Q3 2020 Radware Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Radware Q3, 2020 earnings Conference call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session in the press Star one on your telephone. Please be advised that todays conference is being recorded if your party further assistance. Please press star zero and I like to hand, the conference over to I know you're on Heidelberg VP investor.
They shouldn't please go ahead.
Thank you Sharon good morning, everyone and welcome to <unk> third quarter 2020 earnings Conference call.
Joining me today are always Isabel President and Chief Executive Officer, and the run of the mortgage Chief Financial Officer.
Yesterday's press release and financial statements as well as investor Good for the third 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 and uncertainties and actual results could differ materially from Radwares current forecast an estimate.
Factors that could cause or contribute to such differences include but are not limited to it but somebody called me 19 pandemic.
Business conditions, and our ability to address changes in our industry changes in demand for products, the timing and amount of orders and other risks.
From time to time in love with funding.
We refer you to the documents the company father furnishes from time to time with the FTC.
Read the company's annual report on form 20-F as filed on April 2nd if anything.
We undertake no commitment to revise or update any forward looking statements in order to reflect events or circumstances.
Through the date of such statement is made.
Please note that management will gradually participate in the <unk> CEO conference and the Needham Network and Security Conference in November and in the Raymond James Technology Conference in December.
I will now turn the call to <unk>.
Thank you Adam.
We were pleased to deliver another quarter with solid results.
We enjoyed strong broad based booking globe spanning across all geographic regions and product.
And of course, all components of our data center in application security offerings.
Well look occasion firewalls, both management and club work ethics.
It's always open book to Bill was above one and we benefit from increasing the ability for the coming quarters.
The obvious challenges in the business environment.
With regard for cloud solution and product subscriptions, we saw continuous robust performance.
This it looks like that you know do you own the evil and over to you.
Yes.
For the school to reach the $169 million.
With a goal flaked accelerating to 12% up from 10% in Q2.
The main driver for this growth was cloud and product subscriptions yellow, which grew approximately 70%.
They did before the inflammation is accelerating use is moved to work from home utilizing personal computers and mobile devices.
At the same time applications are moving more quickly to the globe.
These trends create an extended attack surface.
On the back drop of these phenomena the duck landscape continues to be very active.
And traffic through our cloud security infrastructure reach all time highs.
In the third quarter, the number of deals attacks blocked by US was more than two enough times larger than in the second.
And devoting needle for attacks blocked more than doubling.
The total number of web application attacks blocked in the suit well to increase approximately 40% sequentially over Q2.
These extensive living up attacks illustrate the need for a comprehensive security strategy that protects unsecured debt.
Infrastructure in critical business applications.
Whether they are on premise in the cloud or operating in a hybrid environment.
Is this increased need for Olympic security portfolio, but this provided us with opportunities to expand our presence with existing customers as well as winning new business.
For example, during Gogos, a large scale down somewhat duck forced the stock exchange, which was north of <unk> customer or the time to halt trading for three days.
Despite being protected by a competing cloudy the solution the service failed to stop so it's been a toxic too.
We deployed our Defensepro attack mitigation appliances in a very short time, India.
And do you attack traffic was immediately blog.
It's the result, we secured an older early in Q4, well, we're supposed to do both and see school.
We are addressing this increased demand by further investing in our own infrastructure and operations.
As we announced in late August we recently added three new scrubbing centers in India, Brazil, and he is right.
Spending both so geographic coverage and open capacity.
We also expanded in and I'm still remains security Operation Center tripling the size and equipping it we stayed on the automotive doing and control systems.
We continue to broaden our offering to the legal mono vision with a highly differentiated food stuck up application security offering utilizing advanced algorithms across our portfolio.
In June we announced EPA protection capabilities applying machine learning on a P.I. cool and providing us with a highly differentiated capability.
Recently, we announced that we developed a new set of behavioral algorithms to protect against sophisticated attacks the woman giggling.
These to meet the specific needs of these cyclical for protection from you'd be a duck, which is the core protocol using these applications.
We believe our investment team algorithms continues to provide us with significant competitive differentiation for the effectiveness and accuracy well for security solutions.
Moving to the customers and sales front in the fourth quarter, we feel several multi million.
Multi solution cloud security deals, including a major win with an online trading platform, we announced last month.
Our OEM relationship continues to perform well.
And the little difficult booking for the quarter.
We continue to win new customers through these relationships, including Fortune 500 global.
