Q1 2024 Radware Ltd Earnings Call
Welcome to the Radware conference call discussing first quarter 'twenty 'twenty four results and thank you all for holding.
At 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. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
As a reminder, this conference is being recorded May eight 2024, I would now like to turn the call over to East got Iraq Director Investor Relations a threadbare. Please go ahead.
East: Thank you operator, and good morning, everyone and welcome to address first quarter of 2024 earnings Conference call.
East: With me today are always disappointed president and Chief Executive Officer, and Gordon Dunn Chief Financial Officer.
East: A copy of today's press release, and the financial statements as well as the Investor kit for the first quarter.
East: Renova in the Investor Relations section of our website.
East: During today's call, we may make projections or other forward looking statements regarding future events or the future financial performance of the company.
East: These forward looking statements are subject to various risks and uncertainties and actual results could differ materially from rod with current forecast and estimates.
East: Factors that could cause or contribute to such differences include but are not limited to impact from the changing or severe global economic conditions. The COVID-19, pandemic and general business conditions, and our ability to address changes in our industry.
East: Changes in demand for products.
East: Timing and the amount of orders and other risks detailed from time to time, you know it was fighting.
East: We refer you to the documents the company size and furnishes from time to time with the SEC specifically the company's last annual report on form 20-F as filed on March 22024.
East: 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.
Speaker Change: I will now turn the call to royalties.
Royalties: Thank you Scott and thank you all for joining us today.
Royalties: We ended the first quarter of 2020 full with revenues of $65 million and non-GAAP, earning per share of 16 since both above the high end of our guidance.
Royalties: We diligently manage expenses and improved our profitability.
Speaker Change: Similar to previous school do we witnessed a favorable business environment marked by an uptick in large capex deals more customer engagement and healthier pipeline.
Speaker Change: In the first quarter total adjusted.
Speaker Change: Increased 8% year over year, driven by growth in our cloud and subscription business.
Royalties: Subscription revenues now account for 46% of total revenue compared to 41% in the first quarter of last year, demonstrating our ongoing shift to SaaS models.
Royalties: Our cloud security business sustained robust growth with Claudia that's growing again, 22% year over year.
Royalties: This performance is also underscored by a record number of new bookings and new logos.
Royalties: The momentum behind our cloud security business is driven by four key growth drivers that we believe are sustainable.
Royalties: First.
Royalties: Our product offering fuel strength consistently drove security conscious customers.
Royalties: Our cloud security offering leaves with a large battery of AI powered security algorithms designed to detect and block attacks without disrupting the <unk> traffic flows.
Royalties: Customers highly value these unique capabilities driving numerous new logos and expansion deals.
Royalties: Second the ongoing expansion of our cloud security offering creates additional growth and upsell opportunities.
Royalties: During the first quarter, we announced the expansion of our cloud application and network security services to include a new AD load balancing of the service and enhanced cloud network analytics service.
Royalties: These services are Cisco organizations in optimizing application performance and ensuring the availability and maximizing network monitoring and visibility during peacetime.
Royalties: They complement the value we provide further strengthening our proposition to clients.
Royalties: Third.
Royalties: The steady expansion of our geographical footprint creates new customer acquisition opportunities.
Royalties: During the first quarter, we expanded our global cloud service network and launched a new Ddos Scrubbing center in Paris.
Royalties: We plan to introduce additional locations later in the year.
Royalties: Force.
Royalties: People don't factor is the surge in application and network effects in particular layer seven web ddos attacks fueling customer demand for enhanced protection.
Royalties: This new way of web Ddos attacks has been multivalent by major geopolitical conflicts and actavis activities.
Royalties: Instead during last show invasion for grain.
Royalties: It led to an increased frequency and sophistication of web Ddos attacks.
Royalties: These notes last year and intensified in the previous quarter with expectations for further escalation in frequency complexity and sophistication throughout 2024.
Royalties: The growing demand for advanced real time protection is evident in the success of our defensible ex solution, which provides protection against web Ddos and advanced DNS attacks.
Royalties: Defense <unk>.
