Radware (NASDAQ:) reported higher-than-expected revenues and earnings per share for the first quarter of 2024, signaling a favorable business environment and robust growth in its cloud security business. The company announced revenues of $65 million and non-GAAP earnings per share of $0.16, surpassing guidance figures.
A significant increase in large capital expenditure deals and customer engagement contributed to a healthier pipeline and an 8% year-over-year growth in adjusted Annual Recurring Revenue (ARR). The cloud and subscription segments were particularly strong, with subscription revenues making up 46% of the total revenue and cloud ARR growing by 22% year-over-year.
Radware also expanded its global presence with a new DDoS scrubbing center in Paris and received industry recognition for its security solutions. The outlook for the second quarter remains positive, with expected revenue between $65-67 million and non-GAAP diluted net earnings per share of $0.15 to $0.17.
Key Takeaways
- Radware’s Q1 2024 revenue and non-GAAP earnings per share exceeded expectations.
- The company saw an 8% increase in adjusted ARR year-over-year, driven by cloud and subscription growth.
- Cloud ARR surged by 22% year-over-year.
- Subscription revenues accounted for nearly half of the total revenue.
- Radware launched a new DDoS scrubbing center in Paris and was recognized as a leader in several security categories.
- The company anticipates Q2 2024 revenues to be in the range of $65-67 million, with non-GAAP earnings per share between $0.15 and $0.17.
Company Outlook
- Radware is optimistic about the improved market conditions and customer activity.
- The company expects to grow in both the Americas and EMEA regions in 2024.
- Plans are in place to open additional data centers to meet the demand for local facilities.
- Radware aims to maintain a strong competitive position in the cloud security sector against rivals like Akamai (NASDAQ:) and Cloudflare (NYSE:).
- The focus remains on an integrated platform for application security, with particular emphasis on API security.
Bearish Highlights
- Revenue in the EMEA region decreased in Q1 2024.
Bullish Highlights
- Subscription revenue’s significant contribution to total revenue.
- Radware’s DefensePro X solution’s strong performance and industry recognition.
- Stable revenue in the Americas and increased revenue in the APAC region.
- Record bookings with Cisco (NASDAQ:) in Q1 and enhanced relationships with partners.
Misses
- Adjusted EBITDA slightly decreased to $6.2 million in Q1 2024 from $6.5 million in the same period last year.
Q&A Highlights
- The company is focused on security and offers an integrated suite for application and data center security.
- Radware has partnerships with AWS and GCP for edge compute but does not plan to enter the compute market.
- The recent business improvement is attributed to continuous cloud growth, large CapEx deals in the enterprise segment, and better expense alignment.
Radware’s financial income for Q1 stood at $3.8 million, with a tax rate of 15.3%. Net income reached $6.8 million, and the company reported a healthy cash flow from operations of $21.1 million, marking a significant improvement from the negative cash flow in the same quarter of the previous year.
Radware also repurchased shares worth approximately $840,000 and concluded Q1 with a strong cash position. The company is committed to investing in AI to combat evolving cyber threats and plans to continue reducing inventory levels throughout 2024. The earnings call concluded with a note of gratitude to participants and optimistic closing remarks about the company’s future.
InvestingPro Insights
Radware (RDWR) has shown a robust performance in the first quarter of 2024, with its cloud security business playing a significant role in its financial success. To further understand the company’s financial health and future prospects, let’s consider some key metrics from InvestingPro and insights from InvestingPro Tips.
InvestingPro Data shows that Radware has a market capitalization of $825.71 million, indicating its size and significance in the market. Despite reporting negative earnings, with a P/E ratio (adjusted) for the last twelve months as of Q1 2024 at -36.51, the company’s gross profit margin stands impressively at 80.1%, showcasing the efficiency of its operations and the high value of its products.
InvestingPro Tips highlight that Radware’s management has been actively buying back shares, which often reflects confidence in the company’s future performance and a commitment to increasing shareholder value.