One such win was with a fortune 50, leading healthcare company that selected to displace existing security solution with other cloud deals protection services across six data centers globally.
Last month, we announced a new extended relationship with it was good India's largest integrated them.
Yes, there is no offerings I'll do a cloud deals protection cloud WAF and booked manager cloud security services to its enterprise customers.
Under this agreement Weve already secured our first joint deal and we're looking forward to securing minimill.
In summary.
Well the level of macro uncertainties high or visibility continues to increase supported by increased backlog and accelerating yellow goals.
We ended up with the accelerated digital transformation.
Let me get action in the remote workers initiatives. The attack surface has expanded inside bid activity is at all time high.
Our comprehensive and differentiated data center security offering addresses the critical business need for continuous data centers and applications security and the leasing.
Our focus on large enterprises in two segments and leveraging our key strategic both news market access great for us a robust market demand for our solutions.
All these position us very well for the future.
I will now turn the call for <unk>.
Thank you Roy.
We are pleased with the results of the third quarter, which were achieved in an environment that continues to be challenging which countries and regions going in and out of loved onto other limitations leading to continued on 17.
Our organization continues to perform well on they'll do circumstances across all functions and we are pleased with the way our employees' adopted to the operational and business environment.
Revenues for the third quarter were 52.5 million, though 1% below Q3, 19 and in line with our guidance.
From a geographic perspective revenues from the Americas reflected in healthy demand environment Q.
Q3, Americas revenues increased 24% from last year to $30.2 million and nine month Americas revenues increased 13%.
Revenues from the EMEA region decreased 5% from Q3 last year to $18.3 million and nine months revenues decreased 1%.
Revenues from Asia Pacific decreased 27% from last year to $14 million and for the nine month period decreased 25%.
Our cloud and product subscription revenues together with maintenance revenues comprise all recurring revenue.
In Q3 recurring revenues were 63% book the revenues, reflecting high product deliberately.
For the first nine months of Twentytwenty recurring revenues was 66% both both of them.
Revenues compared to 64% in the first nine months of 2000 and I might do.
They were all which normalizes finding different system bookings invoicing and revenue recognition reached a record $169 million for September 20, increasing 12% over September 19.
This growth represents the host for underlying performance.
Within the portfolio of cloud services and product subscriptions, Oh grew approximately 30%.
Reflecting the growth driver for the company.
The talk on the field that revenues by them.
Approximately $172 million.
Out of the total balance, 63% or approximately $108 million you'd full of good condition in the next 12 months.
We have been providing total deferred revenues into but few at the leading indicator for future growth.
We believe that well use more industry standard indicate though that these more appropriate human to increase the proportion of subscription revenue and the decreasing proportion of appliance sales we.
We would therefore stope discussing copel will be filled with a new dog in the next quarter and was regularly provide detailed information.
I will now discuss expenses and profit all in non-GAAP terms.
The differences between the GAAP and non get police dogs for the quarter or did you not personally.
Gross margin for the third quarter was 82.2%, reflecting product mix and higher proportion of subscriptions.
Let me remind you that our cloud subscriptions or actual services difficult accompanied by costs, especially when we open new scrubbing centers on increasing capacity across our cloud network.
Operating expenses in Q3 were $44.5 million up 3% from Q3 2019.
Majority of the increase easily go to high rise condo expenses, including commissions Ofsted dominantly by lower travel expenses.
We ended the quarter with 1125 employees up by 54 employees compared to where you would go.
Operating profit and margin in Q3 went to $26.9 million and 11% respectively.
Net income for the third quarter was $8.4 million or 18 cents per diluted share at the high end of our guidance.
Turning now to the balance sheet and cash flow items.
Net cash provided by operating activities was $7 million for the third quarter and $50 million for the last 12 months.
During the quarter, we would go to the approximately 626000 shares for a total of approximately $60 million.
In the first nine months of the U., we spent approximately $40 million on show by VIX.
And as of.
Oh for the end of September we had approximately $36 million available for continued purchasing.
We ended the quarter with approximately $437 million in cash and financial investments.
Most of all because she'd be invested in highly liquid deals go, though marketable securities and deposits.
Oh removed.
Our guidance for the fourth quarter of 2020.
We expect Q4 revenues to be between 60 and $69 million, leaving full year, they've been used to be between 247 and $250 million.
Q4 operating expenses are expected to be between 46 and $47 million.
We expect to see a continued impact of higher <unk> costs, partially offset by lower travel expenses.
