Q4 2023 Radware Ltd Earnings Call

Operator: Thank you. Welcome to the Radware conference call discussing fourth quarter and full year 2023 results, and thank you all for holding. As a reminder, this conference is being recorded February 7th, 2020. I would now like to turn this call over to Yiska Arez, Director of Investor Relations at Radware.

Yes.

Okay.

Welcome to the Radware conference call discussing fourth quarter and full year 2023 results and thank you all for holding.

As a reminder, this conference is being recorded February 7th 2024.

I would now like to turn this call over to you Scott I Roose Director Investor Relations at <unk>. Please go ahead.

Yiska Arez: Thank you, Ian. Good morning, everyone, and welcome to Radware's fourth quarter and full year 2023 earnings conference. Joining me today are Roy Zisselfeld, President and Chief Executive Officer, and Gaia Vidan, Chief Financial Officer. A copy of today's press release and financial statement, as well as the investor kit for the fourth quarter and full year, is 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 Radware's current forecasts and estimates. Factors that could cause or contribute to such differences include, but are not limited to, the impact of changing or severe global economic conditions.

Thank you and good morning, everyone and welcome to address fourth quarter and full year 2023 earnings Conference call. Joining me today are always disciplined president and Chief Executive Officer, and Gary Dunn, Chief Financial Officer, a copy of today's press release and financial statements as well.

The investor Kit for the fourth quarter and full year 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 what was current forecast and estimates.

Factors that could cause accordingly contribute to such differences include but are not limited to impact from changing auto grade in global economic conditions.

Yiska Arez: COVID-19 pandemic, general business conditions, and our ability to address changes in our industry, changes in demand for products, the timing of the amount of orders, and other risk details from time to time in Radware's filing. We refer you to the documents that the company files and furnishes from time to time with the SEC. Specifically, the company's last annual report on Form 20-F, as filed on March 30, 2023. We undertake no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date on which such statement is made. I will now turn the call to Roy's disappearance.

COVID-19 pandemic.

This condition.

And our ability to address changes in our industry changes in demand for products, the timing and the amount of orders and other risks detailed from time to time in the by the way.

We refer you to the documents the company files and furnishes from time to time with the SEC specifically the company's last annual report on form 20-F filed on March 30, 123, we undertake no commitment to revise or update any forward looking statements in order to reflect events or so.

<unk> expenses after the date of such statements you've made I will now turn the call Tivo has dissipated.

Roy Zisselfeld: Thank you, Iska, and thank you all for joining us today. We ended the fourth quarter of 2023 with revenue of $65 million and non-GAAP diluted earnings per share of $0.13. In the fourth quarter of 2023, total adjusted ARR, as discussed in our last earnings call, grew to $211 million, a 7% increase compared to the same period in 2022. The ARR growth is driving recurring revenues, which accounted for 77% of total revenue in 2020. This is a 900 basis point increase compared to last year.

Thank you Scott and thank you all for joining us today.

We ended the fourth quarter of 2023 with revenue of $65 million and non-GAAP diluted earnings per share of 13 states.

In the fourth quarter of 2023 total adjusted the yellow is discussed in our last earnings call grew to $211 million, a 7% increase compared to the same period in 2022.

<unk> growth is driving recurring revenues, which accounted for 77% of total revenue in 2023.

This is a 900 basis point increase compared to last year.

Roy Zisselfeld: The total ARR growth was fueled by cloud ARR growth of 22%, once again exceeding 20% year-over-year growth and reaching $65 million. Subscription revenue, which is comprised of cloud and product subscriptions, accounted for 44% of total revenue in the fourth quarter, as well as for the full year, reaching $115 million for 2020. With that, we are making strong and steady progress to cloud security as a service. Looking forward, we are cautiously optimistic about 2024.

The total growth was fueled by cloud growth of 22% once again exceeding 20% it will be a real growth in reaching $65 million subs.

Subscription revenue that is comprised of cloud and product subscriptions accounted for 44% of total revenue in the fourth quarter as well.

Well as for the full year, reaching $150 million.

<unk> thousand two initially.

With that we are making strong and steady progress to our cloud security as a service company.

Looking forward, we are cautiously optimistic about 2024.

