Q1 2021 Radware Ltd Earnings Call
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Okay.
Welcome to day Radware conference call discussing first quarter 2021 was all and thank you all for holding to ask a question. During the session you will need to press star one and got telephone as a reminder, this conference is being recorded and made that 2021 and well now I'd like to turn up.
Call over to east to EM and director of.
Investor Relations and Radware. Please go ahead.
Thank you want me interest and good morning, everyone and welcome to what was the first quarter of 'twenty or 'twenty, One earnings conference call and John.
And joining me joining me today are well use this up and president and Chief Executive Officer.
And the run up on low Richie and I should also show a copy of today's press release and financial statements. That's one assay and so it's the case for the first quarter and available in the Investor Relations section of our website.
And today's call and we may make projections or other forward looking statements regarding future events or the future financial performance of the company and these forward looking statements are subject to various risks and uncertainties and actual results could differ materially from Rod was current forecast and estimates.
So that those are that could cause or contribute to such differences include but are not limited to impacts from the COVID-19, pandemic and general business conditions, and our ability to address changes.
And the industry changes and demand from food, that's the timing and the amount of orders and other risks detailed from time to time in line with filings. We saw you to the documents that the company size and finishes from time to time with the SEC specifically the company's last annual report what do I see this as far as an effort.
And then two 2021.
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 made.
I'll now turn the call it Super easy simple.
Thank you Scott and thank you all for joining us today.
We are pleased to report a strong first quarter driven by solid performance across our business and specifically, our growing cloud business and robust markets.
This quarter is testimony to our strategy being firmly in place and working across all fronts.
We continued to execute well and our growth drivers are cloud and subscription subscription business continues to grow as more customers choose our cloud offerings.
This is reflected in our total yellow, which reached yet another record of $176 million.
Our successful OEM and GSA, both new ships continued to expand our footprint, capturing new opportunities and bringing new customers on board and our financial results was strong right across the board.
In the first quarter of 2021, we reported an increase of 11% and total revenues to $67 million and improved profitability.
Led to a 22% increase in non-GAAP earnings per share to 17 cents.
And the recent to use we have witnessed a couple of transformation that has accelerated in the past year first the acceleration and digital transformation is moving more transactions move online and in many cases to the public cloud.
More assets and transactions online and create more targets for attackers, which make cyber security even more critical.
Second last year due to the low catone organizations were forced to rapidly move their employees to work from home.
The new reality of hybrid work force creates and increasing the attack surface with millions of new entry points, which has led to an all time high level of cyber activity.
The outcome of these two forces is that organizations are experiencing more attacks in the network and and applications.
Both in terms of increased volumes and increased complexity.
In the first quarter of 2021, the number of Ddos attacks mitigated in our scrubbing centers was two and a half times higher than in Q1, 2020.
The total number of web application attacks, we blocked and the first quarter of 2021 almost tripled.
And the number of beds, both requests we detected increased more than 80% compared to Q1, 2020.
It is clear now more dynamic and that our solutions are mission critical and essential for the operation of organizations.
This is evident in the deals we closed in the first quarter.
We signed a large deal with multinational pharmaceutical and customer and consumer goods Corporation.
Their previous vendor solution failed to meet the gate the larger attack through Cisco, we expeditiously upgraded them from on demand to always on cloud Ddos protection worldwide and replace the primary protection from the ISP to ensure business continuity and better ongoing prediction.
Another example, I'd like to share is a deal with a large bank and EMEA, which was looking for strong cyber security solutions to protect and they get.
Sales channels.
They needed the robust and broad cyber security suite, and they chose to invest and <unk> web application firewall bot manager and analytics amongst other solutions.
Digital transformation and specifically the transition of organizations to the cloud.
Which accelerated in the past you treat vast opportunity for us.
Our cloud business continued to grow as more and more organizations adopt our offering which is reflected in the continued growth of our yellow.
The sales growth was driven mainly from cloud and subscription and yellow, which increased 27% in the first quarter of 2021 compared to last year.
Let me share a few more examples.
We signed the cloud deal with one of the largest insurance companies in Europe, the customer expanded its relationship with US I think cloud Ddos protection to all its sites and all.
Total daily with a leading stock exchange, which upgraded these hybrid cloud solution to always on cloud Ddos.
Yeah.
Our technology is a key factor and the buying decisions of organizations.
