Q4 2024 Radware Ltd Earnings Call
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Speaker Change: Welcome to the Radware Conference Call discussing fourth quarter and full year 2024 results, and thank you all for holding. At this time, our participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded February 12th, 2025. I would now like to turn the call over to Yisca Erez, Director of Investor Relations at Radware. Please go ahead.
Yisca Erez: Thank you, operator. Good morning, everyone, and welcome to Radware's fourth quarter and full year 2024 earnings conference call.
Speaker Change: Joining me today are Roy Zisapel, President and Chief Executive Officer, and Guy Avidan, Chief Financial Officer. A copy of today's press release and financial statements, as well as the investor kit for the fourth quarter, are available in the investor relations sector of our website.
Speaker Change: During today's call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company.
Speaker Change: These forward-looking statements are subject to various risks and uncertainties, and actual results could differ materially from Radwa's current forecasts and estimates.
Speaker Change: Factors that could cause or contribute to such differences include, but are not limited to, impact from changing or severe global economy conditions, general business conditions and our ability to address changes in our industry.
Speaker Change: Changes in demand for products, the timing in the amount of orders, and other risks detailed from time to time in Radler's filing.
Speaker Change: 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, as filed on March 18, 2024.
Speaker Change: We undertake no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date of such statement is made.
I will now turn the call to Roy Zisapel.
Roy Zisapel: Thank you, Yisca, and thank you all for joining us today.
Roy Zisapel: I am pleased to report a strong finish to 2024, with both our top and bottom line exceeding our fourth quarter guidance.
Roy Zisapel: During the fourth quarter, we achieved 12% year-over-year revenue growth and more than doubled our non-GAAP earnings per share, a strong testament to the high leverage in our business model.
Roy Zisapel: A key driver of our growth in the quarter was our cloud security business. I'm pleased to report our focus here continues to pay off. In the fourth quarter, we accelerated cloud ARR growth to 19%, up from 15% in the third quarter of 2024.
Roy Zisapel: We also achieved double-digit growth in cloud bookings and customer acquisition and surpassed 1,000 production customers in the cloud.
Speaker Change: © 2014 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services
Roy Zisapel: In 2025, we will increase our investment in our cloud security business on multiple fronts. First, we plan to open a record number of new cloud security centers to expand our presence.
Speaker Change: Second, we intend to invest more in Cloud R&D to continue to lead the market by the strength of our security capabilities.
Speaker Change: And finally, we plan to continue to grow our OEM and MSSP partnerships to accelerate our market share gains in cloud security.
Speaker Change: Through these combined efforts we believe we can exceed a 20% ARR growth rate and establish close to a hundred million dollar ARR cloud security business by the end of 2025.
Speaker Change: Our growth last year was achieved amid a rapidly evolving cyber security landscape. 2024 was marked by a sharp escalation in both the frequency and sophistication of cyber attacks.
Speaker Change: This was driven primarily by major geopolitical tensions and rapid adoption of Gen-AI by threat actors.
Speaker Change: Countries like the U.S., Israel, and Ukraine were among the most targeted nations, with attackers leveraging AI-powered tools to automate and enhance the precision of their attacks.
Speaker Change: AI power tools effectively lowered the barrier to entry for attackers while simultaneously raising the urgency for organizations to strengthen their cyber defenses.
Speaker Change: In parallel, throughout 2024 we made significant strides in fusing AI across our security offering with our EPIC-AI framework.
giving us a distinct advantage in an evolving threat landscape.
We are literally fighting AI with AI.
Speaker Change: The recent release of our AI SOC Expert is the latest addition to Epic AI. The new cloud service offers SOC teams precisely tailored automated remediation plans for data center security incidents.
Speaker Change: It has already been well-received by customers, cutting mean time to resolution by up to 95%.
Speaker Change: We have a comprehensive set of AI-driven capabilities in our release pipeline for 2025, ensuring our customers stay ahead of emerging threats with the most advanced protection available.
Speaker Change: Moving to DefenseProX, our DDoS protection solution, I'm happy to report a continuous, steady update in adoption of DefenseProX by our customers, driven by its exceptional detection and blocking of sophisticated attacks.
Speaker Change: We recently expanded our DefenseProX portfolio with new platforms complementing the full lineup.
