Q2 2023 Radware Ltd Earnings Call
Welcome to the Radware conference call discussing second quarter 20, twenty-three results and thank you all for holding all lines have been placed on mute to prevent any background noise. After the speaker's remarks that will be a question and answer session. If you would like to ask a question. During this time simply press the Starkey followed by.
The number one on your telephone keypad if.
If you would like to withdraw your question Press Star one again.
As a reminder, this conference is being recorded August two 2023.
I would now like to turn the call over to <unk> Director Investor Relations at Radware. Please go ahead.
Okay.
Good morning, everyone and welcome to otherwise the second quarter of 2023 earlier.
Joining me today.
<unk> Chief Executive Officer.
That'll be done Chief financial Officer.
I Hope you have today's press release and financial statements.
For the second quarter are available in the Investor Relations section of our website.
During today's call when they make projections.
Forward looking statements regarding future events.
Couple of minutes of the company.
These forward looking statements.
Various risks and uncertainties and actually I would be very materially mother was calling for a customer to estimate.
Isn't that could close though.
<unk> include but are not limited to.
For the changing or severe global economic conditions, the COVID-19 pandemic.
This condition.
Our ability to address changes in our industry change.
Changes in demand for products.
The month before this and other risks details from time to time and the other was fighting.
<unk> to the documents and that's the company files and finishes.
With the S. C C. Specifically the company's last annual report on <unk> as far as of March 31st.
23.
We undertake no commitment to revise or update any forward looking statements in order to reflect events or.
The date of such statements excuse me.
I will now turn the closed <unk>.
To go and thank you all for joining us today.
We ended the second quarter of 2023 with revenues of $65.6 million <unk>.
Hopefully, you'll all growth accelerated.
<unk> $208 million compared to 5% growth recorded.
First quarter of 20th 20th.
Our cloud security business with another storm cloud.
<unk> growth accelerated to 23%, reaching $59 million at the end of the second.
This strong cloud performance will be reflected across multiple matrix, including club bookings new logos and the total number of cloud customers with all grew double digits.
The growing cloud business and the growth in our product subscriptions are gradually forming a sustainable and <unk>.
This is progressive reflected in the steady growth in recurring revenue, which increased by 7% in the call too and now accounts for 79%.
Total revenues as compared to 65%.
The second quarter of last year.
While the cloud security business produce strong results in the <unk> in the second quarter.
Lions.
And <unk>, which we believe is a simple already pulled back.
You're spending tons of cloud customer that's impacted capex purchases.
The last few weeks of the second quarter, we witnessed increase the ladies in closing large on <unk> globally.
Natalie among large enterprises materials.
To the best of our knowledge, we have not lost.
<unk>.
Two environment and <unk>.
We have to be prudent.
Expenses too.
And we are proactively taken steps to optimize in the line or.
And maintain stronger profitability.
Sales and marketing expense.
Located spent.
Woods growth markets.
Delivery and go to the market.
The Guy who will elaborate more on this can easily months.
<unk>.
Service providers considered the reimbursement for carefully.
Cyber defences remain in business priority organizations around the world are experiencing a dramatic increase.
Okay and sophistication of cyber attacks.
In the first half of 2023, we are observing a significant shift in the deepest market.
Increasingly ddos attack incorporating a mix of Leo three four and later seven attack victims.
The latest 70 dose of web Ddos attacks are not about your capacity of drugs.
Rather they are encrypted high volume request per second.
Great standard web application firewalls, the networks based data stupid.
The attacks at many large enterprises across different countries and industry.
Purposes airports and healthcare organizations Michael.
Microsoft's which was among the affected organisations disclosed multiple waves the player seven attacks, but could outages in services like is your outlook and one drive.
To mitigate these web ddos attacks, we introduced our new cloud Web Daedalus protection service.
Web services based on two years of <unk>.
And is uniquely positioned to combat this emerging generation of aggressive layer seven attacks, which are leaving companies available.
Our behavioral based solution.
<unk>.
Two orders of magnitude higher than any on Prince solution.
And unlike any other solution in the market.
<unk> blog.
Blocking legitimate traffic.
With the first training.
An excellent proven results in dozens of customers.
Mmm could differentiate though that reset the ground for future Daedalus cloud and appliance growth for our business.
In the second quarter.
