Good day and welcome to the A10 Networks First Quarter 2019 Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would like to now turn the conference over to Maria Riley with Investor Relations. Please go ahead.

Thank you, Alyssa and thank you all for joining us today. This call is being recorded and webcast live and may be accessed for 1 year via the A10 Networks' website, www.a10networks.com. Members of A10's management team joining me today are Lee Chen, Founder and CEO; Chris White, EVP of Worldwide Sales; and Tom Constantino; CFO. Before we begin, I would like to remind you that shortly after the market close today, A10 Networks issued a press release announcing its first quarter 2019 financial results. Additionally, A10 published a presentation along with its prepared comments for this call and supplemental trended financial statements. You may access the press release, presentation, and prepared comments. And trended financial statements on the Investor Relations section of the company's website, www.a10networks.com. During the course of today's call, management will make forward-looking statements, including statements regarding our projections for our future operating results, the capabilities of our sales team, our expectations regarding future opportunities, and our ability to execute on those opportunities, our commitment to innovation and bringing new solutions to market, our expectations for future revenue and market growth, the development and performance of our products, our current and future strategies, our beliefs relating to our competitive advantages, our expectations with respect to the 5G market, responses to new security threats, our partnerships with key technology providers and sales partnerships, our ability to penetrate certain markets, anticipated customer benefits from use of our products, the refining of our marketing engine, improvements in productivity, our priorities relating to 5G growth and our security solutions, expected product launches and adoption of recent new products or software releases, and general growth of our business and our ability to incrementally grow operating margin annually and timeline to achieve our target operating margins. These statements are based on current…

Thank you, Maria and thank you all for joining us today. We have decided to change the format of our call to include Chris White, our EVP of worldwide sales. I will provide a few comments on the quarter, our progress on the major initiatives and product innovations. Chris will then discuss our markets, customer wins, and go-to-market transformation, and Tom will provide the details of our financial performance and outlook for Q2. We hope you find our new approach informative. Moving to our results. In the first quarter, we continued to make progress on our initiatives in security, 5G, and multi-cloud. We delivered revenue of $50.3 million, non-GAAP gross margin of 76.3% and delivered a non-GAAP loss per share of $0.09. Q1 is traditionally a seasonal quarter for us and while our year-over-year revenue growth was modest, there are several points I would like to highlight that we believe demonstrate our growing momentum in security, 5G, and multi-cloud. First, we continue to see strength in security with both new and existing customers. Security product revenue grew 22% year-over-year to 34% of product revenue, led by our Thunder CFW solution that integrates carrier firewall, data center firewall, secure web gateway, IPSec site-to-site VPN, integrated DDoS protection, SSL visibility, application visibility, and traffic steering capabilities. We have been investing in security and believe we are building momentum and recognition in the market with our highly scalable and intelligent automated software-based security solutions. In Q1, this included winning 2 Cyber defense Magazine Infosec awards for our 5G security and DDOS protection solutions. Additionally, A10 was top-ranked in terms of market share for SSL visibility in Japan by ITR Corporation, which is the largest Japanese-based IT research and advisory firm. Second, is 5G, which we believe is an exciting market opportunity for our…

Great. Thank you, Lee. In looking at the dynamics within the quarter, the demand environment remained consistent, however it was more back-end oriented than expected. Our win rate remained high and we had ongoing strength within service provider and enterprise customers. Our continued success with these customers is based on growing demand for our security, 5G, and multi-cloud solutions. Business with our Web Giant customers tend to be large and can fluctuate from quarter to quarter. We saw the downside of that dynamic play out in Q1 and expect it to continue to be a headwind in Q2 given the tough year-over-year compare where we had a cloud customer contribute 20% of revenue in Q2 of 2018. From a geographic standpoint, we were pleased with our performance in our Asia Pacific theatre that excludes Japan, where we delivered double-digit year-over-year growth for the fourth consecutive quarter, and Latin America, where we delivered triple-digit growth. Korea was also strong during the quarter. As Lee mentioned, 5G is quickly gaining momentum in Korea and we believe we have an early foothold on this market with design wins with 3 of the largest providers in the country. Approximately 85,000 5G base stations have been deployed in South Korea alone, and the region is fast becoming the pioneer in 5G use cases and commercial deployments. We believe our stronghold in the service provider segment and the high-performance and scalability of our solutions positions us extremely well to meet the evolving security and performance needs of our 5G customers. Moving to our go-to-market. In the quarter, we continued to execute on our transformation plan and make progress. As we discussed previously, at the start of the year, we implemented several changes designed to incentivize the sales team to drive new product sales with both new…