Royalties: Very well and being highly competitive.
Royalties: The AI powered offering is unmatched in its ability to automatically detect and surgically blocked web ddos attacks.
Royalties: This result is improved security and faster time to resolution cushion for maintaining customer business continuity.
Royalties: The strength of this value proposition is evident in some of our first quarter wins.
Royalties: For example, we signed two major seven digit defense Blake's deals one with a tier one carrier in North America.
Royalties: Great.
Royalties: This protection.
Royalties: Other win with a major European financial institution that experienced largely a <unk> at that.
Royalties: The latter also replace their incumbent cloud Ddos through Baidu with our hybrid cloud Ddos solution, where our complete perfection.
Royalties: Our partnership with Cisco and checkpoint with another contributor to our performance in the first quarter.
Royalties: We kicked off 2024 with record fiscal bookings following a record year in 2023.
Royalties: While checkpoint also demonstrated a strong start for the year.
Royalties: To protect our customers, we constantly innovating our offering with AI at the fingertips of doctors threats are becoming not only increasingly complex and adaptive but also with reduced time to adapt.
Royalties: In response, we're taking the fight AI with AI approach to security.
Royalties: A good example for our fight AI with AI strategy is the enhancements, we introduced to our bulk manager.
Royalties: The newest addition of our bulk manager is designed to automatically mitigate a new generation of aggressive AI driven in human like boats without blocking legitimate users.
Royalties: Our customers. This means better end user experience and the reduction in costly business impact like customer churn and lost revenues.
Royalties: Another example is the AI powered <unk> DNS Ddos protection solution.
Royalties: Using our patented algorithms it automatically distinguishes between legitimate and attack drastic and instantly adapt ddos defenses based on the specific attack.
Royalties: According to our leased and threat Intelligence report D&S, Florida tax increased nearly 400% between.
Royalties: 22 and 2023.
Royalties: And these new algorithms will significantly shorten time to resolution when countering even the most sophisticated DNS index.
Royalties: Our offering continues to receive recognition by industry analyst <unk>.
Royalties: I joined 2020 for spark metrics reports with Ddos mitigation Raul was named the leader for the fourth consecutive year.
Royalties: <unk> was also named Theres, an orderly deal.
Royalties: As well as product innovation and marketing.
Royalties: <unk> core leadership Compass Compass Leipold for web application firewalls.
Royalties: In <unk> 2020 fully boats were application and API security.
Royalties: And the recognition as a first mover and leader.
Royalties: In addition, we were the only vendor to earn <unk> top scores for AI enhanced vulnerability detection and keep both management features.
Royalties: Yeah.
Royalties: In one quarter, we were recognized as a leader in Ddos and web application firewall and an API security.
Royalties: This is another evidence for all our best of suite approach, we provide customers with an integrated suite to protect application and data center attacks, while our capabilities in each of the core pillars of Ddos WAF API and booked security lead the market when evaluated.
Royalties: As a standalone capability.
Royalties: Customers received best of breed security alongside a fully integrated suite and best of suite.
Royalties: In summary, we begin 2024 with a solid performance, we delivered sustained growth from Claudia yellow improved profitability expanded market presence and leverage momentum with our Oems.
Royalties: These results were supported by improvements in the business environment rebounding customer spending and heightened state grid.
Royalties: We believe <unk> has the right offering to meet the market demand for best in class security and faster response, and recovery times, and we intend to capitalize on that for ongoing growth and increased profitability.
Royalties: With that I will turn the call over to Guy.
Guy: Thank you Roy and good day everyone.
Guy: I am pleased to provide the analysis of our financial results and business performance for the first quarter of 2024.
Guy: As well as our outlook for the second quarter of 2024.
Guy: Before beginning the financial overview I would like to remind you that unless otherwise indicated all financial results are non-GAAP.
Guy: A full reconciliation of our result 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.
Guy: Revenue for the first quarter of 2024, it was $65 1 million compared to $69 million in the same period of last year.
Guy: Revenue was driven by cloud and subscription growth offset by product decline.
