Cabot Small-Cap Confidential Issue: July 2, 2025

Note: Due to the Fourth of July holiday, your monthly Issue of Cabot Small-Cap Confidential is being published a day early. Your next update will be published per the normal schedule.

The Big Idea

In today’s always-connected digital economy, businesses face mounting pressure to keep pace with rapidly evolving technologies and an incredibly complex threat landscape.

The widespread adoption of APIs, cloud-native applications, and AI-driven tools – combined with the shift toward hybrid and multi-cloud environments – has created a dual mandate: Deliver seamless, high-performance digital experiences while protecting critical systems and data.

This is no longer just an IT challenge; it’s a strategic imperative. Companies that can offer fast, secure, and reliable application delivery will be better positioned to compete and win in the digital-first future.

As emerging technologies like AI, 5G, and IoT place new demands on networks, the market for integrated network security and infrastructure solutions is undergoing a major transformation.

Enterprises, data centers, and hyperscale cloud providers are looking for technology partners to help modernize infrastructure, counter sophisticated threats such as encrypted malware and DDoS attacks, and enable operational agility at scale.

Today’s new portfolio addition fits the bill.

Its advanced networking and security solutions help organizations deliver secure, high-performance digital services, whether from traditional hardware-based data centers or the latest cloud and AI platforms.

It’s not the fastest-growing company out there. But when networking stocks take off due to big-picture demand drivers, they can really run.

The Company

A10 Networks (ATEN) is a global provider of security and infrastructure solutions designed to support on-premises, hybrid cloud, and edge-cloud environments.

The company’s integrated A10 Platform helps the new generation of highly connected companies strengthen cyber protection and enhance digital performance across a dynamic web of IT and network infrastructures.

A10 serves a broad customer base of enterprises, telecom, cloud and web service providers across tech, industrial, retail, financial, gaming, education and government markets.

These customers rely on A10 to secure high-performance, mission-critical network environments where application availability, speed, and security directly impact revenue and operational efficiency.

About 57% of A10’s revenue is generated from service providers, with the remining 43% coming from enterprise customers. Notably, this revenue mix is gradually shifting toward enterprise accounts, a trend management expects to continue.

In terms of geographic exposure, roughly 50% of revenue comes from North America, 33% comes from the Asia-Pacific region and 16% comes from Europe, the Middle East and Africa.

Technology & Products

A10 Networks’ portfolio consists of network infrastructure and security products.

The infrastructure portfolio powers the delivery of internet services and applications, while the security products protect applications, APIs, infrastructure and enterprises from cyberattacks.

A10’s solutions are available in a range of form factors, including hardware appliances, bare-metal software (very efficient and predictable since no operating system or virtualization layer is needed), containerized software, virtual appliances and cloud-native software.

Here is a brief overview of the company’s solutions:

A10 Infrastructure Solutions

• Thunder Application Delivery Controller (ADC): Provides server load balancing and is typically deployed in front of a data center’s server farm.
• Thunder Carrier Grade Networking (CGN): Allows customers to extend the life of an older IPv4 network and manage a smooth transition to newer IPv6 network.
• Thunder SSL Insight (SSL9): Handles blind spots created by SSL encryption by sending traffic to a firewall for deep packet inspection (DPI) before it moves on to its intended destination.
• Thunder Convergent Firewall (CFW): A consolidated network security platform for A10’s application and network infrastructure solutions.

Thunder products are available on the Thunder Series family of physical appliances. Depending on a customer’s needs, Thunder can operate on all major hypervisor platforms (VMware, Linux KVM, etc.), cloud providers (Microsoft Azure, Amazon Web Services, Google Cloud Compute, etc.), directly on Intel x86 servers (the bare-metal software version) and/or as a container (i.e., to run on a customer’s own hardware platform and operating system stack).

A10 Defend Security Products

• A10 Defend Threat Control: Standalone SaaS platform acting as a first line of defense, complete with analytics and blocklists.
• A10 Defend Orchestrator: Works with A10 Defend Detector and A10 Defend Mitigator to provide automated DDoS (Distributed Denial of Service) protection, thereby lowering operational costs.
• A10 Defend Detector: A high-performance DDoS detector often used by service providers to deliver DDoS services to customers.
• A10 Defend Mitigator: Highly precise, automated, scalable and intelligent DDoS mitigation solution delivered as hardware or virtual appliances that is deployed at the perimeter of the networks to protect internal resources from large-scale, multi-vector attacks.
• A10 Defend ThreatX Protect: Recently acquired (February 2025), ThreatX Protect is a SaaS-based solution that uses behavioral and risk profiling to defend against evolving threats on APIs and web apps, including the new generation of AI-driven apps.

A10 Control

A10 Control is an intelligent management, automation and analytics tool for A10 solutions that helps simplify delivery and operations in multi-cloud environments.

Growth Initiatives

AI Opportunity: The new wave of generative AI apps requires security and infrastructure systems that have ultra-fast response times, new security measures and predictive capabilities. A10 is building out its platform to address these new and mission-critical industry demands.

