ATEN Q3 2024: Security Segment Grows 10%, Trends to 10-12%
- Robust Security-Led Growth: Management highlighted that the security-led segment grew 10% year-to-date with expectations to reach 10-12% in the near future, showcasing a strong market demand for integrated cybersecurity solutions and supporting sustainable revenue growth.
- Positive Enterprise and Stabilizing Service Provider Trends: Despite some volatility in the North American service provider market, the focus on large enterprise customers coupled with improving trends in customer demand (evidenced by stabilizing service provider performance and strong funnel activity) supports a robust long-term growth outlook.
- Disciplined Capital Deployment: The company is actively pursuing strategic M&A opportunities and continues to execute share repurchase programs while increasing R&D investment by over 15% year-over-year, underscoring a balanced strategy to drive innovation, enhance product offerings, and return capital to shareholders.
- North American Service Provider Volatility: The North American service provider business remains volatile, with inconsistent order placements and revenue movements from quarter to quarter, creating uncertainty about near-term growth.
- Modest Enterprise Revenue Growth: Enterprise revenue grew only 3% YoY—a lower rate compared to previous periods—which could indicate a slowdown in demand from large enterprise customers.
- High R&D Investment Pressure: Significant increases in R&D spending (over 15% YoY), while aimed at future innovation, may pressure short-term profitability and add to margin concerns.
-
Margin Outlook
Q: What gross margins next period?
A: Management expects to maintain 80%-82% gross margins through a balanced mix of new upsell solutions and existing product strength, ensuring stable profitability. -
Buyback Strategy
Q: Will buybacks accelerate?
A: While cash remains strong, management will use buybacks opportunistically, balancing them with investments in growth and R&D. -
M&A Activity
Q: Are merger deals underway?
A: The team is actively exploring scalable assets and consolidation opportunities to enhance its security portfolio, though they remain cautious with capital deployment. -
Security Growth
Q: Is 10% security-led growth normal?
A: Management confirmed that the security-led segment grew 10% year-to-date and expects it to trend around 10%-12% in the near future. -
Service Provider Outlook
Q: How is service provider demand evolving?
A: Despite short-term North American volatility, overall service provider demand is stabilizing, with improved outlooks driven by stronger pipeline dynamics outside North America. -
Enterprise Revenue
Q: Why only 3% enterprise growth?
A: Management noted that while the percentage increase was modest, the focus on large enterprises continues to drive consistent dollar-based growth over the long term. -
Receivables Management
Q: What about rising receivables?
A: Higher accounts receivable are attributed to seasonal timing; management sees improved cash collection trends and no significant payment delays.
Research analysts covering A10 Networks.