Guy: As Roy highlighted we are encouraged by the recovery signs, we see in customer demand and engagement.
Guy: Though customer spending is not completely back on track.
Guy: The cloud security business continued to demonstrate strength with 22% year over year growth in cloud <unk> similar to last year.
Guy: And reached $6 million to $7 million in the first quarter of 2024.
Guy: Cloud IRR now accounts for 32% of total IRR compared to 27% in Q1 2023.
Guy: On a regional breakdown revenue in the Americas in the first quarter of 2024 was $27 $1 million.
Guy: Similar to the same period last year and accounted for 42% of total revenue.
Guy: On a 12 months basis America revenue decreased 15% year over year.
Guy: EMEA revenue in the first quarter 2024 decreased 24% year over year to $22 7 million.
Guy: And accounted for 35% of total revenue.
Guy: The decrease is mainly attributed to a large deal recognized in Q1 2023.
Guy: On a 12 month basis, EMEA revenue decreased 15% year over year.
Guy: APAC revenues in the first quarter of 2024 was $15 3 million.
Guy: Which represents an increase of 25% year over year.
Guy: And accounted for 23% of total revenue.
Guy: On a 12 months basis, APAC revenue increased 5% year over year.
Guy: I will now discuss prostates on expenses.
Guy: Gross margin in Q1, 2024 was 82% compared to 82, 3% in the same period in 2023.
Guy: Operating expenses decreased 6% year over year and totaled $49 million.
Guy: Which is at the lower end of our guidance.
Guy: Operating income reached $4 $3 million compared to $4 4 million in the same period of last year.
Guy: And with this level of Opex, we believe that the company is positioned.
Guy: Better profitability in the coming quarters.
Guy: As we highlighted a couple of quarters ago, we are committed to drive efficiency and keep our cost structure aligned with the level of company's operations.
Guy: We are confident in our ability to continue to improve our profitability and adjust expenses as necessary.
Guy: Adjusted EBITDA for the first quarter was $6 2 million.
Guy: Or $8 $9 million, excluding the <unk> business.
Guy: Compared to $6 5 million or $9 2 million, excluding the hawk business in the same period of last year.
Guy: Financial income was $3 8 million in the first quarter.
Guy: This level of financial income is expected to continue throughout 2024.
Guy: The tax rate for the first quarter of 2024 was 15, 3% compared to 14, 8% in the same period of last year.
Guy: We expect the tax rate to remain approximately the same next quarter.
Guy: Net income in the first quarter was $6 8 million as compared to $6 1 million in the same period last year.
Guy: Diluted earnings per share for Q1, 'twenty 'twenty four was 16 <unk> compared to <unk> 14 in.
Guy: In Q1 2023.
Guy: Turning to the cash flow statement and the balance sheet.
Guy: Cash flow from operation in Q1, 2024 was 21 1 million.
Guy: Compared to a negative cash flow from operation of $1 2 million in the same period of last year.
Guy: The improvement in cash flow from operation is dry.
Guy: Derived from strong billings performance in the first quarter of 2024 and in Q4 2023 and higher net income.
Guy: During the first quarter, we repurchased shares in the amount of approximately $840000.
Guy: As of March 31, 2020 for approximately 6% to $6 million remaining in our share repurchase plan.
Guy: We ended the first quarter with approximately $383 million in cash cash equivalents bank deposits and marketable securities.
Speaker Change: I'll conclude my remarks with guidance.
Guy: We expect total revenue for the second quarter of 2024 to be in the range of $65 million to $67 million.
Guy: We expect Q2, 2024, non-GAAP operating expenses to be between <unk> $49 million to $50 million.
Guy: We expect Q2 2024, non-GAAP diluted net earnings per share to be between 15 and 17 cents.
Guy: Resenting, an increase of approximately 60%.
Guy: Year over year at the mid than the mid point guidance.
Speaker Change: I will now return the call over to the operator for questions.
Speaker Change: Operator please.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and Keith a question.
Operator: If you would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking the question again press star one to join the queue.
Speaker Change: Your first question comes from the line of Alex Henderson of Needham Your line is open.
