Good afternoon, and welcome to the A10 Networks Fourth Quarter and Year 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Maria Riley with Investor Relations. Please go ahead.

Thank you all for joining us today. This call is being recorded and webcast live and may be accessed for one year via the A10 Networks website, www.a10networks.com. Members of A10's management team joining me today are, Lee Chen, Founder & CEO; Tom Constantino, CFO; and Chris White, EVP of worldwide sales. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its fourth quarter and year 2018 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 with 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, 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 in our security solutions, expected product launches and adoption of recent new product or software releases, the general growth of our business, and our ability to incrementally grow operating margin annually and timeline to achieve our target operating margin. These statements are based on current expectations and beliefs as of…

Thank you, Maria and thank you all for joining us to discuss our fourth quarter and the year 2018 results. We delivered a solid quarter and are pleased with our continued momentum in security, 5G and multi-cloud. Revenue increased 11% year-over-year to $61.8 million, and we maintained a healthy non-GAAP gross margin of 78.2%, and generated non-GAAP EPS of $0.05. We have been investing in security and believe we are building momentum in the market with our highly scalable and intelligent automation driven software-based security solutions. We believe our performance, scalability and software-based solutions position us to grow in the hyper-scale converged security, 5G and multi-cloud world. In this quarter, we delivered a strong quarter for our security solutions, which included some nice wins for our CFW and SSLi offerings. For the year, our security product revenue grew 36% year-over-year to reach 38% of product revenue as customers continue to focus on security. Our holistic approach has resonated with our customers, and we remain committed to innovating and bringing new solutions to market. In TPS, we recently released a new version of software to include dynamic pattern recognition, enhanced detection analytic engine, intrusion prevention system, and support a new 220 gig high-end appliance. A10 continues to deliver on its mission of intelligent automation to reduce costs for our customers and we believe our solution stands out among the competition. We also enhanced our analytics and management software for TPS and CFW, and introduced a new multi-cloud secure service mesh solution for applications deployed in open-source Kubernetes container environments. This solution provides teams deploying micro-services applications with an easy, automated way to integrate enterprise-grade security and load-balancing with comprehensive application visibility and analytics. We believe these new solutions demonstrate our commitment to helping customers navigate the evolving multi-cloud threat landscape efficiently…

Thank you, Lee. Fourth quarter revenue increased 11% year-over-year to $61.8 million, compared with $55.5 million in the same period last year. For the year, we generated revenue of $232.2 million, compared with $235.4 million in 2017. Fourth quarter product revenue increased 18% year-over-year to $39 million, bringing our total product revenue for the year to $144.7 million, or 62% of total revenue. Security product revenue grew 36% over last year and contributed to 38% of total product revenue in 2018. Service revenue for the year was $87.5 million, or 38% of total revenue. Moving to our revenue from a geographic standpoint, for the fourth quarter revenue from United States increased 10% year-over-year to $25.7 million, compared with $23.4 million in the same period last year. In Japan, revenue was $16.2 million, an increase of 21% year-over-year. Revenue from APAC, excluding Japan, was $9.5 million, up 25% year-over-year. In EMEA, revenue was $7.6 million, compared with a record $9.3 million last year. Revenue from LATAM in the quarter increased 57% year-over-year to $2.9 million, compared with $1.8 million last year. We are changing 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. We will now report three customer verticals Service Provider, Enterprise and Web Giant. Service provider revenue in the quarter increased 28% year-over-year to $28.1 million, or 45% of revenue. For the year, Service Provider revenue was $99.5 million, or 43% of revenue. Enterprise revenue in the quarter declined 11% year-over-year to reach $24.1 million, bringing our total Enterprise revenue to $91.1 million for the year, or 39% of revenue. Our Web Giant revenue grew 46% percent year-over-year to $9.6 million in the quarter,…

We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Mark Kelleher of D.A. Davidson. Please go ahead.

Great, thanks for taking the questions. Could you just talk a little bit about that revenue guidance for Q1 that's calling for a pretty significant sequential drop down, how much of that is just typical seasonality? Are there any other factors that cause you to be a little conservative on that quarter?

Hi, Mark, it's Tom. Thanks for the question. We typically see a seasonal decline from Q4 to Q1 and this is certainly within that range of what we would expect normal seasonality. I will call it is a modest increase from Q1 of last year. But yes, it's in the range of what we'd expect from seasonality.

Right. So at the midpoint of that revenue guidance should be able to up 4% year-over-year?

Yes, yes.

Yes. Okay. Thanks for the visibility on the breakout of revenue in the verticals. Just looking at that the – looks like the Web Giant contribution tends to be all over the place. Is there – can you tell us what type of visibility you have there? What products you're selling in there? Just some more, more around the Web Giant?