Okay.
Two are both manager, which are part of the 360 degree cloud application protection.
Van solution prevents boats from bypassing the additional security controls to gain unlawful access to native Android and iOS mobile application.
It offers first to market integrated authentication for both I O S. An Android devices.
In new identity, all gory plowing organisations to defend themselves against both attacks with the highest accuracy and performance.
Our investment in cloud innovation continues to pay off.
I would like to share with you a few examples of the deals that demonstrate the critical value, we bring to our customers and contributed to our cloud ALR growth in the second quarter.
We close the deal with one of the largest flotation hopes in North America.
This customer <unk> active active data protection for each data centers.
You said it was using the public cloud Watson.
While we were engaging with the customer it was hit with a wave of Ddos attacks that were targeted at the region.
When the cloud provide.
The customer recovered under our <unk>.
This enabled us to showcase our capabilities in real time and when the business.
We also close the important cloud Daedalus deal with the large do one carrier and managed security service provider in Asia Pacific.
Recently.
This is in government organisations impacted the provider's ability to protect some of its customers properly and expose the weakness in the incumbent solution ability to mitigate this new wave of attacks.
Our leaders and leaders.
Mitigation and proven expertise and devote because physician US is the go to Vanderbilt to replace the incumbent.
The way <unk> authorship agreements.
Going forward, we intend to continue.
Cloud security strategy, and our staffs business model, which.
And even more resilient and durable business model.
Together with continuous improvement in our go through.
Our expectation for recovery and the one from purchases.
We trust, we can strengthen our company performance.
We are confident in our leadership position in our technology and products.
We have significant advantages mitigating real time cyber attacks were large enterprises of materials.
We have a superb customer base, and we are becoming more and more critical to our customers operations.
All these assets positions us very well to achieve our long term targets.
With that I will now turn the call over to Greg.
Thank you Roy and good day everyone.
Pleased to provide analysis of our financial results and is a former for the second floor of 2023 as well as our outlook for the third quarter of 2023.
Before the beginning of the financial overview I'd like to remind you that unless otherwise indicated all financial results are non-GAAP .
A full reconciliation of a result.
And non-GAAP basis is.
Issued earlier today.
The investors section of our website.
Revenue.
For a 2023 $65 $6 million compared to 75.1 million dollar.
In the same period of last year.
Right.
The decline in revenue was due to large enterprises and service providers.
The closing of large on prime deals.
The behavior pattern intensified in the last.
Of the second quarter.
We believe that some of the <unk>.
Added to macro environment and budget constraints.
Despite the macro headwinds.
And in accordance with our strategy.
Cloud business continued to performed well also in the second quarter.
Cloud. They are are in the second quarter of 2023, 23% year over year $259 million.
Okay $248 million at the end of the second.
At the end of this.
Thousand 22.
Claudia are are accounted for 28% of totally are are compared to 25% last year.
The growth of our cloud.
Acted in a recurring revenue, which increased 7% year over year and.
And now accounts for 59% totaled.
Total revenue compared to 65% in Q2 2022.
The increase in recurring revenues despite the headwinds we are witnessing.
Two more resilient subscription based business model.
A regional breakdown revenues in the Americas, and a second quarter of 2023 was $27 million.
You get 10%.
Are the trailing 12, <unk> America's revenue decreased by 6%.
You may have revenue in the second quarter was $23 million compared to $30 million in Q2 2022.
A decrease of 24% year over year and 11% decrease.
Trailing 12 month basis.
Of the Americas any male region is related to the decrease in sales of applies based on.
Product and a quarter predominantly to carriers and large enterprises.
Finally.
APAC revenue in the second quarter was $16 million, which represents an increase of 3% year over year.
Trailing 12 months spaces, a port revenue was flat.
Americans accounted for 41% of total revenue in the second quarter.
<unk> accounted for 34% of revenue in APAC accounted for the remaining 25% of total revenue in the second quarter.
Allow discuss property line.
Gross margin and Q2 2023.
Was 82.3% compared to 83.3% in the same period in 2022.
The changing gross margin is mainly attributed to higher cost related to cloud Security Center launched.
During the last year.
The decline in revenue.
Operating expenses in the second quarter or 52 million.
At the lower end of guidance.
Representing.
Percent compared to the same period in 2022.