Alexander Henderson: Hey, guys.
Alexander Henderson: So I was hoping you could talk a little bit about.
Alexander Henderson: The pipeline.
Alexander Henderson: Kind of what.
Alexander Henderson: The book to Bill look like in the quarter or were you seeing.
Alexander Henderson: You made comments are encouraging.
Alexander Henderson: Yeah.
Alexander Henderson: Trajectory.
Alexander Henderson: Is that evident in the pipeline and the bookings the book to Bill numbers in the quarter.
Speaker Change: Hi, Alex.
Alex: So definitely as Guy mentioned and I mentioned in our remarks.
Alex: The remarks, we do see better customer activity better market conditions.
Alex: Want to be conservative, we say its not yet back to a.
Alex: Previous levels, but there is definitely an improvement improvement in the temple of the customers.
Alex: We see deals that were parked in the pipe for a long time started to starting to move. So overall, we are encouraged by the bookings by the pipeline and hence we are more optimistic for 2020.
Alex: If you could go into some of the deal mechanics did the close close rates improved at <unk>.
Alex: <unk> of contracts improve deal size improve.
Alex: Deal process time.
Alex: Sure.
Speaker Change: It sounds like that has improved.
Speaker Change: Just some key key mechanics.
Speaker Change: Yeah. So I think in 2023, we see the we sold the large customers stalling meaning.
Speaker Change: Meaning the pipeline was due but the deals were not advancing not in the temple we used to see.
Speaker Change: Starting in Q4, we already discussed that.
Speaker Change: Last conference call. We started the first signs of those opening up it continued in Q1 and we are also expectations for the coming quarters with that we're seeing.
Speaker Change: The attacks, we're seeing many customers to take a faster.
Speaker Change: And broader decision on the application security strategy.
Speaker Change: We are very well positioned with our cloud application security with the unique capabilities in web Ddos in the broad application protection and in these markets. We are seeing their refresh cycles. So it's a combination of the large deals I would say more architecture capex deployment.
Speaker Change: <unk> to move with continued strong growth in the cloud application security business.
Speaker Change: Okay.
Speaker Change: Or is your rates on deals improved as well.
Speaker Change: So it sounds like deal sizes improved and deal process times improved.
Speaker Change: What about closure rates and duration of the deal durations.
Speaker Change: I think duration is the short term I don't see closure rates as they have changed as I said last year. It was mainly the stores so.
Speaker Change: Luiz no winning the deal.
Speaker Change: So it did not.
Speaker Change: Debates, but now we are seeing plus they'll deal cycles.
Speaker Change: Could you talk a little bit about your traditional business.
Speaker Change: And to what extent you can bring down the inventory.
Speaker Change: What's going on in the traditional ADC market and what's going on in terms of.
Speaker Change: Your ability to bring the inventory down.
Speaker Change: A result of our supply chain improvements.
Speaker Change: Yeah. So yeah. So we adjusted.
Speaker Change: Yes.
Speaker Change: Answer.
Speaker Change: The inventory inventory question. So we came to a peak level.
Speaker Change: And 2023 reduced it a little bit in.
Speaker Change: In the first quarter 2024.
Speaker Change: And we expect to continue to reduce inventory level, we've talked about it last quarter.
Speaker Change: Pushing defense <unk> and new version.
Speaker Change: Or ADC.
Speaker Change: Put us in a place of.
Speaker Change: Transition in terms of.
Speaker Change: And the end of support and a sell in the future. So we got.
Speaker Change: Extra inventory just to be on the safe side, but levels will go down throughout 2024.
Speaker Change: Will it go down towards the $10 million level by the end of the year do you think so net net improvement of $5 5 million.
Speaker Change: No closer to 12 12, okay.
Speaker Change: That's great. Thanks, and so did you say you end of life.
Speaker Change: A portion of your product line.
Speaker Change: Yes.
Speaker Change: Now.
Speaker Change: It's a common thing that when we finish the platforms and we bring you new generation of platforms than the older line.
Speaker Change: Your line is.
