Q3 2021 Radware Ltd Earnings Call
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Good morning, welcome to the Radware conference call discussing third quarter 2021 result, and thank you all for holding.
This time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad.
As a reminder, this conference is being recorded today November Serge 2021 I.
I would now like to turn this call over to you Scott Era's director of Investor Relations at Radware. Please go ahead.
Thank you operator, good morning, everyone and welcome to Rod was third quarter 2021 earnings conference call.
Joining me today are really disappointed for the day and the chief.
Executive Officer, and Michael Goldberg, VP Finance, a copy of our two of today's press release and financial statements.
As the Investor Kit 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 future financial performance of the company.
These forward looking statements are subject to various risks and uncertainties and actual results could differ materially from rod words.
That's an estimate.
So 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 in our industry.
Changes in demand for product the timing and the amount of orders and other risks detailed from time to time in Nevada was fighting.
We refer you to the documents the company files and finishes from time to time with ACC specifically the company's last annual report on form 20-F as filed on April 22021.
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.
Nicole too rosy.
Thank you Scott and thank you all for joining us today.
We are pleased to report another strong quarter with double digit growth across all our major financial metrics.
In the third quarter, we set yet another revenue vehicles do you think $73 million of revenue.
Representing 17% growth.
In addition earnings per share grew 32% to 23 cents on the same basis.
Hey, Hello grew sequentially by $7 million, and 9% able Didier D. A.
Distance with previous quarters was driven by cloud and subscription which grew 26% deal do you anything increasing as a percentage of supposed to lay out.
The momentum in our adult business is being supported by impressive growth in cloud application security improved retention rates and a steady increasing the number of customers each quarter.
We are working diligently on expanding our cloud business, we're opening more points of presence for cloud application security and Ddos. So we can be closer to the customer and grow our business faster.
I'll, let the opening one to two new pops each quarter across the world and plan to continue to do so in the coming quarters.
The strong performance I, just outlined is attributed to the combination of strong market fundamentals and our ability to innovate and the breadth of our product offering.
One of the market forces that continues to play in our favor is the consistent rise in the number of cyber attacks.
In fact, they are at record levels and are becoming larger and more complex.
During the third quarter of 2021, we block, 30% more ddos attacks twice as many web application attacks and three times more bad both request compared to the same period last year.
Did is in the number and growing complexity of attacks is creating more urgency and driving the organization to strengthen the defenses around critical assets.
No longer want to compromise protection level, given implications to their brand.
Availability customer privacy and regulatory compliance.
To meet the evolving needs of our customers, we continue to invest in innovation and lead the market with our superior technology.
In the third quarter, we rolled out several new capabilities using sophisticated algorithms and automation to detect and mitigate the most advanced attacks.
One example, I want to share is our SSL protection.
During the last year attacks using the encrypted http protocol absorbed.
It's the adoption of in trips and increases our doctors are using it to close their activities by blending in with legitimate encrypted traffic.
Our newest algorithms exposed this new generation of attacks without requiring SSL decryption and at the same time offering mitigation at scale with even greater accuracy.
Another challenge large cloud and service providers are facing is the ability to detect lower volume Ddos flood attacks within a high bandwidth network.
According to our research more than 90% of Ddos attacks are less than one gig.
And will not be blocked easily by traditional solutions due to the lack of detection sensitivity.
While these attacks will bring down specific critical resources, it's hard to pinpoint them in a high bandwidth network.
We are now completely innovating in this space in our markets first we launched our new quantiles algorithms.
The device incoming traffic into salt segments or one dose.
With this granular level of detection service providers and materials automatically intercept funds from floods that historically have gone unnoticed.
This new capability eliminate the costly and complex process of extensive manual configuration and ongoing threshold tuning.
Our superior solutions continued to receive recognition from industry research firms.
Recently quadrant named Radware as the leader in the Stark metrics Ddos mitigation report.
We have the highest ranking across the parameters of technology excellence in customer impact rather was positioned as the 2021 technology leader among 14 other vendors in the global Ddos mitigation market.
We also were recognized by Gartner in the government critical capabilities for cloud web application and API protection.
We were ranked number two for API security and for high security use cases, among 11 vendors included in this report.
And we are able to translate the strength of our security offering into market wins, let.
Let me share with you a few examples of the deals that we signed during the third quarter.
We won a large deal with a U S service provider with a Ddos security stack.
This new logo experienced major attacks on the infrastructure and realized that their current production was not sufficient.