Roy Zisselfeld: First, we witnessed a better business environment in the fourth quarter. In addition to growth in our cloud and subscription business, we saw early signs of recovery in closing large CapEx deals, specifically across Europe and Asia-Pacific. The recovery is also reflected in the pipeline and the progress we made in moving existing projects forward.

First we weakness the better business environment in the fourth quarter.

In addition to growth in our cloud and subscription business. We saw early signs of recovery in closing large capex deals specifically across Europe and Asia Pacific.

The recovery is also reflected in the pipeline and the progress we made in moving existing projects forward.

Roy Zisselfeld: Second, the demand in the markets for cyber protection solutions continues to be solid as attacks intensify. According to our full-year 2023 Global Threat Intelligence report, the number of DDoS attacks per customer grew by 94% compared to 2022. In addition, we observed a surge in malicious web applications and API attacks, which rose 171% last year.

Second the demand in the market for cyber protection solutions continues to be solid as attacks intensified.

According to our full year 2023 global threat Intelligence report the number of Ddos attacks per customer grew by 94% compared to 2022.

In addition, we observed the surge in malicious web application and API attacks, which rose 171% last year.

Roy Zisselfeld: A significant part of this increased activity was driven by layer 7 web application attacks or web DDoS attacks, a trend that has not slowed down. We believe the frequency, complexity, and sophistication of cyber attacks will intensify throughout 2024. Organizations, regardless of geography or industry, are facing increased cyber threats driven by major geopolitical tensions and conflicts. This plays directly to our value proposition, real-time protection against application and data center attacks.

A significant part of this increased activity was driven by layer seven web application attacks of web Ddos attacks.

Trend that has not slowed down.

We believe the frequency complexity and sophistication of cyber attacks will intensify throughout 2024.

Organizations, regardless of geography or industry are facing increased cyber threat, driven by a major geopolitical tensions and conflicts.

This plays directly to our value proposition real time protection against application in data center attacks.

Third.

Roy Zisselfeld: We are confident we have the right solutions in place to address the emerging trends in the market. To stay ahead of the attackers, we're continuously enhancing our offering with new algorithms and capabilities. One example is the WebDDoS attack.

We are confident we have the right solutions in place.

The address the emerging trends in the marketplace to.

To stay ahead of the attackers were continuously enhancing our offering with new algorithms and capabilities.

One example at least the web Ddos attacks. These layer seven attacks emerged last using cloud companies that rely on preexisting signatures or rate based detection off guard.

Roy Zisselfeld: These Layer 7 attacks emerged last year and caught companies that rely on pre-existing signatures or rate-based detection of guards. Our cloud web DDoS protection continues to be unmatched in its ability to mitigate web DDoS attacks based on a battery of algorithms we added last year. In the fourth quarter, we announced an on-premise version of our web DDoS protection with DefenseProX. This solution offers companies comprehensive protection against these attacks without decrypting, cramming traffic, or adding latency.

Our cloud web Ddos protection continues to be unmatched in its ability to mitigate web ddos attacks based on a battery of algorithms we added last year.

In the fourth quarter, we announced an on premise version of our web Ddos protection with defense.

This solution offer companies comprehensive protection against these attacks without decrypting incoming duffy or adding latency.

Roy Zisselfeld: We believe this significant capability will strengthen the traction for Defense Pro-X in the market, boosting our appliance business. Another example is the recent expansion of our bot manager module in our cloud application security office. We recently enhanced our solution to detect and mitigate the latest generation of bot threats, those that are developed with the help of generative AI tools. These new enhancements enable organizations to defend against attackers who try to evade them by exploiting vulnerabilities, rotating identities, manipulating headers, using capture forms, and more.

We believe this significant capability will strengthen the traction for defense Pro X and the market.

Boosting our appliance business.

Another example is the recent expansion of our bulk manager module in our cloud application security offerings.

We recently enhanced our solution to detect and mitigate the latest generation of both threats.

Those that are developed with the help of generative AI tools.

These new enhancements enable organizations to defend against attackers, who try to evade detection by exploiting vulnerabilities rotating identities manipulating ed using top tier firms and more.