Organizationally realize that in light of the increasing attacks the criticality and the complexity of security and to ensure continuity of operations the must have superior protection.
The breadth and the depth of our attack mitigation portfolio from Ddos and web application firewall bot manager and API to cloud workload protection and our superior technology plays a pivotal role in the decision of customers to choose our solutions again and again.
This is illustrated through existing customers continuing to expand the relationship with us and the increase still value.
In the past quarter, we signed a very large deal with a large cloud provider, we extended its relationship with us and is planning to buy additional solutions and the new future.
We also signed the deal with a large airline company that was looking for superior security performance and upgraded our both manager and <unk>.
To protect more of their production buildings.
Our strength and technology is also received recognition from industry analysts.
We were named the leader in force through 2021, Ddos mitigation solution report.
And this report we achieved the highest possible score in 18 different assessment categories. The most among any of the vendors lifted and the report.
Forster position us as the vendor with the strongest current offering thing Ludlow and knows ddos attacks better than anyone.
In addition, the other was recognized if the customer choice and the 2020, one Gartner peer insight web application firewall reports.
And overall rating of four seven out of five and the web application firewall market, which is based on product capabilities integration and deployment criteria and among others.
Our performance and the addition of new customers is also being driven by successful relationships with our Oems and GSI.
We signed significant deals and some with new customers, including with one of the largest public healthcare systems and the U S.
One with a large health services organization and Europe.
One with a pan European Telecom group to name, but the few.
We continue to invest and these strategic relationships and we believe this journey is only at the beginning.
In summary, we are very pleased to start to you and the high note and we continue to focus on executing our strategy expanding our cloud business delivering innovative offerings and building strong relationships with our partners we.
And have the right assets in place and we're excited to capitalize on many opportunities ahead of us.
Before I turn the call over to the loan and that is most of you know we announced the dawn will be leaving US next month.
On behalf of myself and the entire company I want to thank the wound full lease dedication and support during <unk>.
And as CFO and a valued member of our management team and contributed to the success of our business I wish him all the best for the future I will now turn the call over to Don.
Thank you Roy and good day everyone.
I am pleased to provide them alethia, so far financial results and business performance for the first quarter as well as our outlook for the second quarter of 2020 and number one.
We had an excellent quarter with both the top and bottom line results exceeding our expectations.
First quarter of 2021 revenue was about $67 million.
Representing an increase of 11% year over year.
Total revenues were driven by our cloud business performance as reflected in the total alcohol, which normalizes timing differences and bookings invoicing and revenue recognition and at least ethic code of $176 million and Q1 2021.
This record result, and an increase of 10% compared to Q1, and 2020, driven by 27% growth and cloud and subscription and <unk>.
Recurring revenue accounted for 66% of total revenue compared to 65% and the same period last year we.
We continue to focus on our cloud business and.
Expect to see further growth overtime.
Looking at geographies Americas, and EMEA were very strong with 15% and 16% growth respectively.
America's revenue accounted for 50% of total revenue EMEA revenue was accounted for 32% from total revenue and Asia Pacific revenues accounted for 18% for.
The first quarter.
Quarterly revenue.
I will now discuss expenses and profit all in non-GAAP terms and the differences between the GAAP and non-GAAP results for the quarter are detailed in our press release.
Gross margin for the first quarter of 2021 reached 82, 4% compared to 83, 1% last year.
Our gross margin can fluctuate from quarter to quarter and can result of product and geographic mix, we have been successful and maintaining high gross margin over the past few years and we expect to continue doing so.
Operating expenses in Q1 were $47 5 million up 6% from Q1 last year.
The increases and adult of higher headcount costs, including higher commissions offset predominantly by lower travel expenses ex.
Excluding FX impact operating expenses would have been $1 6 million lower.
Operating income increased 55% to $7 5 million.
Demonstrating the good leverage and our model.
Operating margin in Q1, 2021 expanded by 320 basis points to 11.2% compared to last year.
Financial income was $1 9 million compared to $2 7 million Daus, and Q1 and last year and as we highlighted in previous quarters. The financial income is impacted by the declining yield on marketable securities.
Tax rate for the quarter was 14, 9% compared to 11, 3% and Q1 2020.
And I expect it to ex way for 2021 is approximately 15%.
Earnings per diluted share for the first quarter of 2021 was 17% and an increase of 22% compared to last year.