In addition, Q4, we fucked, though it may.
Moderate FX impact.
Although our financial income for Q3, Twentytwenty reflected favorable investment portfolio performance, we look expect a decline in the coming quarters, given lower yield on your marketable securities.
But you'd be EPS for Q4, EPS will be between 21, and 24 cents and for do it appears to be between 65 and 66 68 cents.
I will now open the call for acuity.
[noise], if you'd like to ask a question at this time. Please press star one on your telephone keypad Youd like to withdraw your question press. The pound key first question comes from George Notter with Jefferies.
Hi, there. Thanks, very much guys I guess I wanted to ask about the.
Differential in growth rates across your Americas business, I think you said, 24% year on year I'm. Obviously, a pack was Ah was worse than it was in the middle I know you guys are investing fairly aggressively in North America in particular in can you talk about those investments in how they are translating.
She the additional revenue growth and you know just just trying to open your minds to investing more aggressively in other parts of the business as well any thoughts there would be great I appreciate it.
Oh.
Yeah.
So I think in general you know obviously, we're very satisfied with our performance in North America, and I think the investments that we've done and we sure the India If I was.
Hitting ciber reviewed deep and that's coupled also with the U.S. at least from our point of view, we'll see less on the business side from a COVID-19 versus what we've seen internationally look downs and the.
And the way you will still be a how the government for the active on the business side I think also in the in the U.S. investments in cyber security and cloud already know heightened level and live accelerated significantly which also contributes nicely to floor before so our plan is to continue.
To increase investments in North America, given the goals and given that we think the potential for us it is.
It's extremely high almost the unlimited this is where we are now yeah.
And were planning to add more resources across both our direct sales force or OEM man, our OEM channel and the a and the cloud really selling salt so across all the growth drivers were sharing as part of our strategy.
As it relates to the international logs mentioned you know sleep is.
The comments that you know in Q3, we already so all our geographies growing deals that are using booking like snow.
Not yet even though the news, but obviously these trends will continue into Q4. It would start to it you will start seeing that dose on the need to be in it so as long as the business climate Dean the international market stays at these were also optimistic that you know our performance this will improve.
[noise] next question comes from Alex Henderson with Needham.
Great. Thank you very much.
I was hoping you could talk a little bit about the U.S. business split between what I think is probably some shrink that Cisco and whether that is part of what drove the acceleration and whether you know how much is more organic radware and.
And I've got some follow ups.
Yeah, so the growth in the U.S. not only in the third quarter, but but throughout.
Well do you definitely we're seeing Cisco ramping up significantly as mentioned they probably every quarter.
I want also to highlight the check point relationship another vicals booking.
Quarter from me from checkpoint.
It was as I mentioned, it was a record booking quarter for all Oems.
And so that is helping us but a lot of the growth is coming also from our organic good organic wins, though so it's really the fruits of all the strategy taking place then as I've mentioned, we are very satisfied with the results and believe we should put more resources behind.
These delays to continue.
On the Cisco front do you think the 7% which that they are doing well.
We'll help you or hurt you as the company shifts resources and chipset focus any sense of whether that's a tailwind or headwind.
Yeah, so early to say, but definitely the dissection, they're taking the high level strategy to focus more on applications and more on security should help us because this is exactly the area, we focus on and where we are completely complementary to their portfolio. So the high level stuff.
The G O think fits us very well and we need to see how the refi you know effect the their performance, but again, our ability to our numbers a cisco can can grow significantly the potential these huge and we're starting to win as I mentioned in my comments more and more fortune hundreds.
10, 50 Fortune 500 customers with them is we're seeing increased activity with their sales force.
Great if I could ask one last question and then I'll cede the floor.
I know you don't want to give guidance past the current quarter, but strategically the logic behind your spending and growth outlook into 21, it seems pretty clear that you had intended to accelerate spending in 20.
Because of Covance slowed that somewhat I would assume that you will see.
An acceleration in investment a in as we go into 21 high and then also see some t. any coming back so should we be expecting opex grows.
In 21 to two to just put a little bit of a crimp on the Oh, the operating margins to in that year or should we assume that you're going to be a as you've historically been more careful on the mechanics severe investment. So that you continue to do.
Liver some margin rebound.
No.
So why do we what I think we will continue to be conservative on the investments I think especially in North America, and especially as it relates to our Oems and cloud security offerings.
Yeah.