Enterprise Market: Demand from enterprise customers that are building big data centers as part of their AI initiatives is growing now, and management sees a bigger opportunity as these customers build out their inference models in a year or two. These models will be deployed at scale and require networking technology to manage and secure traffic as it flows within and between data centers.

Microsoft (MSFT) AI Infrastructure Deal: While A10 has plenty of large customers, the recently announced (June 25) selection by MSFT to use A10’s threat detection and mitigation capabilities to secure gen AI workloads should boost its credibility and help close additional deals.

Stock Buybacks: A10 has repurchased $176 million worth of shares over the last five years and just authorized another $75 million buyback program.

Acquisitions: A10 acquired ThreatX Protect in February 2025 to expand its cybersecurity portfolio in the fast-growing area of web application and application programming interfaces (WAAP) protection. This addition to the A10 Defend platform should help A10 better meet the network security needs of enterprise customers.

Business Model

A10 generates revenue from Product Revenue (54% of Q1 sales), which includes hardware and perpetual software licenses, and Services Revenue (46% of Q1 sales), which includes professional services, training and software-as-a-service (SaaS).

Selling is done through its own sales organization as well as through distributors, value-added resellers and system integrators. A relatively small number of large end-customers drives around 45% of sales. Hardware manufacturing is outsourced.

The Bottom Line

A10 Networks’ growth tends to track directionally with the broader networking group. Over the last decade, growth has averaged a very modest 3.8%, with a slight uptick to 4.2% over the last five years.

However, growth is picking up as demand for fast and secure networking solutions becomes mission-critical. And in recent quarters, EPS growth has outpaced revenue growth.

In 2024, A10 grew revenue by 4% to $262 million. EPS grew by 18% to $0.86.

In the first quarter of 2025 (reported on May 2), results beat expectations on both the top and bottom lines, with revenue of $66.1 million growing by 9% and adjusted EPS of $0.20 growing by 18%.

The company ended the quarter with $355.8 million in cash (a $200 million, 2.75% convertible note offering in March helped). It also paid $4.4 million in dividends and repurchased $47 million worth of shares.

Following the quarterly report, analysts raised their full-year 2025 forecasts and now expect revenue to grow by 7.5% to $281.3 million. Adjusted EPS is expected to come in at $0.84.

Risk

• Tariffs, Trade & Interest Rates: Macro factors have impacted order timing for ATEN and other networking companies. However, on the Q1 call, management said market conditions are improving and that the non-discretionary nature of its solutions means delays are more likely than cancellations. Still, clarity on the tariff picture, hopefully by mid-July, would help to remove some risk from ATEN.
• Transition to Longer Service Agreements: Service segment revenue is being held back, in part, by a move from three-year service agreements to five-year service agreements. The flip side is that there is an increase in long-term deferred revenue, which improves revenue visibility and helps with financial modeling.
• Tier 1 Lumpiness: There is some residual slowness among A10’s telecom service providers, but management says this segment is “stabilizing and returning to growth.”
• Customer Concentration: Roughly 45% of sales are generated from the 10 largest customers. These orders can be irregular at times and require long sales cycles.

Competition

NetScout (NTCT), F5 (FFIV), Radware (RDWR), Cisco (CSCO), Juniper Networks (JNPR), Fortinet (FTNT), Imperva, Akamai (AKAM), Cloudflare (NET), AWS (AMZN).

The Stock

Trading Volume: ATEN trades an average of 900,000 shares daily ($17.5 million worth). We should not move this stock.

Historical Price: ATEN came public at 15 just over a decade ago. Over the last five years, the stock’s trading pattern has been very similar to that of CSCO. Very big picture, that means ATEN had a nice run in 2020 and 2021, fell back in 2022 and bounced around for several quarters before coming back to life in mid-2024. The latest run began at about 15 last November when the Q3 2024 report kicked off a rally that carried ATEN to 21.9 by mid-February. ATEN (and other networking stocks) then sold off, and a convertible note offering in March exacerbated the downside move for ATEN. Then Liberation Day hit. ATEN bottomed in the low 14s soon after and has been working its way higher for the last three months. The stock has traded above its 200-, 50- and 25-day moving average lines since early May.

Valuation: ATEN trades with current and forward PE multiples of 23 and 20, respectively. That’s about the same as CSCO and less than JNPR (28 and 25, respectively).

Short-Term Buy Range: ATEN’s current trend suggests we should expect to buy in the 17.9 (25-DMA moving average line level) to 20 range in the next two weeks. It’s possible we’ll see a little overhead resistance at the current level of 19.4, given this is where the stock traded just prior to the convertible note offering announcement in March.

The Next Event: Q2 2025 earnings around August 5.

Current Recommendations

Glossary

Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain, and hold on to the rest until another ratings change is issued.

Disclosure: Tyler Laundon owns shares in one or more of the stocks mentioned. He will only buy shares after he has shared his recommendation with Cabot Small-Cap Confidential members and will follow his rating guidelines.

Please note that, unless otherwise credited, all images in this Issue are sourced from A10’s latest investor presentation, which can be found here.

The next Cabot Small-Cap Confidential issue is scheduled for August 7, 2025.

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