A10 Networks (ATEN) Q3 2026 earnings review
A10 Networks raises its outlook, but hardware profit margins shrink
A10 Networks, which makes hardware and software that manage data center traffic and stop cyberattacks, delivered record sales and profit as corporate AI upgrades sped up. Revenue rose 23% from a year ago and profit per share excluding one-offs climbed 35%, both well above what the company's prior plan pointed to. Chief executive Dhrupad Trivedi raised the 2026 outlook for a second straight quarter and set a $500 million revenue target for 2029.
| Revenue | $91.5M +22.6% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.31 +34.8% from a year ago |
| Enterprise customer sales | $53.3M +98.1% from a year ago |
| Full-year 2026 revenue outlook | Raised to ~16% prior plan: 12–14% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because demand broadened beyond North America while two financial overhangs eased. European and Asian sales grew again after shrinking in the first half, open-market stock buybacks resumed at $23 million, and convertible debt returned to long-term liabilities without draining cash. One caution: hardware gross margin fell 4 percentage points on higher component costs, and the release still hides how much of the quarter came from a single 38%-of-revenue customer.
The question now is whether A10 is building a broad enterprise customer base or largely fulfilling one cloud giant's buildout at lower hardware margins. If the expansion is broad, the largest customer's share of sales will stop rising and support services growth will speed up from 5%; if it is one project, concentration will stay near 40% while support renewals lag. This quarter's 10-Q customer table and fourth-quarter services revenue will tell.
🐂 Bull Case
Enterprise Sales Nearly Doubled and International Regions Rebounded
A10 Networks sells hardware and software that manage data center traffic and block cyberattacks. Demand from corporate data centers is carrying the business, and international sales grew again after shrinking in the first half of the year. Chief executive Dhrupad Trivedi attributed the 22.6% sales increase to rising network traffic and artificial intelligence deployments.
- Enterprise customer revenue: $53.3 million, up 98.1% from a year ago and 11.0% from last quarter
- Products revenue: $58.5 million, up 35.7% from a year ago
- Europe, Middle East and Africa (EMEA) revenue: 15% of sales, up 53% in dollars from a year ago by our math
- Asia-Pacific and Japan (APJ) revenue: 21% of sales, up 17% in dollars from a year ago by our math
This matters because European and Asian sales fell 22% and 15% during the first six months of 2026. Their rebound in the third quarter shows that demand is no longer limited to North America. Enterprise customers now bring in 58% of total revenue, up from 36% a year ago.
What to watch: fourth-quarter enterprise revenue against this quarter's $53.3 million level. Holding above $50 million when the prior-year comparison gets tougher would show that corporate AI upgrades represent a lasting higher run-rate.
Slower Sales Cost Growth Lifted Operating Margin
The networking group turned 22.6% revenue growth into 34.8% growth in profit per share, excluding one-offs, by keeping its sales budget flat. While A10 spent more on engineers and acquired staff from TrojAI, its new AI security business, sales and marketing costs barely moved.
On a standard accounting basis, sales and marketing fell by 4.8 percentage points of revenue to 24.0%, while research and development rose by just 1.0 point to 23.6%. Operating margin excluding one-offs rose 3.1 percentage points to 27.8%. That profit drop-through lifted third-quarter free cash flow by 70% from a year ago to $30.7 million by our math, bringing nine-month free cash flow to $57.5 million.
What to watch: fourth-quarter operating expenses excluding one-offs, which stood at $47.8 million this quarter. Keeping quarterly spending near that mark would allow full-year free cash flow to pass last year's $64.8 million total.
Open-Market Buybacks Resumed and Debt Stayed Long-Term
Two balance-sheet overhangs eased during the quarter. In the first half of 2026, A10 bought back almost no stock on the open market, and its $219.5 million of convertible debt moved into short-term liabilities because bondholders had a three-month window to demand repayment.
That conversion window closed on September 30 without draining cash. The $219.9 million debt sits back in long-term liabilities on the third-quarter balance sheet. At the same time, A10 resumed actual buybacks, "having repurchased 879 thousand shares during the quarter at an average price of $26.18 per share for a total of $23.0 million".
What to watch: fourth-quarter diluted share count, which still rose 3.6% from a year ago to 75.7 million because of earlier employee stock grants. A drop in the share count next quarter would show the resumed buybacks are finally shrinking the share base.
🐻 Bear Case
Supply Costs Cut Hardware Gross Margin by Four Points
"As the industry navigates supply challenges, we are focused on translating revenue growth into higher gross profit dollars, operating leverage and EPS growth," Trivedi said. That phrasing shifts attention from gross margin percentages to gross profit dollars because component costs are hurting hardware profitability.
On a standard accounting basis, the cost of making A10's hardware products jumped 64.4% from a year ago, nearly twice as fast as the 35.7% rise in product sales. By our math, hardware gross margin fell 4.0 percentage points from a year ago to 77.2%. To avoid shipping delays during a memory chip shortage, the San Jose company also nearly doubled its inventory on the balance sheet to $36.4 million, tying up $18.4 million of cash over the first nine months.
