Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections entitled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Unless the context otherwise requires, the terms “A10,” “the company,” “we,” “us” and “our” in this prospectus refer to A10 Networks, Inc., and its subsidiaries.A10 NETWORKS, INC.
Overview
We are a leading provider of advanced application networking technologies. Our solutions enable enterprises, service providers, Web giants and government organizations to accelerate, secure and optimize the performance of their data center applications and networks. Our products are built on our Advanced Core Operating System, or ACOS, platform of advanced networking technologies, which is designed to enable our products to deliver substantially greater performance and security relative to prior generation application networking products. Our software based ACOS architecture also provides the flexibility that enables us to expand our business to offer additional products to solve a growing array of networking and security challenges arising from increased Internet cloud and mobile computing.
We currently offer three software based advanced application networking solutions. These are Application Delivery Controllers, or ADCs, to optimize data center performance; Carrier Grade Network Address Translation, or CGN, to provide address and protocol translation services for service provider networks; and a Distributed Denial of Service Threat Protection System, or TPS, for network-wide security protection. We deliver these solutions both on optimized hardware appliances and as virtual appliances across our Thunder Series and AX Series product families.
Our ACOS platform architecture is optimized for modern 64-bit computer processors, or CPUs, which increasingly have multiple parallel processing cores that operate within a single CPU for higher efficiency and performance scalability. In order to maximize the capabilities of these increasingly dense multi-core CPUs, ACOS implements a proprietary shared memory architecture that provides all cores with simultaneous access to common memory. This shared memory architecture enables our products to utilize these multi-core CPUs efficiently and scale performance with increasing CPU cores. As a result, we believe our ACOS application networking platform enables us to provide our end-customers with products that can deliver superior price performance benefits over products that lack these capabilities. We believe our products can process two to five times more web transactions (measured as Layer 4 connections per second) in certain head to head product comparisons per unit of computing and memory resources, power, rack space or list price. ACOS’s high performance design enables our products to address a wide range of today’s performance-driven networking challenges. For example, we have expanded our products’ capabilities to defend against the rising volume of large scale, sophisticated cyber security threats, such as Distributed Denial of Service, or DDoS, and other increasingly sophisticated high volume network attacks. The flexible software design of ACOS enables our end-customers to deploy our products across a number of new models for IT operations, such as managed hosting of their network by a third party provider and Internet cloud-based applications and networks.
We are a leading provider of application network technologies, based on our networking solutions’ performance, security and scalability. We believe our products can process two to five times more web transactions (measured as Layer 4 connections per second) in certain head to head product comparisons per unit of computing and memory resources, power, rack space or list price. Furthermore, the flexible software design of ACOS enables our end customers to deploy our products across a number of new models for IT operations, such as managed hosting of their network by a third party provider and Internet cloud-based applications and networks. To maintain and strengthen our leadership position, we will need to continue to innovate and advance our application network technologies and compete effectively with other companies that participate in our markets, including larger and more well-established companies.
We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. Our high-touch sales force engages directly or through indirect distribution channels with our end-customers. We believe that a high-touch, customer-focused selling process is important before, during and after the sale of our products to maximize our sales success. Product fulfillment is generally done through our original equipment manufacturers or distribution channel partners. As of December 31, 2013, we had sold our products to more than 2,900 customers across 65 countries, including three of the top four United States wireless carriers, seven of the top ten United States cable providers, and the top three wireless carriers in Japan, in addition to other global enterprises, Web giants and governmental organizations. Our business is geographically diversified with 48% of our total revenue from the United States, 28% from Japan and 24% from the rest of the world for the year ended December 31, 2013.
For the years ended December 31, 2010, 2011, 2012 and 2013, our total revenue was $55.3 million, $91.3 million, $120.1 million and $141.7 million, representing a compound annual growth rate of approximately 37% from 2010 to 2013. Our total revenue grew 32% from 2011 to 2012 and 18% from 2012 to 2013. For the years ended December 31, 2010, 2011, 2012 and 2013, our gross margin was 78%, 80%, 80% and 76%. We generated net income (loss) of $5.2 million, $7.3 million, $(90.2) million and $(27.1) million for the years ended December 31, 2010, 2011, 2012 and 2013. Our net income (loss) in these periods was affected by the settlement of, and legal expenses related to, our litigation with Brocade Communications Systems, Inc.