Turning to the balance sheet and cash flow items.
Cash flow from operations, and Q1, 2021 with $16 million and cash flow from operations and last 12 months was $50 9 million.
During the first quarter.
$30 million to repurchase 1 million and 130000 and with our ordinary shows.
Total cash and financial and investment at the end of March 2021 were 400, and and 35 million Boe at all and most of our cash is invested in highly liquid U S dollar marketable securities and deposits.
As of the end of the first quarter of 2021, nearly $50 million remained available under our repurchase plan.
Amongst last quarter and will continue until the end of 2020 one.
I will conclude my remarks with guidance for the second quarter of 2021.
We expect Q2 total revenue to be between $65 million and $66 5 million.
We expect the continued strength of the Israeli shekel to growth.
Year over year increase and our total operating expenses throughout 2021, and the magnitude of this impact to be higher than in 2020, we.
We expect our operating expenses to be between $47 5 million and $49 million.
These operating expenses labor and reflects an estimated $1 3 million negative impact from FX compared to Q2 2020 rates.
We did at Q2 2021 diluted earnings per share is expected to be between 15 and 16.
If we kept exchange with flat at Q2, 2020 library, and our forecast for operating expenses in 2021 would have been approximately $46 2 million.
And $47 7 million and expected earnings shoe would have been higher by approximately <unk>.
Before I open the call for Q&A I would like to say that I'm proud to have been a part of the company's achievements during the past six years I would like to thank the investors and analysts for your support it was the route from those or what can we view during the time and Hugh It's Rob Lowe.
I will now open the call for Q&A operator.
As a reminder to ask a question you will need to press star one on your total down so withdraw your question and press the pound or Husky. Please standby, while we compile the Q&A roster.
Okay.
Your first question comes from the line of George Notter with Jefferies.
Hi, guys, thanks, very much and draw and best wishes to you and and you and your next adventure and it's been great working with you.
I guess maybe the.
Question, that's topical I think through earnings season here is just a component availability and supply chain impacts and.
And I get it.
Climbing component of your business is coming from hardware these days, but can.
Can you maybe talk about what youre seeing on the supply chain impact on revenue impact on margin.
And I noticed your inventory was down sequentially. So any more flavor you can give us there would be great.
Yeah, we obviously seeing the pressures that everyone else is seeing and what we're trying to obviously to a close to a komal day deal with and those.
Longer commitments and the over two weeks, two and probably still increase prices, but all in all at least for the second quarter, we don't see a material impact from that.
Got it okay.
And then I guess I also wanted to ask about.
Capital allocation.
You guys are obviously buying back a fair amount of stock here in Q1 and then.
I know theres been some talk storage really about you guys looking at acquiring businesses and.
Businesses that are more developed but can you just talk about where you stand right now and capital allocation.
What's the thought process on repurchase versus M&A versus other opportunities yes.
Yeah. So we continue to be active looking for food companies, obviously, some of the valuation metrics and today's market.
It might be a bit challenging for us, but we constantly look and this continues to be the prime.
Use of cash that we that we intend to.
In the meantime.
And I was in the <unk>.
Previously for D. C, we have and $80 million the buyback plan, which we exited Q30 million already in the first quarter and we have another 50 million.
Millions.
So all in all in <unk>.
Besides that in parallel to us looking for acquisitions, we are a.
And the actively buying back over shoes.
Great. Thank you.
Your next question comes from the line of Savi Rosner with Barclays.
Hi, This is Peter's desk onsite hobby.
Congratulations on the quarter and.
And the solid results I wanted to dig into the customer verticals a little.
The sequential decline and carrier was a little surprising since we've seen some improving trends and spending.
And that market overall could you discuss some of the drivers there and and maybe your thoughts on next quarter.
Yeah. So.
It's a high level and all our business is more focused stewards and enterprises and the cloud subscription and the product subscription or generally consumed by into place customers So and.
Over the long term, we believe and we've seen it also and previously voted for the enterprise.
Our enterprise business or that portion of the business will will provide the the higher the egg all asleep and carriers are in general we continue to play in the network, they're all opportunities looming with five G and we are tracking them, but all in all you know.
Our company and highly focused on enterprise cloud security.
Got it thank you.
Our next question comes from the line of Tim Horan with Oppenheimer.