Speaker Change: The new platform, replacing the old World right, Okay, Yes.
Speaker Change: Alright, understood what Youre, saying.
Speaker Change: And any comment on the Cisco or other partners.
Speaker Change: Yes, so as I said in my in my remarks, we had.
Speaker Change: They could booking with the kind of revenues with Cisco in Q1.
Speaker Change: The following are they called deal in 2023 also checkpoint.
Speaker Change: Very strong level of performance currently so all in all we continue to enhance those relationships, we're putting more and more offerings on the Cisco enterprise agreements.
Speaker Change: We broadened also the checkpoint.
Speaker Change: Our agreement to be a new line of defense for eggs. So we're seeing good uptake by our OEM partners of the new offerings and overall better cooperation in the in the market. So both of those relationships at this level or at the high level of execution.
Speaker Change: Great I'll see the floor.
Speaker Change: Back in queue. Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Chris Reimer of Barclays. Your line is open.
Chris Reimer: Yeah, Hi, Thanks for taking my questions and congratulations on the strong results I was wondering if you could talk a little more on that.
Chris Reimer: You mentioned a lot about the fighting AI with AI I was wondering if you could just give a little more color about how AI is changing the landscape and how products have in turn.
Speaker Change: Recall back.
Speaker Change: Yes.
Speaker Change: Okay. Thanks, Chris So so I think the federal aspects to that.
Chris: The first aspect is that AI allows hackers to automate and scale their attack way more quickly.
Chris: The second aspect is that it allows them to morph the attack to change the attack.
Chris: During the attack time more quickly, meaning we are going to see we're seeing attacks that starts in one way.
Chris: And then equally.
Chris: Doing better mitigation in 510 minutes. The attack is changing that requires also to defend the difference to adjust and change.
Chris: This means that it's very hard with people and static rules and signatures we choose.
Chris: How the industry is working for the most part to combat these attacks simply because they are changing quickly.
Chris: So you need also the defense side to be much more algorithmic based much more adaptive automated in order to block the effects.
Chris: The third aspect is what we call the time to attack in the past when the.
Chris: There was no ability.
Chris: You need experts to take that vulnerability that was described route and write code right programs that would take advantage of that blended ability and created DSA.
Chris: With <unk> at that time.
Chris: And that expertise.
Chris: Is becoming a non issue the time has shortened considerably and you don't need to be an expert to do that.
Chris: This is what we call time to attack the time to attack. These now growing for months or days to minutes, which means again on the diesel side, you need to be way more adaptive.
Chris: Way ahead of the game.
Chris: In order to do that.
Chris: We continue to enhance our algorithms and I gave several examples of what we've done in Q1, there's another set of algorithms going into Q2.
Chris: This has been the core of our solutions in Ddos WAF API over the years. This is why we are getting all those leadership statements by analyst.
Chris: But it's becoming now are live or die.
Chris: Johnston for security solutions, and we believe we are very well positioned here I mentioned the web Ddos attacks. Those are an excellent example to how the attacks are morphing very quickly to the extent of at least five to 10 minutes.
Chris: An excellent example to the scale that that yields are able to adapt to date mission critical application.
Chris: And we are very strong in our ability within completely automated algorithm set to mitigate those adoption within seconds with no human intervention and with no impact to our customers' mission critical applications.
Chris: If you look on many of our cloud App security wins in Q4 in Q1.
Chris: Especially as we move from competitors, whether it was an on prem deployment of an ADC and the love or a different cloud security offering those moves from them to us.
Chris: This was a very very strong.
Chris: Contribute to do that so.
Chris: Going forward, we believe those trends will actually accelerate.
Chris: As a result on the diesel side, we are ramping up our investments.
Chris: In bringing those algorithms to be part of our cloud application security and Ddos solution and we believe that will translate to meaningful benefits for our customers.
Speaker Change: Got it great. Thanks, that's really great color.
Speaker Change: Just also if you could touch a little bit about on the different characteristics you are seeing in some of the geographies.
Speaker Change: The Americas and EMEA I know you also gave a number.