Thank you Chris. First quarter revenue increased 2% year-over-year to $50.3 million, compared with $49.2 million in the same period last year. Deferred revenue was up 1% year-over-year, to reach $98.6 million. First quarter product revenue was $28.2 million representing 56% of total revenue. Service revenue was $22.1 million, or 44% of total revenue. Security product revenue grew 22% over last year to reach 34% of total product revenue in Q1. Moving to our revenue from a geographic standpoint, for the first quarter revenue from United States decreased 12% year-over-year to $18.1 million, compared with $20.7 million in the same period last year. In Japan, revenue was $13.2 million, up modestly at 1% year-over-year. Revenue from APAC, excluding Japan, was $8.8 million, up 18% year-over-year. In EMEA, revenue was $7.2 million, an increase of 11% when compared with $6.5 million last year. Revenue from LATAM in the quarter more than doubled year-over-year to $3 million, compared with $1.5 million last year. As a reminder, last quarter we changed the way we disclose our revenue by customer vertical in order to provide more transparency into our exposure to Web Giant and Cloud customer revenue, which was previously primarily accounted for in Enterprise revenue. Service provider revenue in the quarter increased 13% year-over-year to $23.8 million. Enterprise revenue in the quarter increased 7% year-over-year to reach $22.9 million. Our Web Giant revenue decreased 47% year-over-year to $3.7 million in the quarter. As we move beyond revenue, all further metrics discussed on this call are on a non-GAAP basis, unless stated otherwise. We delivered first quarter total gross margin of 76.3%, a decrease of 190 basis points from last quarter and 140 basis points from Q1 of last year. First quarter product gross margin was 73.5%, compared with 76.8% last quarter and 75.2%…

[Operator Instructions]. Our first question today comes from Mark Kelleher of D.A. Davidson.

Just wanted to start with the cloud Web Giants, the cloud and the Web Giants. You've indicated that you're seeing some weakness there, it's lumpy. What drives the demand from the Web Giants and how much visibility do you have there?

Chris, you want to address this?

Sure. Hi, Mark. This is Chris. Yes, I mean we, from a predictability standpoint, we do work very closely with our install base of Web Giant accounts. But a lot of it is based on their utilization rates, which aren't always predictable or readily available. And as you look at it, we certainly did have some weakness of some members, as we called out, on Web Giants in Q1. But as you look at them on an annual basis, we believe that we're well positioned for 2019 with the Web Giants.

And on the 5G ramp, you've got some great wins there. When does that begin to be a meaningful part of revenue? Does that really just start to roll out the back half of this year and then bigger next year? What should we expect there from 5G?

Our expectation is in the second half of 2020. A meaningful revenue.

A meaningful revenue. Okay. How much is the VAR ramp going to help you? Can you talk a little bit more about the VAR ramp and how that should impact revenue and margins?

Yes, absolutely. So we -- as I called out in the script that we obviously, in North America, brought on Arrow in the first quarter and it was certainly a ramp quarter, right, an enablement quarter for them. So we have dedicated resources through Arrow and expect through the recruitment strategy and through the additional resources we have focused on it, we would expect to see some level of increase in the second half of the year, right. And I would really look to 2020 to see that scale but we should see some impact within 2020 or 2019 in the second half. And then the other area that it will help us with is around our security growth because we're really focused with them on bringing on new security partners, which you saw we had a handful of those in the Q1 of 2019.