Thanks, guys can you talk a little bit about the competitive intensity and what you're seeing particularly from the cloud service providers, the larger cloud service providers and some of the new <unk>.
And how do you kind of compare and contrast, and you know how do you win business for SAP.
Yeah.
So you know the public cloud providers a lot of our offerings are also targeting companies that are actually putting their infrastructure in the public cloud. So for example, if you look on our cloud native predictable that's exactly what he does it protect.
Customers' infrastructure within AWS or Azure <unk> and.
And the clouds, and we see the needs to protect better cloud infrastructure is one of the cool drivers for future growth of the company. What we provided is a comprehensive and.
And across all cloud and multi cloud comprehensive security with state of the art capabilities, we believe that security, especially for our target customers and the finance technology online large enterprise segments is paramount and they would not compromise on the level of security and hence the ability.
To really protect into and their on Prem data centers cloud data centers hybrid public private whatever form that application residing and to do it across multi cloud is a very very strong competitive advantage that none of the public cloud.
Providers can can also.
Regarding the C D and.
And I put akamai aside on that the other types of C D and I would say a less competitive as it relates to a two security per se. They are selling some security capabilities as add ons to the C D and by the way some of them and we said our cloud solutions as add ons and.
On the C D and but I would say, we see them less and the highly in the in the in the large enterprise and financial markets and in the World is excellent and better.
Ladies always to us.
Very helpful.
Your next question comes from the line of Andrew King and with <unk> Securities.
Hey, guys. Thanks for taking my question. So obviously you guys did really well with the Oems, but could you just give us a little bit more color and should the checkpoint and Nokia.
We have partnerships, specifically I know there are low language and Cisco, but any color there would be great.
We don't break specific Oems, but all in all I think all of them are providing with US you know wins and so on and my script. When I gave the example, those are examples that are spread.
Growth all of our OEM partners and so you know all are contributing.
And different geographies and different segments, obviously, Nokia is helping us much moving carrier's fiscal might be a growth checkpoint using more enterprise focused but all of them are contributing and I think one of the key point is the contribution to new customer acquisition. So we are really able to see very.
Good results and leveraging their incumbency and customers to generate new logos and four.
For us and that's been very successful and we're planning to increase it further.
Great. Thank you.
Your next question comes from the line of Alex Henderson with Needham.
Thank you.
Just wanted to get a couple of details first question and then.
Can you talk about the tax rate and it was 14 nine and I think you had been guiding to 14 five should we be from 14, nine going forward and and similarly on the interest line do you expect it to decline sequentially as the.
Interest rates on cash balances continues to decline over time.
Just a couple of mechanics, and and then I didn't catch and head count as well.
Yeah, So I said.
And 2020, the fixed at the effective tax rate that we've taken into consideration is approximately 15.
And the percent which represent.
The tax regime that we have last year that there was some tax relief.
And the U S D C and there's no so overall, 16% each day.
And the ETR that day, we take for our Q with Q2, similar to Q1 and and for F. 2021 as for the the interest. So yes. The answer is yes. Unfortunately, the yields are declining and so.
So I believe that day.
Now the level of to me Dawn and assuming that we will continue to generate cash may be a bit more but the world. This is the idea.
And interest rate that we see right now.
It's less than last year and last year. It was at 2.7 do you see a one point from known so overall full 2021 and it will be less.
And.
And then the 2020 and therefore, the head count. So we ended Q1 with the approximately 1100 employees and similar to last quarter and.
And similar to last year, and a wave and so overall this is the level of food and fluids it right and always.
I see.
Wanted to ask a question on the operational side.
And we look at the results out of the five.
The company has stated that a.
They were quite surprised.
At a simple.
Financial increase and.
Appliance ADC sales, so which vaulted us to.
Teen double digits.
And they indicated that that was collected.
And it's sort of a snapback.
And demand there because traffic growth and application adoption had driven up a processor.
Utilization rates, which.
It was a little bit counterintuitive, but we'd expected digital transformations to be driving more tough towards the cloud, but nonetheless, the point is that the ADC business, our appliance business was much stronger than expected.
Can you talk about whether you saw a similar dynamic.
Where you know the under spend and ADC. So over the last year because of COVID-19 is now poised to pick up there or is this.
More on the software side, and you're not seeing that dynamic.
Yeah, and you know we're seeing our customers.
