A10 Networks' Earnings Call Contradictions: AI Application Win vs. DDoS Claims, Service Provider Growth Outlook, and Microsoft Segment Shifts

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $80.1 million, up 15.5% YOY; $155.1 million year-to-date, up 14.5% YOY
• EPS: $0.25 per diluted share, compared to $0.21 in the year-ago period
• Gross Margin: 80.3%, in line with stated goals
• Operating Margin: 25.5%

Guidance:

• Revenue for full-year 2026 expected to increase by 12%-14% YOY, up from prior guidance of 10%-12%.
• EPS growth for full-year 2026 expected to be 14%-16%, up from prior guidance of 12%-14%.
• Full-year free cash flow expected to grow year-over-year from approximately $65 million in 2025.

Business Commentary:

Revenue Growth and AI Integration:

• A10 Networks reported 15.5% year-over-year revenue growth in Q2 2026, with product revenue making up 61% of total revenue.
• The growth was driven by the increasing relevance of A10's platform to next-generation networking and the integration of security solutions, particularly in response to AI-related challenges such as greater traffic volume and security threats.

Strategic Partnerships and Market Positioning:

• The company announced an expanded relationship with Microsoft, aligning with the long-term roadmap of this industry leader and reflecting a shared commitment to a long-term partnership.
• This strategic move validates A10's relevance and strengthens its position as a partner of choice for next-generation networks.

Product Innovation and Acquisition:

• A10 acquired TrojAI, an AI security company, to enhance its platform with AI-driven red teaming and real-time protection capabilities.
• The acquisition is part of A10's focus on AI-facing innovation and next-generation networking, aimed at securing and governing AI applications and workflows.

Geographic and Segment Performance:

• Americas represented 68% of global revenue, reflecting a deliberate focus on AI infrastructure build-outs and strength in the enterprise market.
• Enterprise customers accounted for 60% of Q2 revenues, aligning with A10's strategy to drive balanced growth between enterprise and service provider segments.

Financial Health and Shareholder Returns:

• A10 reported a non-GAAP operating margin of 25.5%, resulting in net income of $18.7 million, and generated $26.9 million in free cash flow in Q2.
• The company continues to return capital to shareholders through dividends and share repurchases, with a quarterly cash dividend of $0.06 per share approved and a remaining share repurchase authorization of $53 million.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed confidence with statements like 'A10 continues to strengthen its position as a partner of choice' and 'increasingly confident in our strategic orientation.' They also cited 'strong' results and increased full-year outlooks for revenue and EPS growth.

Q&A:

• Question from Gray Powell (BTIG): Can you talk about how the drivers of product revenue growth have been changing this year versus last year and the duration of the spending cycle?
  Response: Drivers include winning new enterprise business (product as lead indicator) and engaging customers on longer-term AI roadmaps, leading to broader conversations about current products.

• Question from Gray Powell (BTIG): Were there any similar pull-forward dynamics in Q2 as last quarter?
  Response: No, Q2 demand was not pulled forward but resulted from balancing customer deployment needs, with no concern about outer-quarter demand shifting into the period.

• Question from Christian Schwab (Craig-Hallum Group): Can you discuss growth drivers related to increased traffic from AI adoption and the expansion of the Microsoft relationship? Also, is localized enterprise AI a future growth driver?
  Response: AI-driven traffic increases are a sustainable driver. The Microsoft expansion aligns A10 with Microsoft's long-term roadmap. Enterprise on-prem AI in 2-3 years is seen as a strength for A10 due to its platform's versatility.

• Question from Christian Schwab (Craig-Hallum Group): Who are your first or second biggest competitors for products addressing traffic and security threats?
  Response: Competitors include traditional infrastructure companies adding similar capabilities and newer AI-focused startups, with A10's differentiation being its integrated platform and proven reliability for enterprises.

• Question from Hamed Khorsand (BWS Financial): Were there any pre-buy requirements from Microsoft for the expanded relationship? How are you managing the business given Microsoft's large revenue percentage?
  Response: The agreement is aligned with Microsoft's demand forecasts and involves deeper operational and product collaboration, not pre-buys. A10's overall business excluding macro-impacted regions is growing close to double-digits, with focus on maintaining durability in service provider markets.

• Question from Hamed Khorsand (BWS Financial): Is there a higher drag on earnings due to memory prices, or have you stabilized that?
  Response: Memory constraints are expected to last many quarters, but A10 has managed them in recent quarters without impacting EPS, prioritizing customer satisfaction and delivery.

• Question from Michael Romanelli (Mizuho Securities): How does the broader pipeline today compare to 90 days ago, especially for enterprise and AI opportunities?
  Response: The service provider pipeline in North America is improving slightly, and the enterprise pipeline is better and of higher quality, with expected results later this year/early next year. AI engagement is focused on proof-of-concept discussions with many customers.