Speaker Change: At 12 months.
Chris: Gross number can you could you just talk about.
Chris: What youre seeing for customers and the different geographies.
Chris: Yeah.
Chris: So.
Chris: So he was a difficult deal for us.
Chris: In India, Americas and to some extent in EMEA.
Chris: But we've seen that now coming back. So you know at this point our view for both Americas and EMEA for 'twenty 'twenty four is for growth. So we're feeling much better on the business. There is a lot more potential we're clearly.
Chris: In the very beginning I would say of the cycle, but you are definitely seeing improvement in the business in those two markets.
Speaker Change: Great. Thanks, that's it for me.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of George Notter of Jefferies. Your line is open.
Speaker Change: Okay.
George Charles Notter: Hi, there thanks very much.
George Charles Notter: I was just interested in your additional investments and scrubbing centers I think you mentioned, a Paris facility going in.
George Charles Notter: I think it's been a while since you guys have added scrubbing centers I'm, just curious about what youre seeing in the marketplace. That's pushing you to make the additional investment in <unk>.
George Charles Notter: What do you see going forward in terms of new scrubbing centers that should turn out thanks.
Speaker Change: Okay. Thanks, George So we do see geographical expansion as customers, especially in banking government wants local.
Speaker Change: The facilities for processing traffic.
Speaker Change: It's not so much from a global capacity ability to mitigate that that is more it's more from the localization compliance in these areas we do have.
Speaker Change: A very broad Netflix today, you know 40 different areas that we operate in from <unk>.
Speaker Change: But at the same time, we do see these opportunities come up.
Speaker Change: We announced in recent quarters like opening in New Zealand and <unk> in Taiwan, and so on we do see especially with our MSP with our growing in which the SP X.
Speaker Change: The operation they need to open additional data centers and we do plan throughout 2024 to open additional locations around the world. It's definitely one of the drivers for the growth we're seeing in our cloud.
Speaker Change: Cloud security and we want to leverage that.
Speaker Change: Got it I'm sorry.
Speaker Change: S M S SP is.
Speaker Change: Your traditional security.
Speaker Change: Points of presence correct.
Speaker Change: It's the MSP is the managed security service providers around the world that want to enhance their offering into ddos and application security.
Speaker Change: Now in the bus that we're buying equipment for muscle from our competitors and trying to stand up such a service, we're seeing more and more around the world and you know.
Speaker Change: Fair.
Speaker Change: Two our announcement about spark in New Zealand for example, or around the vehicle.
Speaker Change: In Vietnam.
Speaker Change: The delta in the bus.
Speaker Change: And so on.
Speaker Change: They want to utilize today, our cloud solutions because it brings them a global network of state of the art solution with board dull analytics AI.
Speaker Change: It didn't seem to back end and it really allows them to capture more market share.
Speaker Change: As we do that with them there are certain markets. For example, I gave the example of Vietnam or with New Zealand that we are opening additional incentives to serve those local partners for us. It's a great business opportunity as we are enjoying their power to the market and we've seen good outcomes with <unk>.
Speaker Change: Turning to continue.
Speaker Change: Got it Okay. That's very helpful. And then just broader question what are you seeing competitively in the marketplace.
Speaker Change: Folks like Akamai or cloud player or a five what's the picture. Thanks.
Speaker Change: Yes, so in our cloud security is really competing with Akamai and cloud flew in.
Speaker Change: We.
Speaker Change: We feel very good about our competitive positioning as it relates to the products.
Speaker Change: And you see all the feedback from the analyst very strong large customer activity, but we also see the opportunity the opportunity is very large.
Speaker Change: I think we are a very stronger than the deep, especially for the security conscious buyers put security on top that's where we are excelling and the market opportunity is huge and we actually like our competitive position due in.
Speaker Change: The more traditional business of ADC and on Prem appliances definitely we continue to see a five and <unk>.
Speaker Change: Say doing much changes to the competitive landscape there again in Ddos with defense grow X. We believe we have the best mitigate though in the market and as we said in Q4 and now in Q1, we started to see the large customers doing those refreshes towards the defense for eggs.