We demonstrated an exceptional technical expertise and solution capabilities and one this leading customer.
We also signed an expansion deal with a large U S service provider for cloud Ddos disc.
This customer received a ransomware letter from one of the top packing groups.
Leather was followed immediately by a major ddos attack, which we successfully diverted to our cloud scrubbing centers.
We won this deal because of customer satisfaction from our solution proven success and mitigation and the scale of our cloud Ddos solution.
Another win in the quarter was the cloud application security deal with a multinational financial technology company that is an existing ADC.
<unk> ADC customer of outlook.
The company expanded its relationship with us and purchased our cloud application security. We won this deal based on our longstanding relationships coupled with the strength of our cloud uptake offering.
Finally, we closed a large deal with a global European financial services group.
The company experienced a volumetric attack when volume surpassed their ISP mitigation capacity.
The ISP was black, calling the traffic and causing outages.
We chose the hardware to strengthen the security protection coverage.
This deal was brought to us by checkpoint.
In summary, the third quarter was marked by a solid performance and strong demand for our solutions as we continued to witness the impact of an increased level of cyber attacks.
We are confident that this demand coupled with our broad security offering will fuel the growth for the coming quarters.
And now to Mike <unk>.
Thank you <unk> and good day everyone.
Im pleased to provide the analysis of our financial results and business performance for the third quarter of 2021.
I would like to remind you that unless otherwise indicated all financial results are non-GAAP.
Reconciliations between the GAAP and non-GAAP results for the quarter are detailed in our press release.
As we outlined we had a strong quarter with both the top and bottom line results are exceeding our expectations revs.
Revenue for the third quarter of 2021 was a record of $73 $4 million, representing an increase of 17% in <unk> and marking the third quarter in the lower double digit growth.
We recorded growth from all revenue dice predominantly subscription.
We continue to expand our subscription business as reflected in total ALLL, which grew 9% in the third quarter, and specifically cloud subscription ALR, which grew 26% compared to Q3 2020.
Looking at the Geographics Americas are primarily Gen, which represents 49% of total revenue grew 18% in Q3 2021 compared to the same period of last year.
The reported strong growth in EMEA.
Which represents 32% of total revenue and grew 29% in Q3 2021 compared to the same period of last year.
<unk> revenue increased 1% in Q3 2021 compared to Q3 of 2020 and the content for the remaining 19% of total revenue in the quarter.
I will now discuss expenses and profit.
Gross margin for the third quarter of 2021 increased to 82, 6% compared to 82, 2% in the same period of last year.
Gross margin can fluctuate from quarter to quarter as a result of brown.
Product and geographic mix.
Operating expenses in Q3, 2021 were $49 million up 10% from Q3 last year.
As a result of FX impact as well as marketing and travel expenses.
Lower than Q3 2020 due to COVID-19.
Q3, operating income increased 69% to $11 6 million and operating margin expanded to 15, 8% compared to 11% in Q3 2020 due to the strong leverage in the model and despite the headwinds from FX.
Excluding FX impact operating income would have been $13 2 million and operating income margin would have been 17, 9%.
Financial income was $1 4 million compared with $2 8 million in Q3 of last year.
As we highlighted in previous quarters. The decrease in the financial income is attributed to the declining yield on marketable securities and deposits.
Oxides for the quarter was 15, 2% compared to 13, 7% in Q3 2020.
We expect the tax rate for 2021 is approximately 15% to 16%.
Earnings per diluted share for the third quarter 2021 increased 32% from 2012 compared to the same period last year.
Turning to the balance sheet and cash flow items.
Cash flow from operations was $18 million in Q3, 2021 compared to $7 million in the third quarter last year.
Total cash and financial investments at the end of September 2021 with $456 million.
I'll return the call back to Ray to discuss the outlook for the first quarter and the full year of 2021.
Thank you, Mike and before opening the call for Q&A I will provide our guidance for the fourth quarter.
We expect Q4 total revenue to be in the range of 74 million to $76 million in.
And full year 2021, total revenue to be in the range of $284 million to $286 million.
We expect our fourth quarter 2021, operating expenses to be between $51 million $52 million.
Including increased investments in the business coupled with the continued negative impact from the strengthening of the Israeli shekel.
With that Q4 2021 fully diluted earnings per share is expected to be in the range of 21% to 22 and full year 2021.
Fully diluted earnings per share is expected to be in the range of 80% to 81.
I will now turn the call over to the operator to start the Q&A.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
First question comes from the line of George Notter with Jefferies. Your line is open.