Moreover, Radware holds more cash than debt on its balance sheet, providing financial stability and flexibility. These factors, combined with an expectation of net income growth this year, paint a positive picture for potential investors.
For those interested in further insights and tips, there are 12 additional InvestingPro Tips available for Radware, offering a deeper analysis of the company’s financials and market position. To access these valuable tips and enhance your investment strategy, visit https://www.investing.com/pro/RDWR and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript – Radware Ltd. (RDWR) Q1 2024:
Operator: Welcome to the Radware Conference Call discussing First Quarter 2024 Results and thank you all for holding. At this time, all lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded May 8, 2024. I would now like to turn the call over to Yisca Erez, Director, Investor Relations at Radware. Please go ahead.
Yisca Erez: Thank you, operator. Good morning everyone, and welcome to Radware’s first quarter 2024 earnings conference call. 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 the financial statements, as well as the investor kit for the first quarter, 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. The forward-looking statements are subject to various risks and uncertainties, and actual results could differ materially from Radware’s current forecast and estimate. 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, general business conditions and our ability to address changes in our industry, changes in demand for products, the timing in the amount of orders and other risks detailed from time to time in Radware’s filing. 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 25, 2024. 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. We ended the first quarter of 2024 with revenues of $65 million and non-GAAP earnings per share of $0.16, both above the high end of our guidance. We diligently managed expenses and improved our profitability. Similar to previous quarter, we witnessed a favorable business environment marked by an uptick in large CapEx deals, more customer engagement and a healthier pipeline. In the first quarter, total adjusted ARR increased 8% year-over-year, driven by growth in our cloud and subscription business. 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 model. Our cloud security business sustained robust growth with cloud ARR growing again 22% year-over-year. This performance is also underscored by a record number of new bookings and new logos. The momentum behind our cloud security business is driven by four key growth drivers that we believe are sustainable. First, our product offering fuel strength consistently draws security conscious customers. Our cloud security offering leads with a large battery of AI powered security algorithms designed to detect and block attacks without disrupting legitimate traffic flows. Customers highly value these unique capabilities, driving numerous new logos and expansion deals. Second, the ongoing expansion of our cloud security offering creates additional cross and upsell opportunities. During the first quarter, we announced the expansion of our cloud application and network security services to include a new hardware load balancer as a service and enhanced cloud network analytics service. These services assist organizations in optimizing application performance, ensuring availability and maximizing network monitoring and visibility during peacetime. They complement the value we provide, further strengthening our proposition to clients. Third, the steady expansion of our geographical footprint creates new customer acquisition opportunities. During the first quarter, we expanded our global cloud service network and launched a new DDoS scrubbing center in Paris. We plan to introduce additional locations later in the year. Fourth, a pivotal factor is the surge in application and network attacks, in particular, layer 7 web DDoS attacks, fueling customer demand for enhanced protection this new wave of web DDoS attacks has been motivated by major geopolitical conflicts and activists activities. A trendset during Russia invasion of Ukraine had led to an increased frequency and sophistication of web DDoS attacks. These attacks emerged last year and intensified in the previous quarter, with expectations for further escalation in frequency, complexity and sophistication throughout 2024. The growing demand for advanced real time protection is evident in the success of our DefensePro X solution, which provides protection against web DDoS and advanced DNS attacks. DefensePro X has performed very well and been highly competitive. The AI powered offering is unmatched in its ability to automatically detect and surgically block web DDoS attacks. This result is improved security and faster time to resolution, crucial for maintaining customer business continuity. The strength of this value proposition is evident in some of our first quarter wins. For example, we signed two major seven-digit DefensePro X deals, one with a tier one carrier in North America that upgraded their DDoS protection. The other win