Roy Zisselfeld: The fourth reason we are cautiously optimistic about 2024 is the sustained growth of our cloud business. The cloud security ARR continues to grow over 20% year over year. We believe we can maintain this growth rate throughout 2024. We are diligently expanding and enhancing our cloud offering, creating more opportunities to cross-sell and upsell within our customer base. We are also expanding our geographic footprint in the market, working with our MSSP and OEM channels. The cloud security market is large and growing, with opportunities that we intend to capitalize on.

The fourth reason, we're cautiously optimistic about 2020 for the sustained growth of our cloud business.

The cloud security AUO continues to grow over 20% digital video.

We believe we can maintain these growth rates throughout 2024.

We are diligently expanding and enhancing our cloud offering creating more opportunities to cross sell and upsell within our customer base.

We are also expanding our geographic footprint in the market working with our MSP and OEM channels.

The cloud security market is large and growing with opportunities that we intend to capitalize on.

Roy Zisselfeld: Finally, our optimistic outlook is strengthened by the positive momentum behind our OEM relations. During 2023, we expanded our business with Checkpoint, and in particular with this, our inclusion in the Cisco Enterprise Agreement has created many opportunities that we will build upon in 2025. Before I conclude my prepared remarks, I would like to share with you some of the notable deals that we closed in the fourth quarter of 2020. For example, with positive momentum beginning to return behind large CapEx deals, we expanded our long-term relationship with one of the top five carriers in the world. In a multi-million dollar deal, the customer has extended DDoS protection for its data set.

Finally, our optimistic outlook has strengthened by the positive momentum behind our OEM relationships.

During 2023, we expanded our business with checkpoints and in particular with physical.

Our inclusion in fiscal enterprise agreement has created many opportunities, but we will build upon in 2024.

Before I conclude my prepared remarks, I would like to share with you. Some of the notable deals that we closed in the fourth quarter of 2023.

For example, with positive momentum beginning to return behind large capex deals.

We expanded our long term relationship with one of the top five carriers in the world.

In a multimillion dollar deal the customer has extended the Ddos protection for its data centers.

Roy Zisselfeld: We also closed a multi-million dollar deal with the leading telecom company in Asia Pacific. After winning its MSSP business in the second quarter, we successfully cross-sold our on-premise DDoS and cloud application security solutions in the fourth quarter, replacing two different incumbents. This deal highlights the strengths and breadths of our solution. In another customer expansion, we closed a large deal with a government agency in Asia-Pacific. The customer launched a series of data centers to accommodate the growing customer base.

We also closed a multimillion dollar deal with a leading telecom company in Asia Pacific.

After winning its MSP business in the second quarter, we successfully cross sold our on premise Ddos.

And cloud application security solutions in the fourth quarter.

Replacing two different incumbents.

This deal highlights the strength and breadth of our solution.

In another customer expansion, we closed a large deal with a government agency in Asia Pacific.

The customer launched a series of data centers to accommodate the growing customer base.

Roy Zisselfeld: We sold our entire product portfolio to them, including an upsell of our Altium application delivery controller and our DDoS and Cloud DDoS protection. This is another win that showcases the success we have had capitalizing on our full portfolio. In summary, we close 2023 on a positive note. During the fourth quarter, we made important progress on our strategic initiatives. We continue to successfully grow our cloud security business, taking our claim as a cloud security as a service company, with strong cloud security opportunities ahead of us, positive signals in overall customer spending, and continued cost discipline. We remain cautiously optimistic about 2024. We look forward to a return to top-line growth and improved profitability. With that, I would like to thank our employees around the world for their continued efforts and turn the call over to them. Thank you, Roy, and good day, everyone.

We sold our entire product portfolio to them, including an upsell of our alteon application delivery controller, and our Ddos and cloud Ddos protection.

This is another win that showcase the success, we have capitalizing on our full portfolio.

In summary, we close 2023 on a positive note.

During the fourth quarter, we made important progress on our strategic initiatives.

We continue to successfully grow our cloud security business.

Our claim as the cloud security as a service company.

With strong cloud security opportunities ahead of us.

Positive signals and overall customer spending and continued cost discipline.

We remain cautiously optimistic about 2024.

We look forward to a return to topline growth and improved profitability.

With that I would like to thank our employees around the world for their continued efforts and turn the call over to date.

Thank you Roy and good day everyone.