Hi, guys, thanks very much.
I guess, maybe I would start.
You guys have made a push I think into hiring more folks in in North America on the sales front I guess I would just check in and kind of see where you guys are in terms of ramping that sales effort and then also there was a CFO search underway I thought I'd ask you about that one as well thanks guys.
Yeah. So thanks, George the hiring environment is challenging we are hiring in the U S.
But we are not yet full versus our plan. So we are doubling our efforts we've increased somewhat the level of salespeople, but still far from where we are heading and going into 2022, we're planning to increase that even further so we have a lot of work to do in that front, we are progressing but we.
I would like to do accelerated regarding the CFO search we have nothing to report yet, but obviously when we have we will announce it publicly immediately.
Got it Okay, and then how do you think about.
The environment in terms of the deals I mean, it sounds like Youre still there are deals out there in the marketplace that you guys arent seeing.
Any sense for.
How much how.
How much opportunity you guys might have as you ramp up the sales force or what do you think about your ability to really address the market at this point.
The opportunity remains in cloud security and obviously, we're just scratching the surface I think we are represented to a certain degree in the very high end, most prestigious logos, but everything mid size.
Of the market and below we deem to be simply don't have the capacity to date.
The approach and we are we are increasing our efforts both organically through increased sales force across the globe predominantly North America, but now we were hiring also in EMEA and Asia Pacific as well as through our other go to market channels.
Great. Okay. Thanks very much.
Your next question comes from the line of Chris Reimer with Barclays. Your line is open.
Hi, This is Chris on for Cathy Ross.
Thanks for taking my questions.
Can you provide some color on the traction you're seeing with the Oems.
Yes, so the Oems continue to perform for US every quarter, specifically there are providing us with many new logos.
As they are marketing our solutions to their existing customers. We are working now on ways to further penetrate the Oems more solutions and to grow our business with them even further.
Referring the call for one and a large European customer that was brought us by checkpoint.
It was brought to us by fiscal disclosures. So we continue to see activity.
Long around the world, but definitely going into 2022. We believe also there is an opportunity to increase it even further.
Uh-huh, Okay, and just looking across the geographies.
Strong growth in EMEA America. This quarter APAC was kind of moderate can you comment on some of the dynamics you're seeing across the different regions.
Yes.
A high level, if im looking more on our booking numbers. So overall all regions performed performed well when it when it translates to revenue I know that the APAC shows flat.
Flat to slight increase.
However from booking perspective, there were good.
I think one comment I want to make on the different regions is obviously, our cloud solutions are stronger in North America, and in EMEA and APAC and depends on them on the specific market within APAC is a bit slower to adopt cloud solutions in general and cloud security in our case in particular.
So we're more in a greenfield early.
This scenario there and therefore it might limit the growth rates that we can achieve however, we believe the potential.
Across the World and if you look where we are opening data centers.
In North America, it's in Euro, but it's also in Latin America. It's in Asia Pacific, We think that cloud security is a very large opportunity globally and that all regions should be able to grow nicely as we as we go.
Go forward.
Okay. Thank you.
Jamie.
Yes.
Your next question comes from the line of Andrew King, Let's call. It your Securities. Your line is open.
Hey, guys. Thanks for taking my question Congrats on the great quarter two questions for me first off if you could just.
Carved out the five key opportunities with the carriers and how that how you expect that to start layering into growth also how that's been impacted by Covid and then also can you just breakdown a little bit you called out new strong new customers how much of that was driven by emergency onboarding versus traditional sales.
Processes.
Yeah.
So first regarding <unk>, we see that as a broader.
Opportunity in carrier security and I referred to some examples in my calls today, we don't actively have projects in <unk> networks.
That's our particular two five G deployment versus a next generation carrier network.
Disaggregated network et cetera. So we don't we don't focus on the <unk>, specifically for as a growth driver for the coming 18 months. However, we do see a broader opportunity as <unk> networks are being built and that are much more application specific and with the.
Life potential lives of five new use cases for Iot for.
Autonomous cars and so on that will that would require to deploy security at the edge and here. We think the opportunity is massively bigger than what we're seeing today in carrier networks, but for the short term I would not characterize slide you have the specific growth driver for us.
Outside of the global growth, we're seeing in the carrier segment as a whole.
Regarding the.
Sure.
Emergency Onboarding I think we had several this quarter, but I think we had less than we had in Q2 or Q1. This year. So the growth in the in Q3 is not triggered by specific emergency Onboarding. We did see however, many customers that had an attack.