Speaker Change: We are still in the early stages of defense projects refreshes for our existing install base and see significant growth opportunities in the coming two years.
Speaker Change: A good example is a 7-digit win in a European Internet Service Provider.
Speaker Change: Initially planned for late 2025, this defense project's refresh was expedited after a massive cyberattack disrupted access to several of the services and critical customers.
Speaker Change: Similarly, we closed a seven-digit deal with a U.S. service provider for a hybrid Claudidus deal combining Defense Pro-X and Claudidus protection and completely displacing the incumbent Claudidus provider.
Speaker Change: This wing is a great example of the significant competitive advantage we have with hybrid DDoS, which enhances both the customer security posture and network latency.
Speaker Change: Collaboration with our OEM partners further amplified our success in 2024. Cisco and Checkpoint sustained double-digit growth in the fourth quarter, setting a new annual record for total OEM bookings.
Speaker Change: As we move forward, our recently expanded offering included in Cisco Enterprise Agreement will unlock even more new growth opportunities and further streamline purchasing and license management for Cisco RADOR customers.
Speaker Change: These important partnerships produced some notable deals during the fourth quarter. For example, in partnership with Check Point, we closed a seven-digit deal with one of the largest banks in the world.
Speaker Change: As a long-standing Radword customer, the bank relies on our DDoS solution as a critical line of defense against attacks.
Speaker Change: In partnership with Cisco, we secured new logo WIN with a US IoT solution provider.
Speaker Change: After Adidas' attack in October 2024 and dissatisfaction with their incumbent, Claudidus provided a response, the customers sought alternatives.
Speaker Change: We won the deal by offering the most comprehensive and automated cloud data solution in the market.
Speaker Change: In addition to customers, industry analysts continue to reinforce our position as a trusted innovator in the cyber security space. In the fourth quarter, Radu was named a leader and fast mover in the GigaOM radar for application and API security.
Speaker Change: The report highlights our strengths in vulnerability detection, account takeover protection, and bot management.
Speaker Change: In summary, I am pleased to report a strong fourth quarter and a solid 2024.
Speaker Change: Last year we made a significant progress advancing our cloud security business and OEM partnerships, both key drivers of our success.
Speaker Change: We accelerated our transition to subscription and cloud business model, achieving high levels in bookings and cash flows from operations.
Speaker Change: Looking ahead to 2025, our focus is on accelerating growth, with total ARR growth remaining the leading indicator of our revenue trajectory.
Speaker Change: We are committed to investing in the expansion of our security business, particularly in cloud security.
Speaker Change: Additionally, our AI-driven capabilities will fuel innovation and strengthen our security offerings.
Speaker Change: We are confident in our strategy to deliver strong near-term performance and long-term success. And I am excited about the opportunities that lie ahead.
Speaker Change: Before I close, I want to take this opportunity to thank our employees for their dedication and commitment in making our achievements in 2024 possible.
With that, I will turn the call over to Guy.
Thank you, Roy, and good day, everyone.
Guy Avidan: I'm pleased to provide the analysis of our financial results and business performance for the fourth quarter and the full year of 2024.
Speaker Change: as well as our outlook for the first quarter of 2025.
Speaker Change: Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are non-GAAP.
Speaker Change: Full reconciliation of our results on a GAAP to non-GAAP basis is available in the Earnings Press Release issued earlier today and on the Investors section of our website.
Speaker Change: Revenue for the fourth quarter of 2024 grew 12% year-over-year to $73 million, while full-year 2024 revenue increased by 5% to $275 million.
Speaker Change: This growth was fueled by the strong momentum in our cloud security business, the successful Defense Pro X refresh.
and increased contribution from our OEM partnerships.
Speaker Change: Total ARR grew 8% year-over-year to $227 million, with cloud ARR rising 19% to $77.3 million, accelerating from 15% growth in Q3 2024.
Speaker Change: This ARR growth propelled cloud and subscription revenue to 48% of total revenue in Q4 and 47% for the full year, compared to 44% in both periods last year.
Speaker Change: Additionally, increases reflected in our recurring revenue, which accounted for 78% for the total revenue in the fourth quarter and 80% for the full year of 2024.