was with a major European financial institution that experienced a large layer seven attack. The latter also replaced their incumbent cloud DDoS provider with our hybrid cloud DDoS solution for a complete protection. Our partnership with Cisco and Check Point were another contributor to our performance in the first quarter. We kicked off 2024 with record Cisco booking following a record year in 2023. While Check Point also demonstrated a strong start for the year. To protect our customers, we constantly innovating our offering. With AI at the fingertips of attackers, threats are becoming not only increasingly complex and adaptive, but also with reduced time to attack. In response, we’re taking a fight AI with AI approach to security. A good example for our fight AI with AI strategy is the enhancements we introduced to our bot manager. The newest addition of our bot manager is designed to automatically mitigate a new generation of aggressive, AI driven, inhuman like bots without blocking legitimate users. For our customers, this means better end user experience and a reduction in costly business impacts like customer churn and lost revenues. Another example is the AI powered Wolfray DNS DDoS protection solution. Using our patented algorithms, it automatically distinguishes between legitimate and attack traffic and instantly adapts DDoS defenses based on the specific attacker. According to our recent threat intelligence report, DNS flood attacks increased nearly 400% between 2022 and 2023, and these new algorithms will significantly shorten time to resolution when countering even the most sophisticated DNS attacks. Our offering continued to receive recognition by industry analysts in quadrant 2024 Spark Metrics report for DDoS mitigation, Radware was named a leader for the fourth consecutive year. Radware was also named as an other leader as well as product innovation and market leader in KuppingerCole Leadership Compass report for web application firewalls. In GigaOm 2024 report for application and API security, Radware earned recognition as a fast mover and leader. In addition, we were the only vendor to earn GigaOm’s top scores for AI enhanced vulnerability detection and key bot management features. In one quarter, we were recognized as a leader in DDoS, in web application firewall, and in API security. This is another evidence for 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 bot security lead the market when evaluated as a standalone capability, our customers receive best of bid security alongside a fully integrated suite, hence best of suite. In summary, we began 2024 with a solid performance. We delivered sustained growth in cloud ARR, improved profitability, expanded market presence, and leveraged momentum with our OEMs. These results were supported by improvements in the business environment, rebounding customer spending, and heightened cyberattack. We believe Radware 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. With that, I will turn the call over to Guy.
Guy Avidan: Thank you Roy, and good day everyone. I’m pleased to provide the analysis of our financial results and business performance for the first quarter of 2024, as well as our outlook for the second 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 first quarter 2024 was $65.1 million, compared to $69 million in the same period of last year. Revenue was driven by cloud and subscription growth offset by product decline. As Roy highlighted, we are encouraged by the recovery sign we see in customer demand and engagement, even though customer spending is not completely back on track. The cloud security business continued to demonstrate strength with 22% year-over-year growth in cloud ARR similar to last year, and reached $67 million in the first quarter of 2024. Cloud ARR now accounts for 32% of total ARR compared to 27% in Q1 2023. On original breakdown, revenue in the Americas in the first quarter of 2024 was $27.1 million, similar to the same period last year, and accounted for 42% of total revenue. On a twelve-month basis, America revenue decreased 15% year-over-year. EMEA revenue in the first quarter 2024 decreased 24% year-over-year to $22.7 million and accounted for 35% of total revenue. The decrease is mainly attributed to a large deal recognized in Q1 2023. On a twelve-month basis, EMEA revenue decreased 15% year-over-year. APAC revenue in the first quarter of 2024 was $15.3 million, which represents an increase of 25% year-over-year and accounted for 23% of total revenue. On a twelve-month basis, APAC revenue increased 5% year-over-year. I’ll now discuss profits and expenses. Gross margin in Q1 2024 was 82% compared to 82.3% in the same period in 2023. Operating expenses decreased 6% year-over-year and totaled $49 million, which is at the lower end of our guidance. Operating income reached $4.3 million compared to $4.4 million in the same period of last year, and with this level of OpEx, we believe that the company is positioned to better profitability in the coming quarters. 