Gaia Vidan: I'm pleased to provide an analysis of our financial results and business performance for the fourth quarter and full year of 2023, as well as our outlook for the first quarter of 2024. Before beginning the financial overview, I would like to remind you that, unless otherwise indicated, all financial results are non-GAAP. A full reconciliation of our results on a gap and non-gap basis is available in the earnings press release issued earlier today and on the investor section of our website. Revenue for the fourth quarter of 2023 was $65 million compared to $74.1 million in the same period of last year. Revenue for the full year 2023 was $261.3 million compared to $293.4 million in 2022. The decline in revenue is attributed to delays in closing large deals due to greater budget constraints by customers, primarily in the Americas.

I'm pleased to provide the analysis of our financial results and business performance for the fourth quarter and full year of 2023.

As well as our outlook for the first quarter of 2024.

Before beginning the financial overview I would like to remind you that unless otherwise indicated all financial results are non-GAAP.

A full reconciliation of our results on a GAAP and non-GAAP basis is available in the earnings press release issued earlier today.

And on the investors section of our website.

Revenue for the fourth quarter of 2023 was $65 million compared to $74 1 million in the same period of last year.

Revenue for the full year 2023 was $261 3 million compared to $293 4 million.

In 2022.

The decline in revenue is attributed to delays in closing large deals due to greater budget constraints by customers.

Early in the Americas.

Gaia Vidan: However, as Roy highlighted, we do see encouraging signs of improvement in macro headwinds and, as a result, in customer spending. These positive signs are reflected in increased RPO at year-end and more traction for our solution. In the fourth quarter, the cloud security business, which is the growth engine of the company, continued to excel, producing cloud ARR growth of 22.5% year over year, reaching $64.9 million compared to $53 million, taking us another step towards becoming a cloud security as a service company. Our security business portion accounts for the large majority of the total business of Radware, on a regional breakdown.

However, as Roy highlighted we do see encouraging signs of improvement in macro headwinds and as a result in customer spending.

These positive signs are reflected in increased our Po at year end and more attraction to our solutions.

In the fourth quarter, the cloud security business, which is the growth engine of the company continues to excel proceeding.

Do think cloud AOR growth of 22, 5% year over year, reaching 64 $9 million compared to $53 million.

<unk> another step towards becoming a cloud security as a service company.

Our security business portion accounts for the large majority of the total business of <unk>.

On a regional breakdown.

Gaia Vidan: Revenue in the Americas in the fourth quarter of 2023 was $24.6 million, compared to $31.9 million in the same period last year, representing a 23% decrease year over year. Americas revenue for the full year of 2023 declined 70% year-over-year to $103.4 million compared to $123.9 million in the same period last year. EMEA revenue in the fourth quarter of 2023 increased 2% year over year to $24.9 million. EMEA revenue for the full year 2023 was $96.5 million, compared to $104.2 million in 2022. 7% decline year-over-year. APAC revenue in the fourth quarter of 2023 was $15.5 million, which represents a decrease of 13% year over year. For the full year of 2023, APAC revenue decreased by 6% compared to 2022, to $61.4 million.

Revenue in the Americas in the fourth quarter of 2023 was $24 6 million compared to $31 9 million in the same period last year, representing 23% decrease year over year.

Revenue in the Americas for the full year of 2023 declined 17% year over year to $103 4 million compared to $123 9 million in the same period last year.

EMEA revenue in the fourth quarter of 2023 increased 2% percent year over year to $24 9 million.

EMEA revenue for the full year 2023 was $96 5 million compared to $104 2 million in 2022.

The 7% decline year over year.

APAC revenue in the fourth quarter of 2023 was $15 $5 million.

Which represents a decrease of 13% year over year.

For the full year of 2023, APAC revenue decreased by 6% compared to 2022 to $61 4 million.

Gaia Vidan: For the fourth quarter of 2023, Americas and EMEA accounted for 38% of total revenue each, and APAC accounted for the remaining 24% of total revenue. For the full year 2023, America accounted for 40% of total revenue, EMEA accounted for 37%, and APAC accounted for 23% of total revenue.

While the fourth quarter of 2023.

Americas and EMEA accounted for 38% of total revenue each and APAC accounted for the remaining 24% of total revenue.