Speaker Change: In the fourth quarter of 2024, our regional performance highlighted strong growth in the Americas, where revenue increased 33 percent year-over-year to $32.8 million, accounting for 45 percent of total revenue.
Speaker Change: Throughout 2024, the Americas demonstrated steady progress, achieving a 14% year-over-year growth to $117.7 million.
Speaker Change: In EMEA, Q4 revenue came in at $23.3 million, a 6% year-over-year decline, contributing 32% of total revenue.
Speaker Change: Full-year revenue for EMEA was $94.1 million, down 2% from previous year.
Speaker Change: In APAC, Q4 revenue increased 8% year-over-year to $16.9 million, contributing 23% of total revenue. And for the full year, APAC revenue grew 3% to $63.1 million.
I will now discuss profits and expenses.
Speaker Change: Gross margin in Q4 2024 was 82.4%, an expansion of 40 basis points compared to Q4 2023.
Speaker Change: For the full year of 2024, gross margin was 82.2%, compared to 81.9% in 2023.
Speaker Change: Operating income nearly tripled in the fourth quarter of 2024 to $9 million compared to $3.9 billion.
$3.4 million in the same period of last year.
Speaker Change: For the full year of 2024, operating income also nearly tripled to $26.8 million compared to $9.3 million for 2023, a testament to our operational efficiency and cost discipline.
Speaker Change: Throughout 2024, we maintained a disciplined approach to managing expenses, focusing on reducing operating costs while driving revenue growth.
Speaker Change: This strategy has enabled us to leverage existing resources efficiency, fueling top line growth and enhancing profitability.
Speaker Change: Looking ahead, we remain committed to this discipline approach with targeted investment to support continued growth, especially in cloud security.
Speaker Change: Radware adjusted EBITDA for the fourth quarter of 2024, doubled to $11 million compared to $5.4 million in the same period of last year.
Thank you.
Speaker Change: Rudworth adjusted EBITDA, excluding the HOX business for the fourth quarter of 2024, was $13.7 million compared to $8.2 million in the same period of last year.
Speaker Change: Broadway's adjusted EBITDA for the full year of 2024 nearly doubled to $34.7 million compared to $17.6 million in 2023.
Speaker Change: Broadway has adjusted EBITDA for the full year of 2024, excluding the HAWQS business.
was $45.6 million compared to $28.4 million in 2023.
Speaker Change: Radware's core adjusted EBITDA margin, excluding the HOX business, for 18.8% and 16.6% for the fourth quarter and the full year of 2024, respectively.
Speaker Change: compared to $3.8 million and $13.7 million in the fourth quarter and full year of 2023 respectively.
Speaker Change: The tax rate for the fourth quarter of 2024 was 15.4% compared to 24.3% in the same period of last year.
Speaker Change: Tax rate was also 15.4% compared to 17.7% in the same period of last year.
Speaker Change: We expect the tax rate to remain approximately the same next quarter.
Speaker Change: Net income in the fourth quarter more than doubled to $11.9 million compared to $5.5 million in the same period last year.
Speaker Change: For the full year, net income for 2024 doubled to $37.7 million compared to $18.9 million in 2023.
compared to the $0.13 we had in Q4 2023.
Speaker Change: For the full year, diluted earning per share doubled to $0.87 from $0.43 in 2023.
and Roy Zisapel.
Turning to the cash flow statement and the balance sheet.
Speaker Change: Cash flow from operation in Q4 2024 reached $12.7 million compared to $2.7 million in the same period last year.
Speaker Change: Cash flow from operation for 2024 was $71.6 million compared to the negative cash flow from operation of $3.5 million in 2023.
Speaker Change: We end at the fourth quarter with approximately $420 million in cash, cash equivalent, bank deposit and marketable securities.
and underscoring our solid future revenue commitment.
Speaker Change: Our focus remains on driving top-line growth through strategic investments that support long-term expansion, predominantly in high-potential areas like cloud security and AI-driven solutions.
Speaker Change: While prioritizing revenue growth, we remain disciplined with our expenses, ensuring OPEX aligns with top-line performance.
Speaker Change: all while maintaining our strong commitment to profitability and operational excellence.
And now I'll move to guidance.
Speaker Change: We expect our revenue for the first quarter of 2025 to be in the range of 70 to 71 million dollars.