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. We are confident in our ability to continue to improve our profitability and adjust expenses as necessary. Radware’s adjusted EBITDA for the first quarter was $6.2 million, or $8.9 million excluding the Hawks business, compared to $6.5 million, or $9.2 million, excluding the Hawks business in the same period of last year. Financial income was $3.8 million in the first quarter. This level of financial income is expected to continue throughout 2024. The tax rate for the first quarter of 2024 was 15.3% compared to 14.8% in the same period of last year. We expect the tax rate to remain approximately the same next quarter. Net income in the first quarter was $6.8 million as compared to $6.1 million in the same period last year. Diluted earnings per share for Q1 2024 was $0.16 compared to $0.14 in Q1 2023. Turning to the cash flow statement and the balance sheet, cash flow from operation in Q1 2024 was $21.1 million, compared to a negative cash flow from operation of $1.2 million in the same period of last year. The improvement in cash flow from operation is derived from strong billing performance in the first quarter of 2024 and in Q4 2023 and higher net income. During the first quarter we repurchased shares in the amount of approximately $840,000 as of March 31, 2024 approximately $66 million remain in our share repurchase plan. We ended the first quarter with approximately $383 million in cash, cash equivalent bank deposit and marketable securities. I’ll conclude my remarks with guidance. We expect total revenue for the second quarter of 2024 to be in the range of $65 to $67 million. We expect Q2 2024 non-GAAP operating expenses to be between $49 million to $50 million. We expect Q2 2024 non-GAAP diluted net earnings per share to be between $0.15 and $0.17, representing an increase of approximately 60% year-over-year at the mid end at the midpoint guidance. I’ll now return the call over to the operator for questions. Operator, please.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Alex Henderson of Needham. Your line is open.
Alex Henderson: Hey guys. So I was hoping you could talk a little bit about the pipeline and kind of what the book to bill looked like in the quarter. Were you seeing, you made comments of encouraging trajectory. Is that evident in the pipeline, in the booking the book to bill numbers in the quarter?
Roy Zisapel: Hi Alex. So definitely, as Guy mentioned and I mentioned in our remarks, we do see better customer activity, better market conditions. We want to be conservative. We say it’s not yet back to previous levels, but there’s definitely an improvement, improvement in the tempo of the customers. 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 booking by the pipeline and hence we are more optimistic for 2024.
Alex Henderson: If you could go into some of the deal mechanics, did the close rates improve? Did the duration of contracts improve? Deal size improve? Deal process time? It sounds like that has improved. Just click on key mechanics.
Roy Zisapel: Yeah, so I think in 2023 we saw the large customers stalling, meaning the pipeline was there, but the deals were not advancing, not in the tempo we used to see starting in Q4 we already discussed that in our last conference call we started the first signs of those opening up. It continued in Q1, and we have also expectations for the coming quarter. With that, we’re seeing the attack, forcing many customers to take a faster and broader decision on their application security strategy. Here we are very well positioned with our cloud application security, with the unique capabilities in web DDoS, in the broad application protection, and in this market we are seeing very fast cycles. So it’s a combination of the large deals, I would say more architecture, CapEx deployment starting to move with continued strong growth in the cloud application security business.
Alex Henderson: Okay, is closure rates on deals improved as well? So it sounds like deal size has improved and deal process times improved, what about closure rates and duration of the deal durations?
Roy Zisapel: I think duration is shortened. I don’t think closure rates have changed. As I said last year it was mainly this stall, so you did not lose, nor win the deal, so it did not impact the rates. But now we are seeing faster deal cycles.
Alex Henderson: Could you talk a little bit about your traditional business and to what extent you can bring down the inventory, what’s going on in the traditional ADC market and what’s going on in terms of your ability to bring the inventory down as a result of supply chain improvements?
Roy Zisapel: Yeah. So that’s how we got.
Guy Avidan: I’ll answer the inventory question. So, we came to a peak level at the end of 2023, reduced it a little bit in the first quarter, 2024, and we expect to continue to reduce inventory level. We talked about it last quarter. Pushing DefensePro X and new version for ADC put us in the place of transition in terms of end of support, end of sale in the future. So we got extra inventory just to be on the safe side but levels will go down throughout 2024.
Alex Henderson: Will it go down towards the $10 million level by the end of the year? Do you think so? Net improvement of $5.5 million.