Sure. And that certainly is a reflection of the lumpiness of that portion of our customer base, as you know, I'm sure would expect Mark, that has our largest customer in that category, which can be lumpy but it just lumpy by nature of that category. And then we do typically have decent visibility quarter-to-quarter and it's a little hard to get out beyond one quarter with some of that, but we're always working on improving that.

All right. And on the balance sheet, inventory popped up a little bit sequentially, is there anything going on there?

Yes, just a little bit of buildup, its tied to the timing of some of the commitments we have to make in our supply chain, you know that should naturally come down a little bit – just a little bit unusually high right now. But that's not an indication of a continued trend that I would expect.

Okay. And the five security wins that you have – for 5G installations. What's the ramp look like behind that?

So, the Layer companies to launch Layer service in the first half of 2019. So although 5G is our win, we did shift some of the equipment, including both the hardware and software solutions to these providers and they are in the lab environment today. So they plan to launch by first half of 2019.

So a bigger ramp on that product in the back half of the year?

We believe the opportunity are large and growing. We will also be multiple years between now and 2025 based on the IHS and internal study, the market which drives you to reach the goal of 50% over the next several years.

Yes, Mark, this is Chris. Just to add a comment to that. In Q4, one of those design wins was out of EMEA. And so we expanded from just kind of Asia-Pac and Japan market into EMEA as well and we're starting to see opportunities in the pipeline in North America as well. But as we have stated it's while we're going to see growth this year in that market. We're going to see accelerated growth as we get into 2020 and through 2025.

And also the – we are engaging with many service provider around the globe. So we expect to have multi-cloud this year.

And, Mark, just to clarify, when we have a design win, those are productive within themselves in terms of having a live order in revenue, meaningful revenue and each one of those lays the foundation for add-on business that will grow. So that's just the first step and actually expansion that we would expect to play out over the horizon that we mentioned.

Okay, great. That's all I got. Thanks.

[Operator Instructions] The next question will come from Zack Turcotte of Dougherty. Please go ahead.

Hey guys, thanks. Zack Turcotte for Catharine Trebnick. First, just one on OpEx, do you expect any sort of near-term rent and OpEx maybe related to the build-out for 5G or I saw your long-term operating margin guide 20% in three, five years is pretty aggressive. I would be expecting more OpEx in near-term or just continually getting more efficient?

Hey Zack, yes, we are actually focused on reducing OpEx this year. So we will not see a ramp up. Now, you might see quarter-to-quarter, some fluctuations and how that plays out, but for the year, we do expect OpEx to come down as we are getting more productive in sales and the sales productivity metrics that were called out by Lee on the call are representation of that. We had a trajectory there that we think is going to help us reduce our, our OpEx in 2019, and if you look out into Q1, we expect we'll see just a little bit better efficiency and we think that'll play out continued throughout the year for us.

Okay. And then...

We have invest more in our strategic areas such as 5G security and multi-cloud. But overall, you look at the OpEx. We do not expect overall increase due to the investment in security call in 5G.

Okay. As I wondered too on 5G as well. First, who are your primary competitors you are seeing for the 5G design wins? What are your win rates like for that?

In the 5G design win, we had is your typical suspect – when you find the security company. For the net – Juniper and in one case F5 and typically you will go through a POC. I would say in the first five cases, I think we won very easily due to our scale performance and ability in our AI analytics.

And Zack, this is Chris. Just to add to that to your win rate question. As we've shared in the past, we've got very strong win rates holistically, but I would say they're even accelerated and higher in the 5G space because I believe we are ahead of the curve on that and improve that out through the POCs as Lee mentioned.

Right. It definitely seems to us, you were ahead of the curve in developing scalable 5G solution with integrated analytics and everything. So, do you feel that in the next 12 months, 24 months, 36 months competition will kind of ramp up as your competitors continue to build out their solutions in the future sets?

In technology you always have to continue to innovate yourself, but we are comfortable with the position we are in, due to the investment in our – just one yesterday, we have been investing analytics for the past five years, and we are very strong with our – the carriers Firewall carrier security will continue to invest in the areas. We also have a close to 250 service provider globally deploy on the hyperscale in career grade net solutions. So, we feel pretty good about it. Also the off solutions is differentiating in many ways. If you look at the 5G solution, one of the things the carriers and us, expect, anticipate, there will be a surge in the DDoS attack due to IoT, and we are one of the few vendor has really strong offering in DDoS protection. So, also reaching is really differentiated and I feel good about our position. Of course, we need to continue to innovate.

All right. Great, thanks.

And this concludes today's question-and-answer session. I would now 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 your lines. Have a great day.