For the full year 2023, Americas accounted for 40% of total revenue.

<unk> accounted for 37%.

In APAC accounted for 23% of total revenue.

Gaia Vidan: I'll now discuss profits and expenses. Gross margin in Q4 2023 was 82%, compared to 82.7% in the same period in 2020. The change in gross margin is mainly attributed to the decline in revenue.

I will now discuss profits and expenses.

Gross margin in Q4 2023 was 82%.

Third to 82, 7% in the same period in 2022.

The change in gross margin is mainly attributed to the decline in revenue.

Gaia Vidan: Gross margin for the full year 2023 was 81.9% compared to 83% in the full year 2022. Similar to the last couple of quarters, and to align the level of the company's operations, we continue to reduce our operating expenses in the fourth quarter to below $50 million. We are mindful of our expenses, and we expect to improve our profitability going forward due to continued expense decisions. While we reduce operating expenses, we believe that this expense structure is efficient to operate the business and enable our future growth. Financial income continued to grow year-over-year and reached $3.8 million in the fourth quarter as a result of higher interest rates in the market.

Gross margin for the full year 2023 was 81, 9% compared to 83% in the full year of 2022.

Similar to the last couple of quarter and to align the level of the company operation. We continue to reduce our operating expenses in the fourth quarter to below $50 million.

We are minded to our expenses.

And we expect to improve our profitability going forward due to continued expense discipline.

While we reduced operating expenses, we believe that this expense structure is efficient to operate the business and enable our future growth.

Financial income continued to grow year over year and reached $3 $8 million in the fourth quarter as a result of higher interest rates in the market.

Gaia Vidan: Tax rates for the fourth quarter and full year of 2023 were 24.3% and 17.7%, respectively, compared to 12.5% and 14.1% in the same period of last year. Increasing our tax rate for the fourth quarter of 2023 is primarily due to a catch-up related to end-of-year updated estimates. Increasing our tax rate for 2023 was primarily due to lower pre-tax income for this period and expenses derived from our foreign subsidiaries, which are subject to tax based on cost and not profit. Net income in the fourth quarter was $5.5 million, compared to $7.7 million in the same period last year. Net income for the full year of 2023 was $18.9 million compared to $31.3 million in 2022. Radware's adjusted EBITDA for the fourth quarter was $5.4 million, which includes a negative EBITDA of $2.7 million from the Hawks business.

Tax rate for the fourth quarter and full year of 2023 was 24, 3% at 17, 7% respectively.

<unk> to 12, 5% in 2014, 1% in the same period of last year.

The increase in our tax rate for the fourth quarter of 2023 is primarily due to a catch up related to end of year updated estimates.

Increase in our tax rate for 2023 was primarily due to lower pre tax income for this period and expenses derived from foreign subsidiaries, which are subject to tax based on cost and not profits.

Net income in the fourth quarter was $5 5 million compared to $7 7 million in the same period last year.

Net income in the full year of 2023 was $18 9 million compared to $31 3 million in 2022.

<unk> adjusted EBITDA for the fourth quarter was five $4 million, which includes a negative EBITDA of $2 $7 million.

The Hawks business.

Gaia Vidan: The adjusted EBITDA for the full year of 2023 was $17.6 million, which includes $10.8 million of negative EBITDA from the HOX. The diluted earnings per share for Q4 2023 was $0.13 compared to $0.17 in Q4 2022, and $0.43 for the full year of 2023 compared with $0.68 for the same period of last year. Turning to the cash flow statement and balance sheet, cash flow from operations in Q4 2023 was $2.7 million compared to $9.6 million in the same period of last year. Cash flow from operation in the full year of 2023 was negative $3.5 million compared to positive cash flow from operation of $32.1 million in 2022. The lower cash flow from operation arises from a lower profitability discussion.

Adjusted EBITDA for the full year of 2023 was $17 $6 million, which includes 10 $8 million negative EBITDA from the <unk> business.

Diluted earnings per share for Q4, 2023 was 13 <unk> compared to <unk> 17.

In Q4 2022 and.

<unk> 43 for the full year of 2023.

Compared with 68 for the same period of last year.

Turning to the cash flow statement and balance sheet.

