Q2 2020 Radware Ltd Earnings Call
I'll now turn the call overturned host Mr. Selborne. Please go ahead with your call ma'am.
Thank you Jay good morning, everyone and welcome to ride, whereas the second quarter 2020 earnings conference call joining.
Joining me today I read this about president and Chief Executive Officer, and the Ranibizumab <unk> Chief Financial Officer.
A copy of today's press release and financial statement as well as being best tickets for the second quarter are available in the Investor Relations section of our website.
During today's call, we may make projections or other forward looking statements regarding future events or the future financial performance of the company.
These forward looking statements are subject to various risks uncertainties and actual results could differ materially from redwoods current forecast and that's to me.
Factors that could cause or contribute to such differences include but they're not limited to insights from the called mid Ninetys pandemic general business conditions and their ability to address changes in our industry changes in demand for products designing the amount of orders and other risks detailed from time to time.
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We refer you to the documents the company files or furnishes from time to time with the FCC.
Specifically the company's last annual report on form 20-F as filed on April 2nd or anything.
We undertake no commitment to revise or update any forward looking statements in order to reflect events or circumstances. After the date of such statement is me.
Please note that in August and September management will participate in the following virtual conference in the open I went technology Internet and Communications conference.
The Jefferies semiconductors, I.D. hardware in communications infrastructure, So I mean, the colliers institutional Investor Conference The Jefferies Software conference and the though you back because only be conference.
With that I was going to call to racism.
Thank you all know.
We're pleased to deliver solid results for the second quarter.
I'd be unusual circumstances, we find ourselves.
Well do enjoy strong business fundamentals and this provides us with resilience during these times.
Global strategy, the advanced phase of our transition to subscriptions.
Strong customer base, mainly centered on large enterprises, and our cash generating business small do all key advantages that position us well at the start.
And at the heart of all these advantages we have old road deep and leading attack mitigation solution. This is custom next critical security requirements.
It's very dynamic and challenging side with that environment.
We were extremely pleased we've done resorts in North America.
<unk> booking in North America was the main driver Buffalo second quarter book to be ratio being above one.
And included multiple seven figure deals.
These large deals were for the most spark milk recognized in the second quarter revenues and the result of deems. It goes back looks a lot with as we entered the sold go through and second half will do you.
The hopeful barbies nephews reflected in our unusually cold and revenues, which both did close to 10 person goes could go to June 2019, even by extreme cloud and subscription results.
We attribute much of the excellent performance in North America to the success will be initiative, we discussed with you in all CIBIL Investor meeting.
Our focus on the sales organization structure and scope.
Excellent excellent and full engagement in our growth initiative.
Maturing in the yielding results and we expect them to continue to do so in the coming quarters.
Moreover, we implemented successfully Cobiz 19 go to market can be.
Reaching out to our existing customers both news.
In addressing the carbon needs in a timely and resource one man.
For example.
Our leading mobile U.S. give you expanded its network to support on the meter data plans. They offer these customers in order to enable the shift to work from home and other connectivity needs.
These network expansion required the corresponding expansion of the attack mitigation capacity across their network.
Another example is an equal mostly due to we proactively reached out to be Skus security.
Remote axis VPN and video conferencing.
Following before outreach they selected the I'll do a cloud deals with action to protect the corporate services.
In Asia Pacific, we saw a weaker demand and we believe these markets caliente face major disruption due to cope with 19 and lack of civil best missiles demand that we seem to you it.
Regarding our OEM business.
Oh, we're both due diligence very good results in dental school too.
Cisco booking continues to be strong and our joint pipeline continues to increase.
Checkpoint go spend is gaining further momentum in fact second the second quarter was the vicals watering booking through checkpoint.
Oh, So did you Paul Newsome implemented in introducing due to new doped deal not logo.
Well deeper relationships in the second call do we added companies such as the global booked in oil and gas company.
Dope, three food and beverage company.
And add on older sensibility, one sobi split by those among others.
Oh different should cloud offering the neighbors acquisition of new customers through competitive displacement.
The food and beverage company I just mentioned these an excellent examples.
They don't do as well as the result of being under very persistent.
Next using an attack vector nicknamed DNS Walter torture.
It is difficult to detect and mitigate be specific victoza and indeed, the why they're right or multiple layers of the the school Dixon and other security solutions discuss them. It was using globally fail to mitigate the attacks which lasted over a couple of weeks.
The other defensepro is capable of addressing such a duck role unique algorithms and this will result, or cloud detail service is unique and its ability to put that goes to move from these units a buck in other sophisticated threats.