Speaker Change: We are quite satisfied with the level of activity. That's one of the reasons beyond the cloud security for our optimism of 2024.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: We have a follow up question from the line of Alex Henderson of Needham Your line is open.
Alexander Henderson: Great. Thanks.
Alexander Henderson: Thanks, so much.
Alexander Henderson: Clearly AI is getting a lot of attention there seems to be.
Alexander Henderson: An increase in the amount of.
Alexander Henderson: Spend going into it in most enterprises.
Alexander Henderson: Has there been an impact on their decision process.
Alex Henderson: As a result of the challenges that they have.
Alex Henderson: Around the mechanics of the security and the mechanics of the AI deployment.
Alex Henderson: If you think about last year most of the concern was Gee I don't know about this economy, but now it seems like Theres, a pretty big budget, but there.
Alexander Henderson: There is hesitation.
Alexander Henderson: Resulting from I know I want to spend but I'm not exactly sure how to get my AI deployed or how to secure it and so I guess the question is are you seeing that and when do you think that that.
Alexander Henderson: Might loosen up is going to be a bigger back half because of it and how does the AI.
Alexander Henderson: Applications drive your.
Alexander Henderson: Our offerings.
Speaker Change: Yes, so thanks, Alex so.
Speaker Change: I think there was some discussions about it but it's very early on you know the large enterprises are just starting the journey and obviously AI applications will need security, especially giving.
Alexander Henderson: The models and teaching the molders and ensuring the data is correct and light in the.
Alexander Henderson: The criticality of that data and information, but it's very early on I don't see that yet is the driver behind the cloud application security grew.
Alexander Henderson: Gross having said that.
Alexander Henderson: Once they are deploying that we have a very strong platform and to earn that encompass as ddos and web application firewall API security, which is going to be very important with AI applications booked security, which again is going to be very important with <unk>.
Alexander Henderson: <unk> and that platform is getting stronger and stronger so.
Alexander Henderson: Whether it's a mission critical application or it's going to be an AI backed application I think we have with any well position I don't think that the waves.
Alexander Henderson: It started and also in our analyses and forecast for 2024, we are not building or counting on that to start we think what we have with the current attack landscape the customer need for better application security, our offering that can drive sustained growth in that division.
Alexander Henderson: Over the last two to three years, you guys have signed a slew.
Alexander Henderson: Kind of loss counted over 'twenty.
Alexander Henderson: Partners on.
Alexander Henderson: Regional.
Alexander Henderson: Basis across the globe.
Alexander Henderson: It does sound like some of that stalled because of the macro conditions and the supply chain issues.
Alexander Henderson: Is that.
Alexander Henderson: Are all of those partnerships.
Alexander Henderson: And distribution expansion that you announced over those years coming back now is that finally.
Alexander Henderson: Showing some traction in.
Alexander Henderson: Signs of life.
Alexander Henderson: Yes, so for like you said some have stalled.
Alexander Henderson: And I would not say, they're contributing but some are definitely increasing the contribution and increasing their participation. We do see some of those spas scaling.
Alexander Henderson: A L L with us.
Alexander Henderson: The new logo wins, so that's definitely helping our cloud application security.
Alexander Henderson: We see a mix of both new scale years emphasis these vars.
Alexander Henderson: Playing in that area and we definitely are enjoying some of the growth in our cloud. They love this consistent 20% plus in the in the last couple of years is driven by those partnerships.
Alexander Henderson: We do plan to enhance that.
Alexander Henderson: Look in our announcements around our MSP programs and so on it's definitely targeting those partnerships.
Speaker Change: Makes sense.
Speaker Change: Congratulations on one more question.
Speaker Change: No name.
Speaker Change: Acquisition that I'll come back just announced brings up the question about.
Speaker Change: The API players that are in the private market are you seeing.
Speaker Change: No names in this false.
Speaker Change: Does that acquisition changed the dynamics at all in competing with Akamai do you think.