Financial income continues to grow and reach 3.4 plus.
And the second quarter as a result of higher interest rates in the market.
Net income in the second quarter was 4.5.
<unk>.
Compared to 8.1 million in.
In the same period last year.
<unk> adjusted EBITDA for the Florida was for $1 million, which includes too.
What are the negative impact of the Hawks business.
Polluted earnings per share for two 220, 23 was 10 cents compared to 18 cents.
You too 20 twins.
Turning to the cash flow statement and the balance sheets.
All trading activities in Q2, 2023 was $4.9 million compared to $32 million in the same period of last year.
Laura cash flow from operation is attributed to the lower net income in Q2 2023.
2022.
This is the third revenue in Q2 2023 relative.
Relative to the large increase in the third drive anew in Q2 2000 2002.
During the second quarter will repurchase shares in the amount of approximately 19.7 million out of the $100 million a share repurchase plan that we have in place.
As of two.
2023.
$35 million remained in a share repurchase plan.
We ended up.
With approximately.
S <unk> short term.
Marketable securities.
I'll conclude my remarks with guidance.
Although the electric Lummix headwinds are temporary.
The timing and intensity.
During this time Broadway is mindful.
Please.
And as agile in adjusting its cost structure as needed.
We are taking a few steps, including the resource real location and headcount reductions.
His steps.
<unk> with the changing market conditions and will and.
Naval asked.
Sure.
We are committed.
Of the ability overtime.
<unk> for the third quarter of 2023 to be in the range of 61.
$64 million.
We expect Q3 2023, non-GAAP operating expenses to be between 51, and 52 and a half million dollar.
So it's reality and headcount reduction we expect our opex.
<unk> two approximately $50 million.
Exiting 2023.
We expect non-GAAP diluted net earnings per share to be between six.
And 10 cents and the third quarter of 2023.
Allow turn the call over to the operator for our questions.
Thank you at this time I would like to remind everyone in order to ask a question.
And the number one on your telephone keypad.
We'll take our first question from Georgia.
Japanese.
Hi, guys. Thanks, very much I guess I wanted to ask about the.
The change in the Uhm sales incentive plans I know that you guys made some changes coming into the year I know you details of the plan.
More away from appliances and towards the cloud business, but.
Having an impact on applying sales that part of the narrative here also and then on.
On the macro environment I.
I guess I'm just wondering why you only started to see this kind of towards the end of the quarter was there was there something about the environment. They kind of changes dynamics for you in the marketplace or is this something that's been building over time. Thanks.
Yeah sure. So first regarding the compensation plan, we did the move.
Mmm.
Basic plan and I'm sure it has some impact.
I think that's the major one in D. C. In this regard it's obvious that our sales forces.
Okay.
Sure and more cloud based sales like we wanted to be.
And.
I don't see.
But.
Customers that would change the dynamic it might be more towards the new customers.
Declined <unk> me.
Getting customers.
Sprint so I don't think that's the main.
The the main pose it might've effects like you mentioned in general, but I would not call it the.
After performing this.
In this area regarding the <unk>.
The the way the quote.
Progressed, we started with the guidance that we took into account.
The environment and the challenge.
And as we've mentioned the main difficulties, we've experienced where in existing customers, where we felt we have good understanding of the environment.
Therefore, we were surprised in the last several weeks of the quarter out of the way everything was tracking.
Yeah.
Well, all that time to get those who shout budget conciliation.
Joseph cetera.
We tried to <unk>.
Of course when we.
When we build the guidance for two three the the phenomena that we saw in to take away more cautious and conservative view also in the existing customer business, where we feel we are positioned very well the value is proven we are blocking attacks in real time, there's a high user satisfaction as you can see from the.
Detention rates.
So we feel good about our position, but we do need.
To find a way to accelerate those <unk> purchases also in our existing customers.
Great. Thank you.
Next to Tim.
Oppenheimer.
Hi, This is grant pause on the line for 10 per and Yeah. So you just wanted the AI Fry Yeah, I just wanted to hear about what kind of <unk> seen across the security landscape Mercy This year versus last year, and you mentioned AI with you soon.
<unk> data service seven attacks so.
Hi, how are you guys are thinking about the impact of AIG, our business kind of over the second half of this year I'm really gone into 2024.