Guy Avidan: Closer to 12.
Alex Henderson: 12. Okay, that’s, that’s great. Thanks. And so did you say you end of life some portion of your product line?
Roy Zisapel: Yeah. It’s a common thing that when we refresh the platforms and we bring new, new generation of platforms, then the older line is.
Alex Henderson: The older line. It’s it’s — it’s a new new platform replacing the old one. Yeah, I just wanted to make sure I understood what you were saying. Any comment on the Cisco or other partners?
Roy Zisapel: Yeah, so as I said in my remarks, we had a record booking with revenues with Cisco in Q1. It’s following a record year in 2023. Also, checkpoint is in a 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. We broadened also the checkpoint agreement to the new line of DefensePro X. We were seeing good uptake by our OEM partners of the new offerings and overall better cooperation in the market. So, both those relationships at this level are at a high level of execution.
Alex Henderson: Great. I’ll see the floor and get back in queue. Thanks.
Roy Zisapel: Thank you.
Operator: 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 about how 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 to, in turn, repel that?
Roy Zisapel: Okay, thanks, Chris. So, I think there are several aspects to that. The first aspect is that AI allows hackers to automate and scale their attack way more quickly. The second aspect is that it allows them to morph the attack, to change the attack during the attack time more quickly, meaning we are going to see, we’re seeing attacks that starts in one way, and then if we’re doing better mitigation in 5-10 minutes, the attack is changing. That requires also the difference to adjust and change. This means that it’s very hard with people and static rules and signatures, which is how the industry is working for the most part, to combat these attacks, simply because they are changing quickly. So, you need also, on the different side, to be much more algorithmic based, much more adaptive, automated, in order to block the attacks. The third aspect is what we call the time to attack. In the past, when there was a vulnerability, you need experts to take that vulnerability that was discovered and write code, write programs that would take advantage of that vulnerability and created the attack. With Gen AI, that time and that expertise is becoming a non-issue. The time is shortened considerably, and you don’t need to be an expert to do that. This is what we call time to attack. The time to attack is now going from months or days to minutes, which means, again, on the different side, you need to be way more adaptive, way ahead of the game in order to do that. We continue to enhance our algorithms, and I’ve given several examples of what we’ve done in Q1. There’s another set of algorithms going in Q2. This has been the core of our solutions, in DDoS WAAP API, over the years. This is why we are getting all those leadership statements by analysts. But it’s becoming now our live or die junction 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 every 5-10 minutes. It’s an excellent example to the scale that hackers are able to attack today, mission critical applications. And we are very strong in our ability, with a completely automated algorithm set, to mitigate those attacks within seconds with no human intervention and with no impact to our customer, mission critical applications. If you look on many of our cloud app security wins in Q4, in Q1, especially as we move from competitors, whether it was an on prem deployment of an ADC and OAuth, or a different cloud security, offering those moves from them to us, this was a very, very strong contributor to that. So going forward, we believe those trends will actually accelerate. And as a result, on the different side, we are ramping up our investments in AI, in bringing those algorithms to be part of our cloud application, security and data solution. And we believe that will translate to meaningful benefits for our customers.
Chris Reimer: Got it. Great, thanks. That’s really great color. Just also, if you could touch a little bit about on the different characteristics you’re seeing in some of the geographies, the Americas and EMEA, I know you also gave a number, about a twelve month growth number. If you could just talk about what you’re seeing for customers in the different geographies.
Roy Zisapel: Yeah. So, you know, 2023 was a difficult year for us in the Americas and to some extent in EMEA, but we are, we’ve seen that now coming back. So, you know, at this point, our view for both America’s and EMEA for 2024 is for growth. So, we’re feeling much better on the business. There’s a lot more potential. We’re clearly in the very beginning, I would say, of the cycle, but you are definitely seeing improvement in the business in those two markets.
Chris Reimer: Great, thanks. That’s it for me.
Roy Zisapel: Thank you.
Operator: Your next question comes from the line of George Nader of Jefferies. Your line is open.