I gave some examples in my script failed to protect.
The attack it seems.
Bust, but.
Given that the <unk>.
Then they went down they had to search for a solution. So we don't call emergency Onboarding as were not onboarding them under a specific attack, but definitely failure of existing topologies are solutions to protect.
There is a very strong driver to upgrade and to change the the incumbent solution. So this we've seen across the world and.
Multiple examples in the third quarter.
Great. Thanks for taking my questions.
Okay next we would like to ask a question press star followed by the number one on your telephone keypad. Your next question comes from the line of Alex Henderson with Needham Your line is open.
Thanks.
So I was hoping you could talk a little bit about the progress youre, making with.
The service provider and other.
The other partners that you are signing.
To resell your technology across various.
I would describe as more narrow verticals.
For instance, the transaction in Brazil.
ASEAN or.
The one in Spain those projects.
Obviously have a longer duration to when they start to show up in the revenues but.
Potentially it could be quite large once they have those programs ramped so.
Have you got any more experience with that that you can share that.
Give us some sense of the.
The timing of how those will ramp I think you've landed like 16 or 17 of them over the last 18 months.
Yes, Youre right.
And Alex we continue to focus on that.
We see carriers hosting providers CBA in specialty application hosting and development.
Providers.
It's a very good source of new customers for us and the reason is that everyone needs to date security fewer hosting somewhere you would expect that environmental debt providers to be able to secure fuel applications. The few are relying on a third party for.
Application hosting or specific part of your business transaction, you would expect them to be able to provide you with security solutions, coupled with that application and what we've seen is that those partners can be very very impactful as part of their relationship and sometimes as part of the transaction their ability.
<unk> two.
To sell our solutions, we are ramping them not all of them are successful, but we are seeing every quarter more and more customers coming from.
This trend to stop calling them active active resellers that are bundling or.
Sometimes a leading with our solutions to their customers. So for example, with the ASEAN relationship you have mentioned I know we've closed already this quarter another customer and last quarter. We did a couple so definitely continuous progress and I think the more of these we bring in and they don't.
Overlap each other each one is operating in different markets different verticals. The more we bring I think it completely augments and incremental to the channels to market we have now.
So so.
It clearly seems like there is a lot of.
Wood behind the Arrow head here in the Euro.
Flight so when when does when do these partnerships really hit the steep part of the ramp.
Is it six to 12 months to 18 months process to get these people to build out their marketing programs.
And how do you share revenues or costs are.
How did they get compensated as part of it.
So it depends on the size of the partner and their operation, but I would say it's around six months too.
To get going and to start.
Those sales force and then being able to pitch and close deals.
More independently.
The business model is simple it's like a reseller there was a price lift towards the service that is competitive in the market and we agree with them on a certain discount from that.
From the price list is obviously more than a regular reseller, it's less than a global OEM like Cisco checkpoints.
Somewhere in the middle which provides them strong margin and big upsides.
To serve that critical need that the customers already expect from them in some cases.
Well given the trajectory of those wins are we in the early phases of the steep ramp part I mean are we getting.
Put too.
The shift of the S curve.
Over the next year or is that going to.
A big driver.
We are still early it should grow significantly next deal but.
In the global.
Numbers it would be still.
A low component, but it will contribute it will start contributing to our numbers and growth rates.
Okay second question can.
Can you talk a little bit about the the rate of subscription cloud growth that you're expecting in your guidance.
26% in the current period.
At this point, what do you think the whole year number looks like.
Yes.
Subscription number.
I think we said that it <unk>.
This area. If you look also on previous quarters, it's pretty consistent the growth rates, even as the number of scale.
Sure.
Both significant cost increases as well as the as delays but.
I don't think it has a major impact in the overall, we we built some inventory ahead of time, if it would persist that problem will become a sports bigger and bigger.
If it will persist, but at this point I think we're managing it relatively well it keeps us somewhat.
But definitely less of an impact for our cloud security solutions, our public cloud or software subscriptions, where it's a it's.
Quarter.
And if it destroys at this level what would it be.
And.
For the full year 'twenty two.
I think a quarter. It is now at the one or two cents EPS. This quarter. It was a bit more $1 5 million. So it's more but going forward per quarter at this level, it's one to two per quarter.
Thanks, that's all.
I'll cede the floor.
There are no further questions at this time I will now turn the call back over to Mr. Roy <unk> CEO.
Thank you very much for joining us today and have a great day. Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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