Cash flow from operation in Q4, 2023 was $2 $7 million compared to $9 6 million in the same period of last year.

Cash flow from operation in the full year of 2023 was negative at $3 $5 million compared to positive cash flow from operation of $32 1 million in 2022.

The lower cash flow from operation arise from lower profitability discussed above.

During the fourth quarter and the full year of 2023, we repurchased shares India allowed of approximately.

$10 million at $60 million respectively.

As of December 31, 2023, approximately $66 million remained in our share repurchase plan.

Gaia Vidan: During the fourth quarter and the full year of 2023, we repurchased shares in the amount of approximately $10 million and $60 million, respectively. As of December 31st, 2023, approximately $66 million remained in our share repurchase plan. We ended the fourth quarter with approximately $364 million in cash. Cash Equivalent, Bank Deposit, and Marketable Security.

We ended the fourth quarter was approximately $364 million in cash cash equivalents bank deposits and marketable securities.

I'll conclude my remarks with guidance.

We expect total revenue for the first quarter of 2024 to be in the range of 60.

Gaia Vidan: I'll conclude my remarks with guidance. We expect total revenue for the first quarter of 2024 to be in the range of $62 to $64 million. We expect Q1 2024 non-GAAP operating expenses to be between $49 to $50.5 million. We expect Q1 2024 non-GAAP diluted net earnings per share to be between $0.12 and $0.14. I'll now turn the call over to the operator for questions. Operator, please.

$62 million to $64 million.

We expect Q1 2024, non-GAAP operating expenses to be in between.

$49 million to $55 million.

Yes.

We expect Q1 2024, non-GAAP diluted net earnings per share to be between.

12 and 14.

I'll now turn the call over to the operator for questions.

<unk> please.

Thank you.

As a reminder, please press star followed by the number one on your telephone keypad. If you would like to ask a question. Once again that is star followed by the number one <unk>.

Operator: Thank you. At this time, as a reminder, please press star followed by the number 1 on your telephone keypad if you would like to ask a question. Once again, that is star followed by the number 1.

A moment to compile the Q&A roster.

Okay.

Our first question comes from the line of Alex Henderson with Needham Your line is open.

Okay. Thanks.

Just a couple of housekeeping to start off with.

Alex Henderson: We'll pause for a moment to compile the Q&A. Our first question comes from the line of Alex Henderson with Needham. Your line is open. Hey, thanks. Just a couple of housekeeping things to start off with. Can you talk a little bit about the direction of the interest line? for us to forecast it externally, and I would assume that interest rates are starting to roll over, and might be coming down. I'm happy to answer any of your questions.

Can you talk a little bit about the direction of the interest line.

For us to forecast as externally.

And I would assume that interest rates starting to rollover that the interest rate.

It might be coming down.

2024.

Wanted to have.

A bad forecast on that so can you give us some sense of what you think that's going to do.

I think some headwind in terms of reduced interest rate throughout 2024, as well as a lower cash balance in 2024 versus 2023.

Gaia Vidan: Thank you. Thank you, bad forecast on that. Center, which I think is some headwind in terms of reduced interest rates throughout 2024, as well as a lower cash balance in 2024 versus 2023. But at the same time, we have Tailwind. We still have, or had, bonds in 2023 with lower interest rates because they were long-term bonds. So overall... the 3.8 we posted in Q4, we expect more or less the same level of interest income in 2024 for a quarter. Great, and just any guidance on the percentage tax rate that we should be thinking about for the year? The way we see for 2024, a 15% tax rate, No, no change in that.

But at the same time, we have a tailwind we still have.

Or had.

Bonds in 2023 with lower interest because they are long term bullish so overall.

The three eight.

Posted in Q4, we expect more or less same level of interest income in 2024 quarter.

Great.

Just any guidance on the percentage tax rate that we should be thinking for the year.

The way, we see for 2024, 15% tax rate.

It will be.

So no change in that great.

But you do seem to have.

A little bit more confidence in the outlook.

It does sound like.

Gaia Vidan: Great. A little bit more confidence in the outlook, it sounds like. You know, the trajectory is starting to recover. Can you talk a little bit about what the pipeline looks like? Is there an increase in large deals, is the closure rate improving, is the duration of the time to close deals stable or improving, what are the mechanics that give you that confidence?