To conclude well, there's obviously significant level of uncertainty going forward.
Taking a longer term perspective, we feel very confident in order business.
We believe or cloud services and software subscriptions are set to grow rapidly.
On the strength of our leading data center in application security stuck.
Together with continued strong performance in North America progress with our OEM, both nodes and continued strong customization, we are well positioned for future success.
Well no two in the quote cool.
Thank you Laurie.
You know last earnings call Wheelabrator foreign operational activities in the face on the continent didn't extraordinary conditions and we were hurt hopefully it won't be a one off commentary. Unfortunately this was not the case and the unusual conditions did prevail I will briefly address the currency.
Duration.
I'm pleased to state that the organization remains resilient and productive and often are committed to maintain high engagement and top notch service.
For me to me most of our headquarters telephone then resumed working from the offers whereas most of our broken that across the regions continue to work from home.
Customer service remains unaffected.
And equipment deliveries were also generally on disruptive.
We did I wouldn't turn to the result of the second quarter.
Revenues for the second quarter were 58.4 million go down 3% below Q2, 19 and in line with our garden.
Revenues from Americas decreased 1% from last year to $27.5 million.
Let me remind you did the reason element of revenue recognition timing. So our geography revenues do not fully reflected our underlying business trends that are really just described.
Revenues in the EMEA region.
5% from Q2 last year than for $17.7 million and revenues from Asia Pacific It decreased 17% from last you do a $13.3 million.
Recurring revenues as a percentage of total revenues continued to rise in the first off to 68% as compared to 64% in the first off of 2019 afflicting roles. You know subscription revenues, an increasing proportion of our total subscription revenues out of that book.
Revenues.
For the second quarter, it will do specifically high reaching 71% for the first time compared to 68% for the second quarter of 2000 and I can.
That's opened deferred revenue balance was approximately $173 million as of the end of June.
The total buttons, 62% or approximately $108 million or do you for cognition in the next 12 months.
The total deferred revenue was experienced only a modest increase you wouldn't you mostly because of deals that were not yet invoice and therefore are not both of these buttons and reside you know backlog.
With record level of book of business, We expect sold at the gross football Bowl deferred revenues for the September quarter.
I will now discuss expenses and profit all in on the gift items.
The differences between the GAAP and non gift with dogs for the quarter or did you not press release.
Gross margin for the first quarter was 82.8 within reflecting product mix in higher proportion of subscriptions.
Operating expenses in Q2, where the lower end before Guy does it $44.1 million up from $43.1 million in Q2 last year.
The increase is the result of higher headcount expenses offset predominantly by loads Robert expenses.
We ended the quarter with 1121 employees I by 63 employees compared to June last year.
We continue to invest in the business for the long term, but theyre very mindful of course component.
Operating profit and margin in Q2, 2020 were $4.3 million and 77.3% respectively.
Net income for the second quarter was $6 million or 15 cents below dilute the true in line with all guidance.
Turning to the balance sheet them, coastguard, and where we continue to demonstrate the strength and stability.
Net cash provided by operating activities was $18 million for the second quarter and $39 million for the first off of the you up 36% from the first off of 2019.
Our free cash flow was 15.4 million going out for the second quarter and $34 million for the first off for the first off up 40% compared to 2000 and I didn't first off.
Last one month free cash flows was $54.3 million.
We ended the quarter was approximately $443 million in cash and financial investments most of Parker she's invested in highly liquid U.S. dollar marketable securities and deposit.
As for use of competition.
During the second quarter, we spend $5 million on repurchasing approximately 210000, a phone shows.
The remaining available capital of spoke approaches.
Good day or two outstanding plans is approximately 52 museum.
The weighted average number of all outstanding shares for the quarter wasn't books unlucky 47.6 million dawn by almost 1 million from the ever it shows for the full you have 2019.
Oh, we moved our guidance for the third quarter of 2020.
We balance our high conviction in the market opportunities, especially in the U.S. and we've got strategic partners. We all believe did the global economies fragile and a high level of uncertainty.
We expect revenues to be between 60, and 64 million though.
We continue to tightly morning to of course in order to lever profitability, while ensuring we still have older required resources to seize the market opportunities when the economic environments is more supportive.
Operating expenses are therefore expected to be between 44 and $45 million.
We expect financial income to decline in the coming quarters, given lower yield on newer marketable securities.
We expect CBS for Q3 to be between 16 and 18 cents.
I'll now open the call for acuity.
[noise]. Thank you.
Thank you so much we have a question from Alex Henderson with Needham.
Great. Thank you very much I.
Oh, just hoping you can talk a little bit about.