• Question from Michael Romanelli (Mizuho Securities): What made the TrojAI acquisition the right asset, and could AI security become a meaningful growth sector?
  Response: TrojAI's technical solution strengthened A10's portfolio for standalone and bundled sales. Near-term it enhances existing offerings; longer-term it supports native AI solutions A10 can bring to market in 1-2 years.

• Question from Simon Leopold (Raymond James): Is Microsoft still categorized within the service provider vertical, and has there been any recategorization?
  Response: Microsoft is still counted in the service provider segment for historically sold products, with new enterprise business with Microsoft counted separately in the enterprise segment.

• Question from Simon Leopold (Raymond James): What was the largest customer metric for the June quarter?
  Response: The largest customer metric will be similar to last quarter, linked to completing a rollout, and will be disclosed in the Q.

• Question from Simon Leopold (Raymond James): Should service provider revenue excluding Microsoft in 2026 be expected to be similar to the 2025 level?
  Response: Expect it to be slightly better than 2025 level, with North America improving, Japan roughly the same or worse, and Europe neutral.

Contradiction Point 1

Characterization of Large Customer Win

Contradiction on whether a major win was for an enterprise AI application or a DDoS product.

What is your response to Gray Powell (BTIG)'s analysis? - Gray Powell (BTIG)

2026Q2: The large customer win involves an existing major customer expanding their deployment for an enterprise application that enables AI delivery, not a DDoS product. - Dhrupad Trivedi(CEO)

Can you provide additional details on the large customer win, including whether it involved one of the larger frontier models, and how we should think about the growth split between enterprise and service providers going forward? - Michael Romanelli (Mizuho)

20260429-2026 Q1: The comment on 'expanded commitments' refers to existing customers... increasing their spending and priority on AI... This represents an area of expansion for A10, not necessarily a change in the overall customer base. - Dhrupad Trivedi(CEO)

Contradiction Point 2

Growth Outlook for Service Provider Revenue (Ex-Microsoft)

Contradiction on the expected performance of the service provider business excluding Microsoft.

What were the key factors driving Raymond James' recent financial performance? - Simon Leopold (Raymond James)

2026Q2: Expect service provider (ex-Microsoft) in 2026 to be slightly better than the 2025 level. - Dhrupad Trivedi(CEO)

Will service providers (excluding Microsoft) in 2026 be similar to their 2025 levels after the decline and stabilization? - Gray Powell (BTIG)

20260429-2026 Q1: The lines between service providers and enterprises are blurring as both build AI infrastructure, making it difficult to segregate completely. - Dhrupad Trivedi(CEO)

Contradiction Point 3

Microsoft Customer Relationship Categorization

Direct contradiction on whether Microsoft is classified in the enterprise or service provider segment.

Simon Leopold (Raymond James) - Simon Leopold (Raymond James)

2026Q2: Historically, Microsoft is still counted in the service provider segment for business sold as a service provider. The recent enterprise business with Microsoft is based on a completely different product set... - Dhrupad Trivedi(CEO)

Is Microsoft still operating in the service provider vertical, and does the mix shift reflect a recategorization? - Gray Powell (BTIG)

2025Q4: The 2025 service provider growth was primarily driven by **cloud-oriented companies building AI infrastructure**... The company is well-positioned for both drivers. - Dhrupad Trivedi(CEO)

Contradiction Point 4

AI-Related Revenue Metrics & Growth Drivers

Contradiction on defining and communicating the scale of AI-driven revenue.

Christian Schwab (Craig-Hallum Group) - Christian Schwab (Craig-Hallum Group)

2026Q2: Growth is driven by three factors: 1) Increased/AI-driven traffic... 2) Microsoft expansion... 3) Enterprise on-prem AI... - Dhrupad Trivedi(CEO)

Are growth drivers from AI-driven traffic, including Microsoft relationship expansion and enterprise localization of AI applications, contributing significantly to the company's growth? - W. Chiu (Raymond James, for Simon Leopold)

20251105-2025 Q3: 1) The current AI build-out phase is concentrated among a few large players, contributing to growth. - Dhrupad Trivedi(CEO)

Contradiction Point 5

Impact and Linearity of Large Customer Project Dynamics

Contradiction on describing the nature and impact of project dynamics with a large customer.

Gray Powell (BTIG) - Gray Powell (BTIG)

2026Q2: The pull-forward dynamic in the previous quarter was specific to supporting a significant project with a strict timeline, not a relocation of demand. - Dhrupad Trivedi(CEO)

What factors contributed to the product growth acceleration, and were there any pull-forward dynamics similar to the previous quarter? - W. Chiu (Raymond James, for Simon Leopold)

20251105-2025 Q3: The current AI build-out phase is concentrated among a few large players, contributing to growth. - Dhrupad Trivedi(CEO)