George Nader: Hi there. Thanks very much. I was just interested in your additional investments in scrubbing centers. I think you mentioned a Paris facility going in. I think it’s been a while since you guys have added scrubbing centers. I’m just curious about what you’re seeing in the marketplace that’s pushing you to make the additional investment. And what do you see going forward in terms of new scrubbing centers that you turn up? Thanks.
Roy Zisapel: Thanks, George. So we do see geographical expansion as customers, especially in banking, government wants local facilities for processing traffic. It’s not so much from a global capacity ability to mitigate attacks, it’s more from the localization compliance in these areas. We do have a very broad network today, 40 different areas that we operate in from, but at the same time we do see these opportunities come up. We announced in recent quarters, like opening in New Zealand and in Taiwan and so on. We do see, especially with our MSSP, with our growing MSSP 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 security, and we want to leverage that.
George Nader: I’m sorry. And the MSSP is your traditional security point of presence, correct?
Roy Zisapel: The MSSP is the Managed Security Service Providers around the world that want to enhance their offering into DDoS and application security. Now in the past they were buying equipment from us or from our competitors and trying to stand up such a service. We’re seeing more and more around the world and, you know, I refer the, you know, to our announcement about Spark in New Zealand for example, or around Vietnam, in Vietnam, Airtel in the past and so on. And they want to utilize today our cloud solutions, because it brings them a global network, a state-of-the-art solution with portal analytics, AI algorithms in the backend. And it really allows them to capture more market share. As we do that with them, there are certain markets, for example, I gave the example of Vietnam or of New Zealand, that we are opening additional centers 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 that, we’re planning to continue.
George Nader: Got it. Okay, that’s very helpful. And then just broader question, what are you seeing competitively in the marketplace, folks like Akamai or Cloudflare or F5? What’s the picture? Thanks.
Roy Zisapel: Yeah, so in our cloud security, it’s really competing with Akamai and Cloudflare. And we feel very good about our competitive positioning as it relates to the products. You see all the feedback from the analysts, very strong, large customer activity. But we also see the opportunity, the opportunity is very large. I think we are a very strong alternative, especially for the security conscious buyers, those that put security on top. That’s where we are excelling and the market opportunity is huge. And we actually liked our competitive position there. In the more traditional business of ADC on prem appliances, definitely we continue to see F5 and harbor there. I would not say there are much changes to the competitive landscape there. Again, in DDoS with DefensePro X, we believe we have the best mitigator 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 DefensePro X and we are quite satisfied with the level of activity. That’s one of the reasons for beyond the cloud security, for our optimism of 2024.
George Nader: Great, thank you very much.
Roy Zisapel: Thank you.
Operator: We have a follow up question from the line of Alex Henderson of Needham. Your line is open.
Alex Henderson: Great, thanks. Thanks so much. Clearly AI is getting a lot of attention. There seems to be an increase in the amount of spend going into it at most enterprises. Has there been an impact on their decision process as a result of the challenges that they have around the mechanics of the security and the mechanics of the AI deployment? If you think about last year, most of the concern was, gee, I don’t know about this economy, but now it seems like there’s a pretty big budget, but there’s hesitation 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 might loosen up? Is it going to be a bigger back half because of it? And how does AI applications drive your offerings?
Roy Zisapel: Yeah, so thanks, Alex. So I think there’s some discussions about it, but it’s very early on. The large enterprises are just starting their journey and obviously AI applications will need security, especially giving all the models and teaching the models and ensuring the, the data is correct and right and the criticality of that data and information. But it’s very early on. I don’t see that yet as a driver behind our cloud application security growth. Having said that, once they are deploying that, we have a very strong platform end to end, that encompasses DDoS, web application, firewall, API security, which is going to be very important with AI applications, bot security, which again is going to be very important with AI applications. And that platform is getting stronger and stronger. So, whether it’s a mission critical application or it’s going to be an AI backed application, I think we are very well positioned. I don’t think that wave has started and also in our analysis 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 area.
