A10 Networks Q3 2026 Earnings: Revenue Rises 22.6% as Operating Margin Expands

A10 Networks (NYSE: ATEN) reported Q3 2026 revenue of $91.5 million, up 22.6% year over year, while GAAP diluted EPS increased to $0.23 from $0.17. Product revenue accounted for most of the growth, and operating leverage lifted GAAP operating margin despite a lower gross margin. Management also raised its full-year revenue and non-GAAP EPS outlook.

Core Financial Results

Revenue reached a record quarterly level as product sales accelerated and services revenue posted modest growth. GAAP net income rose about 40.8% to $17.2 million, outpacing revenue growth.

Profitability was mixed at different levels of the income statement. GAAP gross margin declined 1.4 percentage points, but operating expenses grew more slowly than revenue, allowing GAAP and non-GAAP operating margins to expand.

Non-GAAP net income excluded $6.4 million of net adjustments, including stock-based compensation and related payroll taxes, acquisition expenses, intangible-asset amortization and debt issuance cost amortization, partly offset by related tax effects.

Business and Revenue Mix

Product revenue increased approximately 35.7% to $58.5 million, while services revenue rose about 4.7% to $33.0 million. Product sales generated roughly 91% of the total year-over-year revenue increase, raising products to about 64% of quarterly revenue from approximately 58% a year earlier.

Management attributed demand to rising network traffic, expanding AI deployments and increasingly complex security requirements. Revenue from customers other than A10’s largest customer also grew at a double-digit rate, indicating that the quarter’s growth was not limited to that customer.

Operating Leverage Offset Gross-Margin Compression

GAAP gross margin declined to 78.7% from 80.1%, and non-GAAP gross margin fell to 80.0% from 80.7%. The company also identified industry supply challenges as an issue it is navigating, although it did not directly attribute the entire margin decline to supply conditions.

Below the gross-profit line, operating leverage was more favorable. Total GAAP operating expenses increased 14.7%, compared with revenue growth of 22.6%. Sales and marketing expenses rose only about 2.3%, while research and development increased 17.4%. General and administrative expenses increased 46.3%, partially offsetting the leverage elsewhere.

The result was a 20.0% GAAP operating margin and a 27.8% non-GAAP operating margin. Adjusted EBITDA margin reached 32.2%, and management noted that revenue growth plus adjusted EBITDA margin exceeded 40% for the quarter.

Cash Flow, Inventory and Capital Allocation

Cash-flow figures were provided for the first nine months rather than the quarter alone. Operating cash flow for the nine months ended September 30 increased about 5.0% to $65.3 million, compared with $62.2 million in the prior-year period. On a simple operating cash flow less capital expenditures basis, approximate free cash flow rose to $57.5 million from $48.7 million as capital spending declined.

Cash conversion was affected by inventory. Inventory used $18.4 million of operating cash during the first nine months, compared with a $2.7 million cash contribution a year earlier. The inventory balance increased to $36.4 million at September 30 from $18.0 million at the end of 2025. Deferred revenue provided $14.0 million of operating cash, compared with a $7.3 million use of cash in the prior-year period.

A10 ended the quarter with $360.4 million in cash, cash equivalents and marketable securities, alongside $219.9 million of long-term debt. During the quarter, it returned $27.4 million through $23.0 million of share repurchases and $4.4 million of dividends. The repurchases covered 879,000 shares at an average price of $26.18, while the board approved another quarterly dividend of $0.06 per share.

Full-Year 2026 Guidance

Based on year-to-date results, demand visibility and the current supply environment, management raised its full-year revenue and non-GAAP EPS growth outlook. It also expects a full-year adjusted EBITDA margin above 30%.

The new EPS outlook implies earnings growth above the expected revenue growth rate, consistent with the operating leverage demonstrated in the third quarter.

Management’s View

Management said its priorities are supporting customers’ AI deployments, meeting growing demand and protecting the company’s long-term earnings capacity while navigating supply challenges. Its focus is on converting higher revenue into additional gross-profit dollars, operating leverage and EPS growth.

A10 also established fiscal 2029 targets of $500 million in annual revenue through organic growth and $2.00 in annual non-GAAP EPS. The revenue target implies a 14% compound annual growth rate, while the EPS target incorporates the accounting impact of the warrant agreement with the company’s largest customer.

Recent Insider Transactions

The provided six-month aggregate showed 301,165 shares purchased across seven transactions and 41,436 shares sold across three transactions, resulting in net purchases of 259,729 shares. It listed total insider holdings of approximately 1.17 million shares and net purchases equal to 28.6% of insider holdings.

Among the recent records with complete sale details, three insiders reported sales totaling approximately $1.13 million. These transactions are reported objectively and do not, by themselves, establish insiders’ views of the company’s outlook.

Risks Investors Should Monitor

• Gross-margin pressure: GAAP and non-GAAP gross margins both declined despite higher revenue. A continued shift toward lower-margin sales or additional cost pressure could limit the conversion of revenue growth into gross profit.
• Supply constraints and inventory: Management continues to navigate industry supply challenges, while inventory has more than doubled since the end of 2025 and absorbed $18.4 million of operating cash during the first nine months.
• Customer concentration: Growth outside the largest customer was encouraging, but the company still identifies the loss or delay of purchases by major end customers as a risk. Its fiscal 2029 EPS target also incorporates the accounting impact of a warrant agreement with the largest customer.
• Expense growth: General and administrative expenses rose substantially during the quarter. If revenue growth slows while expenses continue rising, the operating leverage seen in Q3 could weaken.

Summary

A10 Networks’ third quarter combined 22.6% revenue growth with faster expansion in operating income, EPS and adjusted EBITDA. Product demand was the primary growth engine, while slower operating-expense growth offset lower gross margins. The raised 2026 outlook supports continued operating leverage, but supply conditions, inventory-related cash use, gross-margin trends and customer concentration remain the main areas to watch.