Speaker Change: Yes, so I think it's another proof point to the fact that you really need Ddos WAF API in both security in your cloud application security program and the importance and the value.
Speaker Change: The players are putting into that debt.
Speaker Change: <unk>, we're seeing still a.
Speaker Change: Whole set of private companies and API security, but I believe that the winning solution will be an integrated platform for application security and that's what we're working on and continue to develop as I've mentioned, we just won't leadership like Google home and API security, we feel very good there.
Speaker Change: I think based on our integrated platform and the algorithms we put in place we are positioned well, but I think those are good signs for investors the value and the potential that different market players are seeing Dean API security. So.
Speaker Change: Affinity another proof point to our strategy and we are really focused.
Speaker Change: Just as well on building and scaling our API security.
Speaker Change: Great.
Speaker Change: Congratulations on the quarter and and the signs of life a reacceleration.
Speaker Change: It's nice to see it spinoff.
Speaker Change: Winter.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Tim Horan of Oppenheimer. Your line is open.
Tim Horan: Thanks, guys.
Tim Horan: Our competitors are.
Tim Horan: Also bundling in networking in different forms in different form.
Tim Horan: Of compute.
Tim Horan: Do you think that's the right kind of strategy.
Tim Horan: Or what's.
Tim Horan: Whats the kind of take some of that or not.
Tim Horan: Is that making things more or less competitive for what youre doing and secondly.
Tim Horan: Congratulations on the turnaround here whats the top but the key kind of one or two things that you think has really caused a turnaround and I know, there's a lot going on but.
Tim Horan: How sustainable do you think of those spaces.
Tim Horan: Yes.
Tim Horan: So several points on the competitive landscape there are offering in the market that are the bundling edge compute networking security and so on.
Tim Horan: Our focus on.
Tim Horan: The security so best of breed security and as we've mentioned this best of suite, So taking everything in application and data center security and really providing the best integrated suites for that we think that that's the right decision.
Tim Horan: <unk> four hours can security conscious buyers in the larger enterprises. That's the right. The definition, we are not planning to go into edge compute.
Tim Horan: Our partnerships with like AWS.
Tim Horan: <unk> and others and if needed we can leverage that but we are not going to step into that we're going to put the complete focus on the security.
Tim Horan: Arena, we think its critical we think that's what drives the buying decisions in our large enterprise is.
Tim Horan: This segment.
Tim Horan: The improvement in the business I think it comes from three areas one the.
Tim Horan: The continued growth of cloud.
Tim Horan: The cloud upset the area of all its becoming a bigger and bigger portion as we continue to grow it and that.
Tim Horan: The business.
Tim Horan: It drives a lot of new customer logo wins and so on so that's the first item.
Tim Horan: The second item that we've mentioned, we're starting to see the large capex deals and the movement in the large enterprises back to investment mode, especially with the defense blacks.
Tim Horan: Combination of the attacks.
Tim Horan: Seeing all those web ddos attacks DNS attacks, they do need better protection on one end and second the overall improvement you know they stalled for quite some time they need to move forward in capacity in June so that is also <unk>.
Tim Horan: And we believe we will continue to contribute in 2024, we like the pipeline and the progress.
Tim Horan: We're seeing there and the third thing is that we've aligned our expenses better and that also like I mentioned drives improvement in profitability and efficiency.
Tim Horan: Those are the three major building blocks. We believe we will continue to grow in cloud. We believe the the movement, we're seeing in our overall security business in the large enterprise is driven by the attack landscape should continue and as I mentioned, we are very prudent in managing.
Tim Horan: The expenses, though to ensure the profitability leverage.
Speaker Change: Very helpful. Thank you.
Speaker Change: There are no further questions at this time I will now turn the conference back over to Roy for the closing remarks.
Roy: Thank you everyone for joining us today and have a great day.
Roy: Thank you that concludes today's conference call. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: [music].
Tim Horan: Okay.
Tim Horan: Yes.
Tim Horan: [music].
Tim Horan: Yes.
Tim Horan: Okay.
Tim Horan: Okay.
Tim Horan: Okay.
Tim Horan: [music].