The trajectory is starting to recover.

Can you talk a little bit about what.

The pipeline looks like.

How many.

Is there an increase in large deals is the closure rate.

Improving is the duration of the time to close deals.

Stable or improving.

What are the mechanics that gives you that confidence.

No.

Roy Zisselfeld: Okay, so several points on that. First, we started to see some first large deals closing in Q4, you know, if you look at Q3 or Q2, we had challenges closing those over-a-million dollar deals. Second, you know, the pipeline that was there was not moving to close at the regular rates that we've seen.

Okay. So several points on that so first we started to see.

First large deals closing in Q4.

Local in Q3 or Q2, we had challenges on closing those over 1 million below.

Deals second.

The pipeline that was there was not moving towards close the regular rates that we've seen in Q4 and also since the beginning of this year, we're starting to see some of the deals moving forward, it's not completely back to previous levels, but definitely bidder.

Roy Zisselfeld: In Q4 and also, you know, since the beginning of this year, we're starting to see some of the deals moving forward. It's not completely back to previous levels, but definitely better, and that's why we chose the term cautiously optimistic. It's definitely better. And it's also better, by the way, in North America.

And Thats why we chose the term cautiously optimistic.

It's definitely better.

It's also better by the way in North America. So some of the deals that we had in the pipeline. Some other deals are opening up customer Laura.

Roy Zisselfeld: So some of the deals that we had in the pipeline, some other deals are opening up. Customers are more optimistic about their budgets and their ability to leapfrog the security infrastructure going forward. So overall, I would say it's neutral to positive across the world.

More optimistic on their budgets and their ability to.

To leapfrog the security infrastructure going forward. So overall I would say, it's neutral to positive across the world and hence we're feeling more positive about it as well.

Roy Zisselfeld: And hence, we're feeling more positive about it as well. So just to be clear, what you're saying there is that the deal closure time had been expanding. It took longer to close a deal, and now you're starting to see that improve. Is that what I'm hearing?

So just to be clear what youre, saying there is that the deal closure time had been expanding.

It should take longer to close the deal and now youre starting to see that improve is that what I'm hearing.

Roy Zisselfeld: Yes, and before it was not even expanding, they were not closing; they were just, you know, pushed from quarter to the next. So now we have started to see early signs of closing and more concrete discussions on some other opportunities that give us confidence that those will be closing probably in the first half of 2024. So definitely, we're seeing good signs there. By the way, you couple that with the growth that we have had in all recent years, including 2023 in cloud security, which we believe we can maintain that momentum. So overall, we obviously feel better. And last but not least, Guy mentioned that our RPO is now at a record level. ARR is at a record level.

Yes, and before it's not even expanding there we're not closing there were just you know.

From quarter to the other so now we've started to see early signs of close and more concrete discussions with some other opportunities.

Give us confidence those will be closing probably in the first half of <unk>.

2024, so definitely we are seeing good signs there.

By the way you coupled that with the growth that we had during all recent deals, including 2023 and cloud security, which we believe we can maintain that momentum. So overall, we obviously feel better and last but not least dimension that IPO is now at record level.

<unk> is a critical level, obviously all of that gives us more visibility towards 2020 for sure absolutely.

Just one last question on the cost side of the equation.

Alex Henderson: Obviously, all of that gives us more visibility towards 2025. Absolutely. Just one last question on the cost side of the equation. Is it reasonable to think that we should be using that kind of 49 to 55 range for all four quarters?

At reasonable things that we should be using that kind of 59% to $55 range for all four quarters, how does that kind of the cost structure for the year.

Yes. Thanks.

Perfect. Thank you.

Thanks Alan.

Once again as a reminder, if you'd like to ask a question. Please press star followed by the number one.

Alex Henderson: Is that kind of the cost structure for the Yeah. Perfect, thank you. Thanks, everyone. Once again, as a reminder, if you would like to ask a question, please press star followed by the number one. Are uh, our next question comes from the line of Chris Reimer with Barclays. Your line is open. Hi, thanks for taking my question, and congratulations on the strong results.

Or in.

Our next question comes from the line of Chris Reimer with Barclays. Your line is open.

