Good afternoon and welcome to the A10 Networks Second Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Maria Riley, Investor Relations for A10 Networks. Please go ahead.

Thank you all for joining us today. This call is being recorded and webcast live and maybe 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 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 second 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. 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 in 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 today, July…

Thank you, Maria, and thank you all for joining us today. Before we begin, I would first like to address the news of my planned retirement, which we announced today. I am very excited about A10’s future, the innovations we have brought to market and our position in security, 5G and multi-cloud. Additionally, while our subscription revenue remains small, it is a rapidly growing part of A10’s business. Subscription was 8% of product revenue for Q2, and on a year-over-year basis, it grew over 80%. This brings us to nearly $100 million in annualized run rate of recurring maintenance and subscription revenue. This revenue is high margin, creates customer loyalty and affords improved visibility not present in hardware product sales. We continue to see early success in 5G as we secured follow-on 5G orders during the quarter. Additionally, we are pleased with the level of engagement we see with several service providers across the globe as they prepare and ready their networks for 5G. However, I have decided that now is the appropriate time for me to transition the company to a new leader. I have reached agreement with the Board that I will resign from my role as CEO of A10 once a newly appointed CEO begins. The Board has formed a search committee for my replacement and I will work closely with the team to help ensure a smooth transition. The search has been focused on a strong leader who will bring a different perspective and industry expertise. I would also like to take a moment to welcome Eric Singer of Viex Capital Advisors to A10’s Board of Directors. Eric is one of our largest shareholders and we have had an ongoing constructive dialogue with him for more than a year. He brings deep strategic insight to the…

Thank you, Lee. In looking at the dynamics within the quarter, demand from our largest installed base in North America slowed as large deals were pushed into future quarters or downsized, which impacted our Q2 revenue performance. These deals were primarily in our service provider and web giant verticals, where deals can be large and can fluctuate from quarter-to-quarter. I would like to emphasize that our win rate remained high and the majority of these opportunities remain in our pipeline. We are pleased with our international performance this quarter, where we delivered double-digit quarter-over-quarter growth in product bookings. On a year-over-year basis, we delivered strong double-digit product revenue growth in Japan, EMEA and Latin America. We also saw strong triple-digit year-over-year product revenue growth in South Korea driven by our installed base of 5G wins. Moving to our go-to-market. As we discussed at the start of the year, we implemented several changes designed to incentivize the sales team to drive new product sales with both new and existing accounts, as well as launched two important go-to-market changes in North America. This included a new partnership with Arrow Electronics and the move to a two-tier channel structure. We are also working with a third party to help us expand our lead-gen efforts in North America, which went into effect in Q1. While we believe these programs are the right course to help drive sales, they take time to ramp. We continue to expect to see the benefit of these new relationships as we progress throughout the year. Additionally, as Lee mentioned, we expect to extend our leverage with the new go-to-market engagements that we entered into with Dell EMC and Oracle Cloud. Our new partnership with Dell is in the form of a global reseller agreement to become an extended global…

Thank you, Chris. Second quarter revenue was $49.2 million, a 19% decrease when compared with $60.7 million in the same period last year, driven by a decline in bookings from our largest web giant account in North America. Second quarter product revenue was $26.8 million representing 54% of total revenue. Service revenue was $22.4 million, or 46% of total revenue. Security product revenue grew 8% over last year to reach 34% of total product revenue in Q2. Moving to our revenue from a geographic standpoint, for the second quarter revenue from North America decreased 50% year-over-year to $15.3 million, compared with $30.4 million in the same period last year. In Japan, revenue was $14.9 million, up 26% year-over-year. Revenue from APAC, excluding Japan, was $9.2 million, compared with a record $10.7 million in Q2 of last year. In EMEA, revenue was $6.6 million, an increase of 21% when compared with $5.4 million last year. Revenue from LATAM continued to grow and came in at $3.2 million, compared with $2.3 million dollars last year. Service provider revenue in the quarter was 39% of total revenue, enterprise revenue was 45% and web giant revenue was 16%. As we move beyond revenue, all further metrics discussed on this call are on a non-GAAP basis, unless stated otherwise. We delivered second quarter total gross margin of 78%, an increase of 175 basis points from last quarter and a decrease of 57 basis points from Q2 of last year. Second quarter product gross margin was 74.4%, compared with 73.5% last quarter and 76.9% in Q2 of 2018. Our product gross margin was negatively impacted by geographic mix in the quarter. Services gross margin in the quarter came in at 82.4%, compared to 79.9% last quarter and 81.8% in Q2 of 2018. We ended the quarter…

Our first question comes from Greg Bogdanski with Dougherty & Company. Please go ahead.

So how is the new distribution now working out? Last quarter you announced Arrow added nine new partners. This quarter, how many were added and what time do you expect the new partnerships will incrementally add to top on revenue?

This is Chris responding. So the overall partnership with Arrow is turning well but slowly. There is a traditional ramp that’s required as we transition to the solution and we saw a handful of additional new partners in Q2, and we expect that to trend more positively in the second half of the year.

What is the EMC Dell partnership? Could you kind of talk more about that? And then what products and platform are part of this partnership? And then what markets are being targeted, enterprise or any specific verticals or regions?

So as part of the overall Dell technology -- Dell EMC technology partnership program, and with that our entire portfolio is included in the agreement and the primary focus is going to be on the enterprise market. But you will see some crossover into additional verticals like federal, healthcare, government that you see in the traditional Dell go-to-market selling motion that they have. And again, we did close our first transaction in the quarter but it will also scale over time. Additionally, we are working with them from a -- joining in an engineering effort from an OEM perspective as well.

So I want to add one thing, this is Lee. So it’s A10’s virtual solution running on Dell’s appliances, all appliances.

Yes, the partner from an OEM perspective, and then we have the traditional resale agreement with them as well from kind of traditional transactional model as well.

And then lastly, can you just provide more color about the customer pipeline? What types of opportunities are there, carrier, enterprise, DDoS, SSL or 5G?

Yes, so the overall pipeline, we're seeing an improvement in Q3 and especially strength in Q4. If you look at it from a global perspective, you see that as well, not just from a North America perspective. And then we're seeing a special -- specially seeing strengthen our 5G platform, especially internationally. I think the U.S. carriers, while they are leading from a bigger market perspective, from a deployment standpoint, we're seeing greater deployments and use cases being constructed in Asia, and Europe and the Middle East. And we continue to see strength there, as well we've got a very strong security pipeline in the second half.

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 all 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.