Our Industry
Organizations are increasingly dependent on their websites and data center infrastructure for business operations. IT administrators struggle to ensure continuous availability of these business critical resources in the face of escalating performance expectations, demands to migrate to cloud computing and increasingly sophisticated cyber security attacks. IT administrators are therefore seeking new application networking technologies to optimize the performance and security of data center applications and networks.
Trends Driving Continued Evolution of Application Networking
Commercial damage and customer dissatisfaction from poor website, data center application and network performance can have a lasting negative impact well beyond the expenses related directly to the downtime. To optimize data center application and network performance and avoid unforeseen downtime, organizations deploy application networking technology to ensure the performance and security of data center resources. These organizations must simultaneously address significant networking industry trends such as:
Limitations of Alternative Approaches in Addressing These Challenges
Conventional networking equipment is built on custom designed semiconductors and is limited to only basic data forwarding and security functions based on a narrow range of address fields within a data packet. Due to these rigid designs and limited capabilities, conventional networking equipment cannot process more advanced application data and thus cannot effectively perform application-layer networking functions.
To address these shortcomings, first-generation application networking products were developed that could inspect and take action based upon the specific application of data traffic. This capability is referred to as being application-aware. First generation application networking products were able to improve application performance and security in ways not possible for conventional networking equipment. Examples of these first-generation application networking products include server load balancers and intrusion prevention systems. However, these first-generation products have fundamental limitations, including general purpose computing architectures that do not provide for sharing of memory resources and thus cannot fully utilize the functionality of modern, multi-core processors. These products lack the performance capabilities necessary to rapidly analyze application data at the rates necessary to meet performance and security requirements in modern data centers.
Need for Next-Generation High Performance Application Networking
In order to address these increasingly complex network challenges, a new generation of application-aware networking solutions is needed in order to look deeply into application content, modify content for performance optimization or security purposes, and forward the traffic at rapidly escalating network data rates. Next-generation application networking solutions require:
The Next-Generation Application Networking Market Opportunity
We believe that the total worldwide addressable market for next-generation application networking is a combination of discrete markets that represent aggregated expenditures of $12.6 billion in 2013. The next-generation application networking market consists of Application Delivery Controllers, Network Security Equipment and Secure Web Gateways. According to Gartner, these discrete market opportunities represent $1.9 billion, $8.5 billion and $2.2 billion.
The A10 Networks Solution
We are a leading provider of advanced application networking technologies. Our solutions are designed to enable enterprises, service providers, Web giants and governmental organizations to accelerate, secure and optimize the performance of their data center applications and networks. Our Advanced Core Operating System, or ACOS, platform incorporates our proprietary shared memory architecture, which is designed to utilize multi-core processors efficiently and provide increasing levels of performance with increasing processor density. We offer a range of software based solutions built on top of our ACOS platform that address a variety of performance and security challenges in customer networks. Our products can be deployed in a variety of forms, including optimized hardware appliances and as virtual appliances.
The customer benefits of our platform include:
application content across a network, and then detect and mitigate the effects of sophisticated cyber security attacks, such as DDoS, that can threaten availability of the largest websites and networks around the world.
Our Growth Strategy
Our goal is to be the global leader in application networking. The key elements of our growth strategy include:
Risks Affecting Us
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:
Corporate Information
We were incorporated in the State of California in July 2004. We intend to reincorporate in the State of Delaware prior to the completion of this offering. Our principal executive offices are located at 3 West Plumeria Drive, San Jose, California 95134. Our telephone number at that location is (408) 325-8668. Our website address is www.a10networks.com. Information on our website is not part of this prospectus and should not be relied upon in determining whether to make an investment decision.
The A10 Networks design logo and the mark “A10” are the property of A10 Networks, Inc. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. We will remain an emerging growth company until the earliest of (a) the last day of the year (i) following the fifth anniversary of the completion of this offering, (ii) in which we have total annual gross revenue of at least $1.0 billion, or (iii) in which we qualify as a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.