Linearity during the quarter when I look at <unk>.
Adjusted the deferred.
Calculus.
It looks like.
The overall deferred was up quite nicely, but the adjustment.
Was not.
Consistent with prior periods it.
Looks like.
Billings came in.
Fairly late in the quarter and therefore, I think that goes into your comment about backlog, how how big enough.
[music].
How how much of the linearity was very heavily backend weighted and therefore not into the not able to be built.
Yeah.
So.
I think twofold first I think we started the quarter pretty good and that to be I think you'll see the resulting I was just generation.
For the quarter. So some of the deals of April we were actually able to collect and then you'll writing the since the some of the load to deals came in at the end of the cool do but some of them old so complicated from a delivery pulling to view. So for example, a global cloud deals do you need to set up.
The centers.
And so on two started going be a difficult deletion et cetera, So I wouldn't look.
I think over the medium duty was pretty good. The first month was actually a C. Caio, then and unusual for us and it was not a.
Backend loaded too much except for some specific deals the went to the backlog you're right.
Similarly, Cisco.
<unk> being strong in checkpoint momentum accelerating.
That go into [noise].
You're a deferred at all or is that.
When it gets recognized try them and passed over to you at almost a one to one recognition to timing.
So it depends if the deal includes a for example, the board, though cloud components it wouldn't be defer those fill in our it.
Oh I see.
One last question, then I'll cede the floor.
Can you talk little bit about your exposure to verticals that are.
At risk.
Particularly at risk and particularly in.
In the government state and local.
Federal type.
End markets. Please thanks.
So you know Fortunately no maybe unfortunately, not two times, where no doubt exposed to the government Jersey goes and specifically exposure to the U.S. said they've all these many months.
And other markets like drugs and lines of speech pathology again, very little exposure. Our main main customers in the enterprise markets on coming from the.
Financial six old technology, six those to some extent manufacturing and of course, we have the carriers cloud providers and stuff providers and on the service providers.
Great. Thank you very much.
Thank you.
Another question from Shelly Olson Oppenheimer.
[noise]. Thank you good afternoon, ladies and gentle now hopefully well.
Congrats on the stable second quarter performance.
Absolutely can you talk to us about some of the trends you're seeing put in that Bob Labick mature we know there's definitely some good acceleration taking place Alistair wants to hear how it's impacting your business and just your older won't means and I had to pull up for Toronto.
Well so.
No. We've entered the both management to use a go away when acquisition and we're very happy with the results. We all believe building the both management solution, both as a standalone cloud solution as well as integrated and with our way below the cloud web application security.
Hey service the the beauty of the bulk management is that these soldiers a business problem.
And.
He does actually you can directly attach that to live in new well for companies the window rates, a opening accounts and then stealing formation or whether it's a attacking and then totally of a.
And well for certain company, whether we'd say.
[laughter] come takeovers all of that is directing back all the revenues Alvaro customers in a in a very good example, you know I have is from a new customer we just the sign and on boarded the left school until they are classified one of the largest classified sites in Europe and.
What they've seen is that it any add that comes into their sites within five to 10 minutes appeared endo competitors like.
To the point that the the CTO own apartment add that the butadiene. After five minutes was appealing in the competition side.
Due to show you what Oh.
Well.
Baltic DVT and how sophisticated it is and then our ability to remove and bloke all those boats and and the test is very easy you will just checking.
No, enabling us checking the competitive Sykes disabling us taking that the that's its appeal again.
And so on this unique the strong business value proposition and you know makes the the did the purchase well for both service almost straight forward in what we see recently that customers are ready to invest.
In both management solutions as much it's no more than they are ready to invest in the web application security itself. So it's definitely a very good market, we're growing very nicely do but over the contribution to the growth in our cloud services ending subscription and it's very very complete.
An entry door complete stuck well see and application security capabilities.
Understood understood. Thank you for that or for that elaborated answer and one for drawn in light of your third quarter guidance. A single source, we think about the second half of that she has the remainder of 2020.
What's the current hiring plan.
And and how do you know how do you feel about you know, bringing in a the right talent given what could be changing hiring environment.
Yes, so I will.
They can do find those who bought for beaten the that <unk> and some.
One other comment on Ohio plants, we mentioned at the beginning of the you did we are we plant with their roughly.
1000, now 150 employees they all over right now in the first half we are in nine we use these plans father, the third quarter. It said.
Hi plans to continue to be ready for the it when the economic environment will be we'd be better to continue. We this is Glenn so from Opex point of view are in line with this one as I said often bites Robin So we're on our Opex already in a way.
