamic economic environment |
| Maintaining our non-GAAP net income on lower revenue is a significant accomplishment demonstrating the earnings power we have built into A10 |
| This achievement is a testament to our business model and operational rigor as we reallocated resources focusing on near-term opportunities and ensuring that we are customer centric in our sales and support approach |
| A10 remains well-positioned, offering a business critical solution with a customer centric approach |
| And so the fourth quarter, I would say, definitely improved from second and third quarter in terms of what we were able to book and ship in month one, month two, and month three |
| This represents an opportunity for us to deliver growth that is increasingly independent of service provider CapEx cycles |
| We certainly also saw positive momentum on enterprise growth in North America, right? Where we have invested in resources and in some of the new products we released last year |
| Lower product revenue throughout the year continues to impact recurring revenue, but in the fourth quarter recurring revenue increased 8% year-over-year and also deferred revenue increased 11%, demonstrating the continued demand for our solutions and validating our confidence that we are not losing opportunities to competitors |
| We are not losing to competitors and as they gain confidence to invest we feel that we are in a good position to get that |
| On a full year basis, revenue from enterprise customers grew 9%, ahead of many of our peers and offsetting a 20% decline from service provider customers |
| This intensive multi-day gathering is designed to align our sales team, discuss our strategy, and further strengthen commercial execution |
| We have reallocated resources, increasing our concentration on enterprise customers globally, and this focus has already begun generating positive results |
| So, we do expect that, as it ramps up in 2024, we could see a more positive cycle in 2025 right and beyond |
| A little bit of FX pressure in Japan, and I think, we continue in EMEA to find pockets of strength and continue to deliver on that |
| Our solutions will be prioritized over other investments as they are key to our customers generating revenue and navigating challenging economic environment, and we continue to achieve our business model goals in terms of profitability despite the revenue headwinds |
| We continue to expect to deliver on our business model objectives, including gross margins of 80% to 82%, adjusted EBITDA margins of 26% to 28%, and single-digit growth in our full year non-GAAP EPS |
| The fourth quarter demonstrates that we have taken the necessary steps to realign and efficiently allocate resources to find areas of growth and ensure solid profitability amidst revenue headwinds |
| Based on our experience and learnings from 2023, we have made further adjustments to capitalize on key strategic priorities that enable us to maintain strength with service provider customers while growing faster with security and enterprise solutions |
| Sequentially, revenue increased 22% compared to the $57.8 million in the third quarter |
| I also want to thank all our employees around the world for driving this performance in a very challenging market environment |
| I think we look at it as a more balanced way of saying, we expect to continue progress in enterprise and security solutions, and as SP spending picks up maybe in the second half right, it should help us with that seasonality and beyond |
| And then overall, we were projecting a little bit better result in Q4 |
| And thank you all of our shareholders for joining us today and for your continued support |
| We maintained our profitability despite the revenue headwinds, matching our long-term stated goals of 80% to 82% gross margin and 26% to 28% EBITDA margins |
| Hamed Khorsand And could you just talk about the sales timing within the quarter? Did it all happen towards the very end of the quarter? Dhrupad Trivedi No, actually no, it was better than what we saw in Q3 phenomenon |
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| Fourth quarter revenue was $70.4 million, a decrease of 9.3% year-over-year, reflecting the headwinds that Dhrupad described earlier |
| Turning to full year results, revenue was $251.7 million, down 10.22% year-over-year |
| We agree that service provider customers in particular could remain choppy for some time related to the macro environment |
| This reflects some orders that were delayed right at the end of the third quarter and recognized during the fourth quarter, though we continue to see longer than normal sales cycles during the fourth quarter due to CapEx constraints, particularly with service provider customers |
| As discussed during the third quarter call, orders slipped from our third quarter into our fourth and reduced in size as parts of the project were pushed out into 2024 |
| Certainly, we saw weakness in North America, service provider side |
| Obviously, variable comp is lower than expected |
| Service providers, especially in North America, continue to delay CapEx investments as broadly announced by others in the industry |
| And on the service provider side, what we saw was pullbacks from handful of large SP customers who had projected plans to add capacity or new services and have subsequently, recut those plans to be over longer periods of time or reduce them |
| These are existential business risks, interrupting service, damaging customer trust, costing affected business millions and increasingly causing regulatory issues |
| The difficult thing for us obviously is given sort of the movements we see in terms of interest rate actions and particularly then affected by the fact that there's some election year and political influences and all of that |
| It's even more difficult than just purely economic factors |
| Simultaneously, enterprise customers are taking longer to make decisions and their internal approval process has incremental layers due to the same economic headwinds |
| And we don't see it getting worse |
| On a constant currency basis, we delivered full year EPS of $0.74 flat year-over-year in spite of significant deterioration in the macro environment |
| Economic headwinds may mean these investments are delayed, but they are unlikely to be canceled |
| And I would say, it probably takes a couple of quarters before we see it getting better, but we don't see it getting any worse than it was in 2023 |
| First question is, if I look at just revenue on a just simple basis, you were down something like $30 million year-over-year, is that $30 million lost? You're saying it gets pushed down ‘24, but it just seems like it's never being recouped |
| But I'd say that there's variable comp that's missing from OpEx, both in Q4 as well as the full year results |
| The headwinds persist, but are largely related to a single region and a single customer type |
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