Radware Ltd (RDWR) Q2 2024 Earnings Call Transcript Highlights: Strong Financial Performance and Strategic Innovations

• Americas: $30.1 million, up 12% year-over-year.
• EMEA: $22.8 million, up 1% year-over-year.
• APAC: $14.4 million, down 11% year-over-year.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Radware Ltd (RDWR, Financial) exceeded the high end of its guidance with revenues of $67 million and non-GAAP earnings per share of $0.20.
• Cloud ARR grew 19% year-over-year, driven by strong acceptance of the DefensePro X DDoS protection.
• Generated $23 million of cash flow from operations in Q2 2024 and $44 million in the first half of 2024.
• Introduced EPIC-AI, which enhances attack detection and mitigation capabilities using state-of-the-art AI algorithms.
• Analysts recognized Radware Ltd (RDWR)'s AI capabilities, with GigaOm and Gartner giving high ratings and positive feedback.

Negative Points

• Customer spending patterns have not yet returned to previous levels, affecting large CapEx deals and on-prem offerings.
• APAC revenue decreased 11% year-over-year, indicating regional challenges.
• Operating expenses, although controlled, are expected to increase slightly in the coming quarters.
• Cloud growth decelerated by a couple of percentage points, raising concerns about maintaining momentum.
• The company is not disclosing specific metrics for the mix of DefensePro X in appliance shipments, limiting transparency.

Q & A Highlights

Q: Can you dive into the signs of recovery you mentioned? Are you seeing improved closure rates, larger deal sizes, or a stronger pipeline?
A: We see strong momentum in our cloud security platform, with consistent growth. The on-prem large CapEx deals are starting to show some acceleration, particularly with DefensePro X. We observe faster closure rates and a stronger pipeline, although we need to monitor how quickly this translates to revenue.

Q: What are you seeing in terms of partnership revenue streams and visibility?
A: Our OEM partners are performing well, with strong opportunities and better partnerships. They are adopting our new DefensePro X and cloud security solutions, which are reflected in their price lists, sales training, and webinars. We see immense potential with these partners and are gaining more traction.

Q: How should we look at operating expenses for the rest of the year? Will we see continued declines or leveling off?
A: We do not plan to continue the decline in operating expenses. Instead, we may see some increase as we invest in go-to-market strategies and innovation, particularly in AI and generative AI products. OpEx will likely grow slightly.

Q: Can you provide color on the growth in the Americas this quarter? Was it driven by new customers or specific closures?
A: The growth in the Americas was driven by existing customers with long-term commitments to our solutions. We see significant upside potential in the Americas and are focusing investments in this region to accelerate growth.

Q: What kind of traction are you getting with the DefensePro X refresh cycle? Any metrics on the rollout?
A: We see strong growth in the pipeline and engagements with large customers. The refresh cycle, new algorithms, and significant performance improvements in DefensePro X are driving demand. Customers are experiencing attacks that DefensePro X uniquely addresses, leading to increased adoption.

Q: How are you monetizing the EPIC-AI capability? Is it part of your cloud scrubbing services or DefensePro X?
A: EPIC-AI spans all our solutions, initially impacting cloud security modules and DefensePro X. It will be integrated into all our solutions over time. We drive bundle adoption and charge separately for advanced capabilities like the predictive SOC.

Q: Can you discuss your cloud data center CapEx plans and the expected cash use?
A: We plan to increase the number of locations by three to four this year, with CapEx growing to around $2 million per quarter. This number may grow in 2025 based on demand and new locations.

Q: Why did cloud growth decelerate, and do you expect it to reaccelerate?
A: We aim to reaccelerate cloud growth by investing in new capabilities and modules. We see strong growth opportunities and are focused on returning to higher growth rates.

Q: Should we think of cloud growth as a 20%-25% growth business long-term?
A: Yes, that's our target, and we are working towards getting back to that growth rate.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.