Okay. And last question from me. Just the competitive environment. One of your competitors made an acquisition recently, Open Source and Genex [ph]. Has that changed the competitive dynamic? What do you think of that?

Mark, this is Chris again. From my perspective, I think that that acquisition is interesting from a story perspective and I would say that from an A10 perspective, it doesn't really change the competitive landscape because we're already having a number of conversations with customers around Open Source. And with the tools that we bring to the table in that area, we think we can continue to differentiate ourselves there. And generically speaking, not specific to that competitor, but generically speaking, as you look at acquisitions, my experience is those take, you know, many quarters to come together. So if it's going to have an impact, I think it's longer-term than short-term.

[Operator Instructions]. Our next question comes from Catharine Trebnick with Dougherty.

So could you pretty much peel from the 3 segments what your growth looked like without your largest customer during the quarter?

Sure. Hi, Catharine.

Hi, Tom. How are you?

Good. How are you? Thanks for the question. If you take out our top account, it's about 6% growth year-over-year. Okay. And then also back to the Web Giants. It seems to me, as I recall covering you guys since almost you went public is that they tend to buy -- have a larger order and then they buy off that order for a couple of quarters and then you don't see another order. I mean is that still the case? And then how many large Web Giants do you count as customers?

Catherine, this is Chris. So we do tend to see a cyclical buying pattern from them, and with your history, your accurate in kind of the ebb and flow of that. With that said, we are working more closely with them as part of our sales transformation, and there's a follow-on to Mark's question, to get tighter with them to add predictability to that. But we're still working through that with that particular Web Giant. And we will, you know, we do expect to see, as I said, some uptick in the Q2 and beyond I would say, in the remainder of the year, with the Web Giants. And then we are -- as you look at our overall pipeline, we have a number of new opportunities in play for 2019 that would enhance I'll call it our portfolio of Web Giants as well.

And then -- I'm sorry, I've got a lot of questions. The other follow-on question is really around 5G, Chris. So now, you have a total of 7 5G wins?

Yes, six are Tier 1 mobile operators. One is--

Yes, okay. Six Tier 1. It sounds like a couple in Japan, several in Korea, and maybe one in Europe or Middle East.

Yes.

Okay. So is that Europe or Middle East, Lee?

Yes, it's two in Japan, three in Korea, one in Middle East. They all are Tier 1 mobile operators.

Okay. And then the other question is how -- Verizon and AT&T seem to be talking quite a bit lately about 5G and rolling this out to different cities. Can you guys just briefly explain why -- have they really supplanted -- what I think about 5G is you have to do the infrastructure and then you offer the service. I mean explain to me what part of 5G are they rolling out and then are you working through Ericsson to be a part of Verizon or AT&T, or the Tier 1s in North America?

Okay. So first to address the -- if you look at 5G today globally, it's early phase with roll out of the 5G spectrum. This is different than different 5G band on the 4G infrastructures. So 4G infrastructure, that's where we play well in today's market. You can consolidate more articles 4G infrastructure [indiscernible] solution, later can be upgraded to 5G through the software upgrade.

Got it.

So that's on the current deployment and those are the evolving 5G roadmap today is really something they call the LSA. It's not a standard long purified G deployment. 5G spectrum on a 4G infrastructure. That's what today, it will be for the next several years.

Okay. Thank you.

In terms of AT&T and Ericsson, I can't give you specific comment, but we are working very closely with Ericsson and some other partners. And today, we have - in addition to the seven wins we had, we are engaging 12 POC and trials globally, including some of the really big ones.

Okay. So would you say then the Ericsson ICQ RSA, it sounds like you have Nokia also as a partnership and then you announced you had NEC as a partnership. So would you say that the Ericsson partnership has helped drive some of these new wins and that's a very important partnership for going forward?

I think all partnerships are important, especially Ericsson. It allows us to access some of the key mobile operators, which we did not have access before. In the [indiscernible] we have strong hold with the mobile operator across the world already.

This concludes our question and answer session. I would like to turn the conference back over to Lee Chen for any closing remarks.

Thank you and all of our shareholders for joining us today and for your support. Thank you and good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.