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A10 Networks Improper Revenue Recognition Securities Class Action

A 10 Logo on Building

Accounting rules set guidelines for recognizing revenues, but it seems companies are still tempted to boost figures by recognizing revenue before it’s earned. The complaint for this securities class action claims that A10 Networks, Inc. inflated its stock price by improperly recognizing revenue in its public statements, in violation of the Securities Exchange Act of 1934, leading to stock losses for investors when the truth emerged.

The class for this action is all persons and entities who acquired the publicly-traded securities of A10 between February 9, 2016 and January 30, 2018, and who were damaged at the corrective disclosures.

A10 Networks is a Secure Applications Services company that provides high-end performance application networking hardware and software that help make company data center applications and networks highly available, accelerated, and secure.

On February 9, 2016, the beginning of the class period, A10 issued a press release, announcing that the company’s fourth-quarter 2105 revenue had exceeded its guidance, with 25% growth over the same period the previous year.

The company’s subsequent Form 10-K annual report for 2015, as quoted in the complaint, gave four criteria for recognizing revenue:

  • “Persuasive evidence of an arrangement exists.”
  • “Delivery or performance has occurred.”
  • “The sales price is fixed or determinable.”
  • “Collection is reasonably assured.”

Later filings during the class period also commented on revenue recognition: “We recognize products revenue at the time of shipment, provided that all other revenue recognition criteria have been met.” Similar statements were made in other filings during the class period, along with statements to the effect that the company’s internal controls over reporting were effective.

The company’s third-quarter 2017 press release of September 28, 2017 announced that it expected revenue to exceed expectations, being between $59 million and $60 million as opposed to the $53 million to $57 million guidance.

However, according to the complaint, the company’s statements in all these matters was false or misleading. On January 16, 2018, the company announced fourth-quarter 2017 results that were below guidance.

Two weeks later, the company postponed filing of its fourth-quarter and full-year 2017 results. The press release spoke vaguely of a “mid-level employee” who had violated the company’s insider trading policy and Code of Conduct. As quoted in the complaint, it announced its Audit Committee had said that “further review and procedures relating to certain accounting and internal control matters should be undertaken.” The investigation was to be “principally focused on certain revenue recognition matters from the fourth quarter of 2015 through the fourth quarter of 2017 inclusive.”

At this announcement, the company’s stock price fell by over 12%.

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