The time to continue to invest so we don't give guidance yet on all those barometers, you've mentioned, but directionally opex will grow, especially in these areas in these investments because we see very good returns I think probably the good.
Directionally the Lama to flow and do we want to put more support behind these schools.
Thank you very much.
Next question comes from <unk> with Oppenheimer.
That's what taking my question and hope everybody has a safe and healthy well I can I just ask I just start with the first Oh my more broad based macro question, we've seen American it's gone fairly healthy at 24.
4% year over year, but can you give us more color. It were there any poll for from the July Algostim with other vendors in America and also some commentary I'll <unk> on all maybe the Omniab 'cause where her hang on a second wave blocked out in let's say the UK.
And also anything on the timing on a pack and then I have a quick follow up a lot of on as well.
So can.
Can you just repeat your question on the on the U.S., whether there were yeah. Yeah was there any pull through from that you locked down because we've seen other vendors that in late June in America like some states like California.
Well there were like locked out extend to lock down there just like I would say in June was there any pull through from the second quarter to the third quarter thing if I could that you'll see.
That's very healthy a year over year increase and maybe some commentary on the EMEA and APAC region would be helpful right.
Okay. So nothing specific.
What I can share and also in our last quarterly result, it's not that we mentioned slipped deals in the North America North America performance for Us.
For several quarters now is the has been strong and we continue to see very good levels of activity and wins they show coming from that the game from that the field too.
Regarding the.
The EMEA and Asia Pac over the situation is a bit more.
And complexity and different countries behave differently and.
And also for casino. These countries the use of changing quite dynamically as the move to second wave third wave new local zones and so on I'm sure you do for little did the news from Europe in the bus the civil weeks, which you know make so the environment, obviously, a let's say list.
Strong for us having said that.
You know in Q3 and also our expectations for Q4 are quite good.
In the international to see it there as well so we do see LIBOR rebound of business activity.
And to the point to the to the point it wouldn't persist more than one call to maybe two or three quarters, it's definitely going to way to flow into the a the b and so I don't see any worsening conditions internationally.
Actually in Q3, we feel very good the improvement and we're looking forward to to go back to the two previous business levels and beyond that as well.
That's one macro commentary right and then July can I, just follow up with the the investments in the expansion of the scrubbing centers in particular at the India emerging markets like India, Brazil, and the developed markets in Israel can you give us a little colors or some of the clean two opportunities indeed emerging market.
And Adnan Butt Air tell partnership.
Big contribution to you know the performance.
In some of these regions.
And you had anything on that would be helpful. Thanks, a lot.
So I'll take that on the customer side and then maybe the one we'll add the and some Goldman so so first on customers, what we see with some of our global customers as we need to cover as Ive mentioned, many data centers across the world when we take a global fortune 50, or <unk> or Ah.
You know very large manufacturing company and protect all do a facilities.
In many cases, they do have additional data centers in countries, such as Brazil and operations in India, and then our ability to serve them also locally.
And he's a significant competitive advantage so and the opening of these additional data centers is coming from to a to date actions. One of course, we want to serve the local market than in many local markets today.
Are you taking data.
In user private information out of the country is not allowed by the regulators, so, especially as it relates to local government financial institutions and so on you do need local facilities.
In addition, the global companies when we are signing global deals, it's becoming a more and more re needed in a competitive advantage to have done a global presence and we've acted the based on that so both of the two or in the a and the ability to do data centers, we already have tenants based on these two.
Specifically to India. We are also extremely encouraged by idea is to partnership we became their solution for cloud did those cloud WAF cloud the book.
And if you follow their re announcements they announced a new a theme the call it will to secure.
In the name to strategic partners see school and hardware as part of the strategy and it still is the largest business.
[noise] telco you need beyond the very high plans.
In terms of security over the whole in cloud security specifically.
And that we are very enthusiastic about this partnership and we will update you in the coming quarters on both our brokers and I think it's material to a rate that could be.
Thank you very much.
Next question comes from Andrew King with Colliers Securities.
And then they take my question.
Where do you see the opportunity with the Bod attack.
Adjusted now being the bot manager for Salesforce Commerce cloud.
[noise].
Hey, Jeremy.
Presenters your connected.
Okay can we can we get there.
That's your question.
Mr. King Please repeat your question.
Yeah. So.
Do you guys.
It was a little bit more color around the offer.
Bot manager in the body attack, especially what do you guys know the bot manager for Salesforce Commerce cloud.
Yeah. So.