In line with emissions Lynn.
So on the business probably the one mentioned we continued with our plans.
Mm three corona in terms of hiring specifically, we are increasing resources in the field as we showed in February and given the results in North America.
Even I look anything more headcount and like the acquisitions, there and we're trying to take advantage of the period to haul. Your good talent is the as it becomes maybe a bit more available in these times. So we continue with our plans very big focus on the field and specifically north for men.
Good.
That's it thank you good luck.
Okay.
Thank you we have a question from George Notter with Jefferies.
Hi, guys. Thanks, very much on I guess I wanted to ask about yeah. The difference in growth rates, you're seeing in a ATAC relative to certainly North America.
I mean are certainly cobot is a global phenomenon can you talk about.
What you're seeing an attack in why the types of growth rates, you're putting that far worse or different wants to do their parts of the world.
So.
So we think in Asia Pac the most we've seen in the markets because we'll see the I would say the.
<unk>.
That's the those governments if they can locally I seem to Keith on the local economies, where they was much harder than what we've seen in North America at least to date.
So you need to isolation going back second wave third wave and practically shut down a lot of the business activity and we've seen the ongoing delays and those in those countries. In addition, I seem to internationally the government's where listing rules the name funding.
The business community, then and then happened in the U.S., maybe and as a result, we seem to business six or local physicians. It might be also that some of it the live by the way related to our own than it was accused sitting on as always says, it's a and b cell to feel at this point, we're tracking holdings loads.
As well as.
I do have endorsing the in the industry and so far what we've learned sees the.
No the weakness, we're seeing or the softness in demand were seeing these ah looks like a markets and not the specifics about little phenomena.
Got it Okay, and then I also wanted to ask about.
You know sort of the work from home situation. If I go back to for example last quarter. When you talked about I'm, having some business. It was pulled forward because of the work from home traffic I think you mentioned, a particular project or deal.
On your monologue earlier, and then also I think you know last quarter. You also had push outs are related to the airport shutdowns and things, but can you talk about sort of the puts and takes a co. They didn't have it impacted your business this quarter.
Yes, so I think first and.
We feel some impact on a geographic levels. We you know we just discussed the Asia Pacific. That's one second we didn't see as much D.A.
The immediate buildout of infrastructure needs like we've seen in Q1, let me things have moved axis build out or scale and I need immediately and to scale everything I had that that has lessened.
And what we did see is that people are starting to treat the remote access and VPN is a much more strategic asset than before so you. For example, I mentioned these equal mostly the obviously they were focusing on protecting the production platforms all the time.
And well remote access was important to secure it was not as much grid is critical as it is now so no we're seeing almost the second when it's not the infrastructure build those as much as this is a significant increase it glasses that I have to secure very well and we're starting to see project.
And initiated.
Disease will fulfill ability of the.
Yeah.
Enabling work from home and protecting these things like too. So that's what we're starting to see.
And you know project that stalled in Q1, I must tell you I don't know anyone of these that the was relief or more tied to those segments does though that's might be problematic into good the with all both is what we've done we've shifted a lot of the marketing campaigns.
The messaging into securing.
This work from home environment and approaching the existing customers first.
Hours and all both nose to address these needs.
Great. Thank you very much.
Thank you we have a question from Andrew King with Colliers.
Hi, Thanks for taking my question so I.
Yeah, again, a little bit into the mix of new versus expanded sales and how that's been trending over the last few quarters, given the Tobin 19 and.
No.
So I think we are in a very unique situation in general Cobiz 19, they'll do you need to focus on your existing customers, it's hard to get into it used to a new customers starting the engagement building that that's when the if we want he's keeping social distancing.
However, the what we're doing beyond approaching our existing customers and focusing on that.
The fact that we have so large OEM partners with so many customers need to us the dairy existing customers are actually new logos to us and if you've seen my rebuild me remarks, I mentioned that even during cold 19, and environment, we are able to land.
Extremely large companies you know fortune 100, Fortune 50, and so on by leveraging our OEM partners and then being incumbent in those customers. So we didn't see a big change we have some dropping the in Q2, we knew it you know revenues from new customers.
We have a very small dropping the number of new customers, we were able to sign but the steel you live video for example, the number of new customers as a this increase.
And we are leveraging those OEM relationships to gain more and more new customers even in this environment.
Great and then just looking at the competitive landscape specifically within that market. I recently five had been third shifting their focus to applications and a kind of been shifting their focus to fiveg you talked a little bit about how that changes the competitive dynamics about 2 billion market.
Yeah in the market itself I see less of the say fiveg focus or.