Speaker Change: We expect Q1 2025 non-GAAP operating expenses to be between $50.5 to $51.5 million.
Speaker Change: And we expect Q1 2025 non-GAAP diluted net earnings per share to be between 22 and 23 cents.
Speaker Change: I'll now turn the call over to the operator for questions.
Operator, please.
Speaker Change: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: Once again, that star wants to ask a question at this time. One moment while we post our first question.
Chris Reimer: Our first question comes from Chris Reimer with Barclays. Please proceed.
Chris Reimer: Hi, thanks for taking my questions and congratulations on a solid quarter.
Chris Reimer: I was wondering if you could describe the environment in the different regions, just for example, looking at the Americas, you've had some strong growth there over the last three quarters. I was wondering if you could describe maybe some of the customer behavior and how we should be looking at the different regions going forward, what's impacting them, how are they making their decisions.
Chris Reimer: Especially versus maybe some of the behaviors you were seeing, let's say, two years ago.
Chris Reimer: Okay, thanks a lot Chris. So first I think what we're seeing across the world was still some, you know, cautious ending by the large enterprise customers.
Chris Reimer: With that, the cyber activity and the cyber attacks are consistently rising in sophistication and in the critical impact on these enterprises.
Chris Reimer: So we are seeing those enterprises moving on cloud security and cyber security purchases. And I want to remind, we are protecting the mission-critical applications and data centers. So we are really protecting the crown jewels of our customers. We are seeing them moving.
because of the high necessity.
Chris Reimer: So sometimes they need to allocate immediate budget if there's incidents or threats, and sometimes they simply need to make sure they are ahead of the threat landscape.
Chris Reimer: So, I think this is really driving the behavior of our market, sometimes even not correlated.
Chris Reimer: to IT budgets or even security budgets to some extent as we're dealing with the real-time protection.
all the time.
Chris Reimer: We do believe, as we are leveraging the OEM part, the MSSP, some of the points I've mentioned.
in my remarks.
Chris Reimer: We can translate that to revenue growth in the booking side.
Chris Reimer: We saw some, you know, good performance, I would say, in the international market in second half, and specifically in Q4. It would flow into revenues, as Guy mentioned, the RPO are high, etc. It would flow in the coming year also into the revenue recognition.
Speaker Change: Great, thanks. That's good color. Just referring to your comments about your intention to increase investment especially in R&D and new centers.
Speaker Change: Should we be looking at increased R&D from the levels of this year? Or would that be kind of offset by other OPEX savings?
Speaker Change: Yeah, so I think in general we will look for investment above the current levels. Other investments we would make across the business we would do through reallocation of resources and expenses internally, but for cloud specifically
Speaker Change: And given that we're seeing accelerated growth and higher potential for growth, we want to invest a bit more in R&D and also in centers, as well as in the go-to market.
Speaker Change: I think some of the, we can do more with our OEM partners, we can do more with MSSPs. So cloud security specifically, we're going to put more investment and we believe it would also match revenue growth as well.
Got it. Thanks. That's it for me.
Thank you.
Speaker Change: Thank you. The next question comes from Ryan Kuntz with Needham & Company. Please proceed.
Speaker Change: Thanks for the question and really nice quarter. Nice to see the cloud ARR re-accelerating here.
Speaker Change: Is this specifically related to some of the changes you've made to go to market in the Americas? Or is this more maybe related to channels and efforts you've had underway for some time? Thanks.
Speaker Change: Yeah, thank you. So I think it was it was broad-based some of that came from North America Obviously some of it came from international
And...
Speaker Change: You know, I mentioned some of the wins we had with Check Point and Cisco. You know, I highlighted only a couple of large ones, but we had very strong activity with the OEMs and our channel partners in cloud. In general, we're seeing more and more of our channels and more of our sales teams.
Speaker Change: embedded in cloud security and not only appliances. So we're definitely seeing quarter over quarter more and more pipeline growth, more I mentioned double digit bookings, double digit customer growth. So a lot of the indicators in cloud.
Speaker Change: We're actually pointing in the right direction. I think we still have runway, both with our channels and our internal organization, with the current capacity to have everyone even more engaged in cloud security sales, and that's obviously our plan.
for 2025.