Hi, Thanks for taking my question and congratulations on the strong results.

You mentioned the weakness in <unk>.

North America recently, and the gradual pickup that Youre seeing now.

Chris Reimer: You mentioned the weakness in North America recently and the gradual pickup that you're seeing now. I was wondering if you could talk about any other challenges or headwinds you're seeing, maybe playing out through the year. Aside from that, as deals start to close faster, and you get a little more momentum, I think for us, this is by far the biggest challenge we see. And we are looking, obviously, for a better year in 2024 in North America. But overall, we feel that the results internationally were good as it relates to us. We don't foresee, you know, specific, unique headwinds for us, beyond the regular geopolitical China, and Russia, the regular geopolitical challenges for the economy for us. But as it relates to us, I think it's predominantly North America.

Was wondering if you could talk about any other challenges or headwinds youre seeing maybe playing out through the year.

Aside from that as as deals start SaaS right and you get a little more momentum.

So I think for US this is by far the largest.

Charlotte do we see.

We are looking obviously for a better year in 2024 in North America, but overall, we feel that the results internationally were.

We're good as it relates to.

To us we don't foresee you know specific.

A unique headwinds to us beyond the regular geopolitical China, Russia, the regular geopolitical challenges in the economy.

For us, but as it relates to us I think it's a mix.

North America predominantly.

Okay.

And regarding Skyhawk could you give us an overview of the evolution of the business there and when you might think.

Roy Zisselfeld: Okay. And regarding Skyhawk, could you give us an overview of the evolution of the business there and when you might think it will start to impact the business?

It will start to impact.

The business.

Roy Zisselfeld: Yeah, so Skyhawk is focused on a new niche market in public cloud security, which is called Cloud Detection and Response, or CDR. It's a very new market; there are other startups in that, but it's basically talking about or addressing the need in real time to detect intrusion into your public cloud account and block it before the hackers are able to steal valuable data, identities, and so on. The solution is heavily based on machine learning and AI algorithms that, based on multiple malicious indicators, are able to understand whether what we are seeing, the anomalies we see, are actually part of a kill chain or an attack that is actually developing in real time.

Yes.

<unk>.

<unk> is focused on a new.

Niche marketing public cloud security, which exclude is called cloud detection and response CDL.

It's a very new markets. There are other startups in that but it's basically talking or addressing the needs in real time to detect intrusion into your public cloud.

Talent and block it before the <unk> are able to steal the valuable data identities in civil the the solution is.

And really based on machine learning and AI algorithms.

Based on multiple.

Malicious indicators are able to understand whether what we are seeing the anomalies, we see are actually part of.

Q chain or an attack.

That is actually developing in the meantime.

Roy Zisselfeld: I think the solution is very advanced and unique in the market. You know, we are adding a lot of usage of generative AI to detect new attacks, as well as create new sensors and, in real time, improve the product. But again, it's very early. I would not foresee a material impact on Radware revenues in 2024.

I think the solution is very advanced and unique in the market.

We are adding a lot of usage of generative AI too.

Detect new attacks as well as create new sensors.

In real time and improve the product, but again, it's very early I would not foresee.

24 materially impactful module revenues.

Roy Zisselfeld: As you see, we do consolidate the losses although the company is fully funded, and that hurts our EPS. But we are strong believers in the technology and in the positioning. We think there will be a very good opportunity for shareholder value in public cloud security with Skyhawk, and we look forward to their success.

As you'll see we do consolidate the losses, although the company's fully a is.

<unk> is fully funded.

And that sellers.

Our EPS, but we are strong believers in the technology and the positioning we think there will be a very good opportunity.

Shareholder value in public cloud security, we have scale and we look forward to their success.

Chris Reimer: Great. Thanks. That's a nice color.

Great. Thanks, that's nice color that's it for me.

Operator: That's it for me. Thank you. There are no further questions at this time. I would like to hand the call back over to Roy Zisipel for some closing. Thanks a lot.

Thank you.

There are no further questions at this time I would like to hand, the call back over to Roy Joseph Hill for some closing remarks.

Thanks, a lot. Thank you for joining us and have a great day.

Roy Zisselfeld: Thank you for joining us, and have a great day. This concludes today's conference call. You may now disconnect. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.

This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

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