Alex Henderson: Over the last two to three years, you guys have signed a slew, kind of lost count at over 20 partners on regional and basis across the globe. It does sound like some of that stalled because of the macro conditions and the supply chain issues. Is that, are all of those partnerships that you have and distribution expansion that you announced over those years coming back now, is that finally showing some traction and signs of life?
Roy Zisapel: Yes. So, like you said, some have stalled 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 partners scaling their ARR with us and the new logo wins. So that’s definitely helping our cloud application security. We see a mix of partners, carriers, MSSP’s regular vars playing in that area and we definitely are enjoying some of the growth in our cloud ARR. This consistent 20% plus in the last couple of years is driven by those partnerships. We do plan to enhance that. You know, if you look in our announcements around our MSSP programs and so on, it’s definitely targeting those partnerships.
Alex Henderson: Makes sense. And congratulations. One more question. The no name acquisition that Akamai just announced brings up the question about the API players that are in the private market. Are you seeing no names in the salts? And does that acquisition change the dynamics at all in competing with Akamai, do you think?
Roy Zisapel: Yeah. So I think it’s another proof point to the fact that you really need DDoS, WAF, API and BOS security in your cloud application security program and the importance and the value that the players are putting into that. Definitely we’re seeing still a whole set of private companies in API security, but I believe that the winning solution will be an integrated platform for application security. And that’s what we are working on and continue to develop. As I’ve mentioned, we just won leadership by GigaOm in API security. We feel very good there. I think based on our integrated platform and the algorithms we’ve put in place, we are positioned well but I think those are good signs for investors for the value and the potential that different market players are seeing in API security. So definitely another proof point to our strategy and we are focused as well on building and scaling our API security.
Alex Henderson: Great, look, congratulations on the quarter and the signs of life reacceleration. It’s nice to see it’s been a cold winter.
Roy Zisapel: Thank you.
Operator: Your next question comes from the line of Tim Horan of Oppenheimer. Your line is open.
Timothy Horan: Thanks, guys. Some of your competitors are also bundling in networking in different forms and different forms of compute. Do you think that’s the right kind of strategy or the, you know, what’s the benefits of that or not? And is that making things more or kind of less competitive for what you’re doing? And secondly, congratulations on the turnaround here. What’s the cut, the key kind of one or two things that you think has really caused the turnaround? I know there’s a lot going on, but how sustainable do you think it is? Thank you.
Roy Zisapel: Yeah. So, several points on the competitive landscape there are offering in the market that are bundling edge compute, networking security and so on. We are focused on the security side. So best of bridge 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 suite for that, we think that’s the right definition for our security conscious bias in the large enterprises. That’s the right definition. We are not planning to go into edge compute. We have our partnerships with AWS, GCP 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 arena. We think it’s critical. We think that’s what drives the buying decisions in our, a large enterprise segment. Regarding the improvement in the business, I think it comes from three areas. One, the continuous growth of cloud. The cloud upset the ARR. It’s becoming a bigger and bigger portion as we continue to grow it. And that’s impacting the business. It drives a lot of new customer logo wins and so on. So that’s the first item. 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 DefensePro X. It’s a combination of the attacks that they’re seeing, all those web DDoS attacks, DNS attacks. They do need better protection on one end. And second, the overall improvement, they stalled for quite some time. They need to move forward in capacity, in tools. So that is also assisting. And we believe we’ll continue to contribute in 2024. We like the pipeline and the progress 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. So those are the three major building blocks. We believe we will continue to grow in cloud. We believe the movement we’re seeing in our overall security business, in the large enterprises driven by the attack landscape should continue. And as Guy mentioned, we are very prudent in managing the expenses to ensure there is the profitability leverage.
Timothy Horan: Very helpful. Thank you.
Operator: There are no further questions at this time. I will now turn the conference back over to Roy for the closing remarks.
Roy Zisapel: Okay. Thank you everyone for joining us today and have a great day.
Operator: Thank you. That concludes today’s conference call. Thank you all for joining, you may now disconnect.
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