Speaker Change: That's really great. It sounds very logical. On the competitive front, then, are you seeing any further differentiation? What's the competitive environment like now compared to, say, a year ago for you?
Speaker Change: So, I think, you know, in cloud security for the applications and data centers, our position
You see it also from the analysts.
Thank you very much.
Speaker Change: In that respect, I think we had a very good year in 2024. We released.
Speaker Change: Many new algorithms, next-generation algorithms, some of them are AI and Gen-AI based on LLMs for APIs and for DDoS and this AI SOC expert I mentioned. Some are other mathematical algorithms. So I think in that respect...
We really strengthened our competitive advantage leading.
We've secured your best security, this market.
Speaker Change: We have very good competitors, you know, Cloudflare and Akamai, but I think as you can see, we're doing well. I've mentioned we are putting our eye towards close to 100 million ARR by the end of this year, so we feel very good about our competitive position.
Chris Reimer: It's a great commentary. Thank you. And, you know, in terms of your broader ecosystem that you're selling into with your customers, are there any integrations you're delivering to market that are maybe helping you in terms of partners or Northbound interfaces at all that you're working on?
Chris Reimer: Some stuff on Cisco, but same with Checkpoint. We're constantly enhancing the use cases with Cisco into the routing platforms and so on so forth. And then we have a whole set of, for example, integration to SIEM systems.
Chris Reimer: So we released the integration from our cloud security, both for AWS and Azure, Asyn to Splunk, and so on. So we are constantly integrating.
Chris Reimer: our systems into the broader security ecosystem. A lot of it is, by the way, through...
I grew up in the mountains and
Chris Reimer: It makes us more sticky and we do see our large customers also pointing and enjoying these capabilities, so definitely that's something we continue to work on.
Great. That's all I have. Nebril and Ash Gore, guys.
Thank you.
Thank you.
Speaker Change: Then that's star one at this time. The next question comes from Tim Horan with Oppenheimer. Please proceed.
Thanks, guys.
Tim Horan: Do you think that's the trend that customers are looking for or do they want more, you know, best-in-class kind of services?
I look hard, you know, at a high level.
Tim Horan: Could you elaborate on, you know, specifically what you did with the go-to-market on direct sales or how else you can improve it from here? Thank you.
Tim Horan: So, definitely we see the trend of platformization or integrated solution in the broader.
security market.
Tim Horan: and we are delivering the same in what we believe is the niche that we that we should target, which is the application and data center protection. So it's the web application firewall, the DDoS, the API and bot, and we've integrated into our cloud apps CDN capabilities, load balancing as a service, DNS, network analytics
Tim Horan: So everything you need in order to deliver the application, it's already bundled in our solution and we actually have a tiered approach. It's not a la carte what we sell, it's really a standard advanced and complete.
Tim Horan: packages of this platform and then based on the number of applications and the scale.
of capacity that you need. That's our way.
Pricing is being set, so we're definitely there.
Tim Horan: And since we've added each and every quarter in the last, I think, six quarters, those additional capabilities, we're actually seeing customers purchasing the Firewall-as-a-Service, the network analytics, and using it as part of these packages.
Tim Horan: What we don't do, we don't cross the line to compute, we feel compute is still or should rely with the public cloud providers or
Tim Horan: on the same side with large enterprises in the private cloud or a regular data center.
Thank you very much.
So that's for the first question. Regarding the go-to-market approach...
We are a channel organization. We do have direct touch.
Tim Horan: a sales motion across the world. We did strengthen that, especially in North America.
Tim Horan: on both hunting and farming go-to-market approaches. And together with that, we're putting more and more efforts into OEMs, into MSSTs.
Tim Horan: to scale, channels in general, to scale the business and I think, you know, at least in the OEMs, MSSTs, some channels, we are seeing that scale, as mentioned, OEM being record.
Tim Horan: Here, by the way, records for all and records for each one separately as well. So we are seeing that start of the scale through channels, MSSPs, and OEMs taking effect.
Thank you.
Thank you everyone for attending and have a great day.
Tim Horan: This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Tim Horan: The Avidan Project A film by Guy Avidan Directed by Guy Avidan Photography by Guy Avidan Sound by Guy Avidan Music by Guy Avidan Sound by Guy Avidan Music by Guy Avidan