No, but the book then they seem genuinely targeting the autonomous.
Domestic wallboard.
That or anything you can review the trustee, that's saying they are expanding our security portfolio and the problem. We sold two movies. That's a really good problem like account takeover like big scraping and Civil War.
Yes, that's what we're seeing in the books. They are not the Tropic itself is not somebody should then.
And the seasonally should enhance the you know the conversation or.
And then use the old security and business for application be loved the conversation, we're seeing very nice uptick for our customers will walk you through buying also those additional booking capabilities for a month.
We think that over a product, which is again based on machine learning and not only did.
Extremely well and we think that's an opportunity will just grow.
Well in the coming years, the marketing more room weekly.
And who died both web application security yields look like beyond.
Well definitely we all right.
We're starting to fight with our position and the growth we're seeing in that the industry overall.
Great and then just looking at the Oh yeah.
Typically in the past you've really been focusing your investments.
The Cisco relationship can you give an idea of going forward, if you're going to shift more of the resource investment into the Nokia and check point relationship or will you stay focused on the go.
And so.
Based on the results were seeing like mentioned several quarters. The law will be other Oems. We couldn't do you need to I think that both Cisco and check loans and Nokia. So we don't see those are mutually exclusive investment actually you know we see good check point relationship at the end.
Customers quite complementary for us.
Because generally when physical security the lunch its security architecture is clearly not customary you. The checkpoint did it's small at all and vice versa.
Generally if you look on the fortune 500, many of them would be the world I know this is Andrew together and do all we can do that.
And finally in both nations sheets, and enjoy working with them to be getting better access.
Uh huh.
Got it thank you.
Next question comes from Kevin <unk> with Barclays.
Hi, This is Chris Reimer on for Tavi. Thank you for taking my questions.
I wanted to ask a follow up on the previous question relating to geography.
Hi, especially the decline in Asia Pac keep clear fly if you're seeing some long term trends there or is it all just a near term volatility.
So we think from a booking perspective.
You would be would be cool overlap.
So as it relates to our booking and I do feel that the improvement we've been suffering.
I think the first thoughtful mm oh, the even especially in Q1.
The more things than we do see recovery not in all the countries, yet, but Andy I would think the major markets, we do see and be they come back.
So I don't see that is a long term issue.
Shoe and a.
You know we look forward to.
Bring back growth for us and you know some because I've been with completion.
No that's.
Oh, okay.
Just regarding your cash position over 400 million.
Can you give any color or do you have any views on M&A.
Yeah. So.
Well, we continue to be active in the market.
For him and they they should be you know it because he like to enterprise security cloud security.
Yeah, we'll update when you know something specific to people, but definitely one of the p. local vote, but the GE. We think is a good opportunity.
Won't young girls, we had.
And then they and we are looking for.
But other than that you know you can see that you've liked and our buyback and if you will.
$60 million so.
Yeah, 100% of the.
They didn't get snow.
Intermodal that we're utilizing <unk>.
Mm Hmm.
Okay. That's helpful. Thank you very much.
Next question comes from Josh will kill upon with Berenberg.
Hi, guys. Thanks for taking my question, just a quick one and apologies I didn't catch this but could you just repeat what the recurring revenue as a percentage of total revenue was in the quarter and what it was in Q3 last year.
So globally, killing revenue.
Thanks to treat Vincent.
Yeah.
They're not amounted to 66% optimistic people from last year.
64 was for the person from last year, that's on the first nine months or just in the quarter I just want to clarify.
Yes.
That's nine lots of people and I walked away 66.
Okay that was helpful did you buy any can you disclose what the percentage in the quarter was less last year.
Loftier Lucky or was it.
Yeah.
One day, 56% to 67%.
Yeah overall that we mentioned that you're looking to get more than 65% to like the fluctuates with the usual I mentioned in my prepared comments that too.
We had very sick in their knowledge skills that to me.
Hi, you had pulled back the component to it.
Oh yeah.
Yeah.
To be a.
It would be an area you can do the same.
So this is why we obviously good.
Nine month, and then maybe if you did the obvious that sounds good do you have to go there, 42% and now we have and then a little bit more than 65.
In particular quarter will be done, but again because of these if you view.
Good product mix it there.
Right.
That was very helpful. Thanks for the clarity.
And at this time I'll turn the call over to Mr. sensible.
Okay. Thank you very much everyone for attending and have a great day.
This concludes today's conference call you may now disconnect.
[music].