Okay.
So first.
The realtime mitigation.
Action and mitigation.
Oh, and one and we are deepening the usage of algorithms constantly we started with that many years ago.
Battery.
Algorithms across our details swarf, both API security that has been four years, our competitive advantage.
Refill the remarks web details we believe we are in.
Competitive advantages using algorithms.
We are using AI, not only for remediation or accelerating certain processes, but for the actual detection in mitigation, that's a bit unique in the market. So that's on our front I think it improves our capabilities it improves.
Efficacy it improves.
There's a lot of benefits.
For AI in the in our land of security.
At the same time the actors are also leveraging more and more algorithms more and more.
For instance.
Layer seven attacks web Ddos attacks I referred to.
And they are way more a.
Real user traffic than we ever so before.
That poses a huge.
Balance for the defense because those sessions this attack.
Luke very very similar to normal legit traffic. So by using algorithms also on the attack you'll side I would say the the sophistication the level of the challenge.
Precincts significantly.
Taking those two parameters into account together I believe the barriers to entry.
Coke mitigating realtime attacks is getting higher and higher.
You would need to have use of investment in those algorithms understanding of of the attack tools et cetera to be able to do it.
And therefore competitively although in one and you can say.
And just getting the.
The difference needs to invest more all of that is true is competitively I think it's actually a good a good phenomenon for hours.
Okay.
Gotcha, Thanks, and just just one quick follow up you know just looking at a R. R. Specifically the noncloud portion of it.
It looks like it's fluctuated around that.
<unk> 45 million dollar range. So yeah, I'm, just curious as customers made to the cloud.
What kind of uplift are you guys seen in a R. R. For every dollar like non cloud a R. R. What kind of conversion is that it's in the cloud and uhm or is that not the right way to think about it.
I think the three buckets and.
One of the cloud.
As accelerate.
Second is product subscription.
Software.
Software that we sell as a subscription so growing and is growing nicely.
In the last quarter.
Maintenance of appliances that is more tied to the installed base.
And so on.
Definitely <unk>.
Traction and all our subscription product and cloud that's growing consistently and I think the maintenance.
Would be more in line with our product.
Sales.
And some of those.
<unk> can bring with them also appliance sales, namely the hybrid details.
In most of our business for example, a D C.
And <unk>.
James those have no relation to the to the cloud business days not cannibalising notary supporting today the sale of ADC, we are working of course to create.
Between our cloud security to the ADC to the <unk> frame to accelerate that in the.
The year progresses, I think we would launch.
Develop such modules to create stronger ties.
Between the two but today, we're enjoying cloud cloud growth and.
Unrelated basically today.
Hello.
Great. Thanks.
We'll take our next question from Tammy rash.
Barclays.
Question I wanted to touch on <unk> and also an email. So just wanted to check the traction with OEM is in line with the brother revenues dynamic.
Dynamics that we've seen and I also notice that the declines anemia was a bit cheaper than in the rest of the geography. So I just wanted to get some colors on both of these points. Please.
Yeah, I'll take <unk>, we actually continued to see good good.
Good traction.
We've mentioned in the analysts data Cisco.
Bold solutions into the cloud Daedalus Solutioning today.
<unk>.
We're starting to see more activity from our role in the cloud and they continue to contribute good level of new customers and the.
Now nice numbers and coming from the OEM channel, we are definitely seeing growth.
From that Shannon.
Alright.
Guarding your question body mass so comparing to last year, we had.
One extraordinary deal in the second quarter of 2002.
That's one the second thing is we mentioned.
Offered to macro headwinds.
Large enterprise and some of them.
All in all we believe our businesses.
Okay. Thanks for that.
King at the Cat.
Capital allocation given your significant cash position have you considered you know.
Changing the pace.
Terms of buybacks in any other considerations there.
So as mentioned we're running on a 100 dollar plan, we still have as of June 30th 35 million.
Obviously you know.
Prices share prices changes.
The pace of <unk>.
Repurchase will change as well.
Great. Thanks for taking my questions.
Sorry.
And we have no further questions at this time I'll turn the call back to horizon.
Hosing remarks.
Thank you, everyone and have a great day.
And this concludes today's conference call. Thank you for your <unk>.
Participation you may now disconnect.
Please wait the conference will begin shortly.
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