And for them into transitioning to the cloud and.
More and more.
And we're seeing the plans on the owned brand even if certain applications are definitely growing and capacity and usage, the total onsite and capacity and not the.
And our customers.
And he's not seeing a dramatic increase Furthermore.
And when I looked on other ADC vendors and the market like Citrix and eight day and I Didnt seem to report similar indications. So so I believe the transition to the cloud is happening and.
And we were up on ADC, we had solid business there, but the in line I would say with our guide and expectations. We didn't see this a pent up demand coming to the ADC owned brand market. So what we are seeing is more applications moving to the cloud more custom.
Requiring more capacity and protecting more applications with cloud services, and and that's where we're seeing the bandwidth upgrades and the number of application upgrades together with that we're also seeing increasing the size of attacks. So we're seeing larger and larger attacks, which also of course, increasing the day.
Men and by the way, forcing many of the enterprise to go into into cloud solutions, because they cannot and do well.
And their bandwidth, there's just no way unless they want to buy and X or 20 ex the bandwidth they have today they cannot cope it cope with it in their own data center. So we're clearly seeing a continuous strong and.
Moving to the cloud.
That's very helpful. Thanks Wally.
Just if I could.
On the cost side and the equation.
Flat head count sequentially.
Chuck will impact are increasing.
Can you talk a little bit about whether you think your opex will continue to increase over the course of the year.
Just on the.
And the shekel or whether you're hiring changes are going to re accelerate.
And to what extent that reflects back into the mix if there's a.
Delta between same sales and marketing and R&D.
Yeah, So I would take the financial part and leave some time and so some of the strategically and equipment.
And we plan to do it and.
And the next few quarters, but the as for the number so we took into consideration and second quarter and.
And the impact of course of the shipyards, I mentioned, something like $1.2 million versus day 2020 and.
The rates and.
Are those all day.
Headcount and do so well.
Totally flipped and we do see some increase obviously and the good day policies is mainly because of fee and commissions that we pay and due.
Due to the increased into a format and and stuff like this.
And together always do some offset because of the COVID-19 impact on 12 and et cetera.
You'll see that day, we guided the first quarter approximately 47, five to 14 months and guidance for second quarter. We are in D C and range and again, mainly because of day off of the ethics.
And yeah door and I got the second quarter Guide and the question really is as the year progresses, and do you expect and the currency impact to increase into the back half or do you expect it to stay flat to current levels should we be anticipating further increases given the flat the hiring and the currency.
Will the Opex continued to increase as we go into the back half of the year based on where we are on the channel.
Yeah. So again I mentioned it last quarter and then we all day estimation about the Israeli shekel and continue to be strong in 2021, so give or take a $1 3 million and there this quarter and save my previous quarter I assume that next quarters will be the same impact for the quarter.
Yeah, I think that we mentioned last quarter tend to with the toilet for offense.
And partly because of the FX it will continue unless something.
It happened and this.
The area.
FX, we continue to win and book and as it relates to hiring Alex we're planning to come to increase hiring and.
And in the following areas first and field and sales and system engineering, we see a lot of.
Opportunities demand due and in cloud operations and in cloud out and D C.
Cloud security coupled with increased go to market capabilities are the primary areas, where we're planning to a to increase headcount and with that obviously the opex.
We will also increase regardless of the currency exchange rate.
Right.
Wanted to say thanks for a great run that Radware and hope to hear from you when you get when you land the net shop.
And you'll be missed and your.
Certainly a key piece of the puzzle here.
Thank you Alex.
Your next question comes from the line of Joshua Tilton with Bamberg capital markets.
Yeah, Hi, This is drew Smith on for Josh can you comment on the strength and bookings in Q1 and has there been any meaningful change and the performance of the business going into Q2.
And would it be possible to comment just a little bit more on which products are specifically fueling the growth.
Yeah. So.
So in general the growth is led by security by our security business and specifically the cloud and subscription offerings do.
And I think it's across all of our cloud security offerings and almost the.
And though.
A to Z.
And going into Q2, you know we reflected in the guidance. We believe we provided the.
The strong guidance, we feel good about the business, we feel good and now we opened the year.
And so we tried to reflect that and order guidance.
Alright, thank you.
At this time there are no further questions I would like to turn the call back over to management.
Okay. Thank you all for joining us today and have a great day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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