Security focus by eight then or security focus by a five I think steel the majority of the revenues are coming from and you know a b C deployments in the enterprise as a market for a five an indicator market for a <unk> for a thin so I don't think the markets for us.
Has changed significantly we are already I think with three or four years. When we were discussing the agency market. We explained that we people do you need to security applications around encryption alone to include the Doctor alone the application security and over though I think the trends.
For a bit more <unk> billion that plus the move of the Oh Gee or some of already see offerings to subscriptions I think our positioning us well however.
Obviously, a b C use he's a less resilient marketing cobiz 19 versus security because people are disappearing.
Insulates pockets survey.
The investments.
Great. Thank you.
Thank you so much we have a question for me for Lee with Oppenheimer.
Hi, Good morning, guys. Thanks for taking my question and congrats on a consistent execution.
Now I have two quick question, what typical I and Apollo financial question supposed to Rod.
Right all Armani, we've seen elevated right.
So first half due to the cold and by that you know elevate efficient scans man, who had reached its peak off the tax holiday.
Yes.
By that.
Translate into that ways, how to offering you know how mission your competition with each year olds into T cell go to World. How mission critical is I guess that holistic oh. It just threat environment can you elaborate on that.
So.
Thanks for the question I think it's extremely critical it's very clear to the very large enterprises, we're dealing with [noise].
And that's really protecting its a very high level [noise].
[laughter].
Especially now their businesses at the highly.
Focusing only on the very large service providers over the world that rely on us to protect Libby.
Really.
Its a.
Binary even though you have to be dot.
The [noise].
Right.
The news.
And if you take the when you factor in companies I've I've mentioned today and a lot of yesterday with the promotions a lot of the direct customer relationship shipment around the world Although.
He said.
That's one.
[noise] I know and obviously protecting diabetes.
[noise]. So the fact that today, if you haven't application literally to these I didn't know.
Or on your private cloud, we can protect in the public cloud the workload that [noise].
You can [noise].
When added to the farm into application. He's built them. We can front end with web security protection you already a public.
Infrastructure and on top of does do the denial of service protection and last but not least if the attacking you at the application level with automatic attacks. We have the both security it's really a very very broad.
Actually don't know of any company today that offers a broader application they listened to security solution and very very deep each of the components.
It does I talked about it was built from the going up dedicated to that that was sort of use of algorithms machine learning behavior or.
Hey, you name it to excel in what they do so I think the offering this critical but more than does extremely effective.
And what he does dean and the out and the I think our customers already.
Oh thing that than telling us and.
And in other colleagues in the markets above that.
Got it thanks actually that a detailed color on and then I'll follow up for entourage armed.
Well again, another codell Oh, great execution. So I can you just got you know give us more color on is that due to create a better cash collection, that's driving the outperformance in the castle from operation This quarter and how should we think about second half a and then if I could just squeeze one more in the rod on the check.
Hi relationship. It seems like you know that's backup bookings. This year I know you know it's too early to tell like do you foresee this to translate into kind of like a cisco relationship going forward.
That's all I have.
Okay, So let's take the cash flow.
So we we don't guide to stick in heart failure, obviously, and we give some high level at the beginning of the year, we underwrite the direction right. Now are we there 40% approximately you when you have a gross is the main driver is the conviction in some of it. These are related to the nature of their business will mention that.
In the first a in this quarter, we got some may eight two big deals in the U.S. So in a way did the nature of the business and the fact that there's some of them there already.
Yeah, it'd be casinos, we did a nice to subscription they allow us to gain some some some of it a but the i. I cannot be sent to the sick enough in the first Duffy, what's been wouldn't them Sophie collection.
Issues.
Regarding your question on checkpoint so.
No we were saying you in regards to that all all my son's right. We can grow Cisco and we can grow checkpoint independently I don't like to compared the level of revenues that can be achieved one versus the others I think each one of them can growth significantly.
From even from this increased level and we're working with a lot of the checkpoint field.
It took like to engage more and open up more and drilling that comes to good though there's definitely good the improvement in the last several quarters. He chose in pipeline and showing results showing very nice wins, but there's still a lot of work to do to get into the to the next level.
Okay. Thanks, very much against a lot and bond has good day.
Thank you only have a question from Tommy Rosner with Barclays.
Hi, This is Peter.
Hi.
[noise], Jake we seem to it.
Peter.
Okay, sorry, if you can Harris Please press star one again.
Okay.
That's good.
Okay, everyone. Thanks for joining us today and I have a great day. Thank you.
Thank you.
That does conclude the call you may now disconnect.