Overall gross margin excluding one-offs slipped 0.7 percentage points to 80.0%, rescued only by higher margins on support services. If component inflation spreads or support margins stop rising, total gross margin will fall below the company's 80% floor.
What to watch: hardware gross margin and inventory on the fourth-quarter balance sheet. Another drop below 77% on hardware would show that A10 cannot pass higher memory chip prices on to its buyers.
One Customer and Slow Support Sales Cloud the Boom
"Revenue from customers other than our largest customer grew double digits year over year in the quarter, underscoring the breadth of our momentum," Trivedi said. That largest customer — Microsoft, which accounted for 38% of sales last quarter and holds a warrant for 800,000 A10 shares — is both the main driver of the enterprise boom and its biggest concentration risk.
Because total revenue grew 22.6%, a double-digit rise (such as 10% to 15%) among other buyers still implies that the largest customer grew much faster than the rest of the company by our math. In addition, A10's telecom service provider segment remains 20.1% below last year's level at $38.2 million, even though it rose 19.0% from the second quarter. Meanwhile, support services revenue grew only 4.7% from a year ago to $33.0 million.
Trivedi has previously said that hardware product sales lead support renewals by about four quarters. Hardware sales have grown more than 20% for three straight quarters, so support revenue should soon speed up unless the largest buyer is purchasing hardware without normal support contracts.
What to watch: fourth-quarter services revenue growth, which needs to pass 5% to prove recent hardware sales carry standard maintenance renewals.
Risks This Quarter Didn't Answer
Several standing concerns about customer concentration and revenue mix cannot be checked from the earnings release and presentation alone.
- Largest customer revenue share: not in the release; the quarterly filing's customer concentration note will show whether it rose past last quarter's 38%.
- Microsoft warrant accounting: management said its 2029 targets include the warrant's cost, but the release does not state the purchase hurdles or whether the cost cuts into revenue.
- Security-led and AI revenue shares: missing again; management gave no figure for security-led sales (previously a 65% target) or AI-specific revenue, and the presentation notes that its AI Gateway product has no customer deployment shown.
👓 Other Themes
Management Set 2029 Targets of $500 Million in Sales
Trivedi introduced three-year financial goals, "setting long-term targets of $500 million in annual revenue through organic growth and $2.00 in annual non-GAAP EPS for fiscal year 2029". That plan calls for 14% yearly sales growth from the 2026 outlook and explicitly "incorporates the accounting impact of our warrant agreement with our largest customer".
💲 Other KPIs
Deferred revenue — cash billed to customers for support and products not yet delivered — rose 9.4% from a year ago and $2.2 million from last quarter. The balance commonly dips in the third quarter, so a sequential increase adds visibility for future services sales.
Cash and short-term investments rose $3.1 million from last quarter even after the US company spent $23.0 million buying back stock and $4.4 million on dividends. Against $219.9 million of long-term convertible debt, A10 holds $140.5 million in net cash by our math.
🔮 Guidance
Raised. The full-year plan moved up by 3 percentage points at the middle of the range, to about $337 million by our math. Because revenue grew 17.4% over the first nine months, the new plan leaves about $90.4 million, or 12.5% growth, for Q4 against last year's record $80.4 million fourth quarter. It is the second raise this year: +2 points in Q2, +3 points in Q3.
Raised. The middle of the range moved up 6 percentage points to 21% growth over 2025's $0.90. With $0.80 already earned in the first nine months, the outlook leaves $0.28 to $0.30 for Q4 by our math, or 11.5% growth at the middle of the range against $0.26 a year ago. Second raise this year: +2 points in Q2, +6 points in Q3.
Raised. The network security specialist now expects its full-year cash operating margin before interest, taxes and depreciation to stay above 30%, up from the 28–30% target set earlier this year. Nine-month margin already stands at 31.0% after hitting 32.2% in Q3.
❓ Key Questions
What share of third-quarter revenue came from Microsoft?
A10's largest customer accounted for 38% of revenue in Q2. Knowing whether that share rose or fell in Q3 — when the quarterly filing arrives — determines how much of the 98% enterprise surge came from a single rollout.
How much revenue will the customer warrant subtract?
The new 2029 targets incorporate the accounting cost of the 800,000-share warrant issued to A10's largest buyer. Investors need the dollar purchase hurdles for vesting and how much non-cash cost will be deducted from revenue each year.
Why is hardware gross margin down four points?
Hardware gross margin on a standard accounting basis dropped from 81.2% to 77.2% over the past year while inventory nearly doubled. Management has not separated how much of that drop comes from memory chip prices versus volume discounts for its biggest buyer.
Where do security-led and AI revenue shares stand?
Management previously tracked security-led revenue against a 65% target and promised a proxy measure for AI-driven sales. Neither figure appeared in the Q3 materials even as AI and security remain the core pitch.