Radware (NASDAQ: NASDAQ:RDWR), a global leader in cyber security and application delivery solutions, reported strong financial results for the third quarter of 2024. In the earnings call on October 31, CEO Roy Zisapel and CFO Guy Avidan highlighted a 13% year-over-year revenue growth, with figures reaching $69.5 million.
The company's non-GAAP earnings per share (EPS) saw a significant increase to $0.23, up from $0.07 in the same quarter of the previous year. The cloud security business was a major contributor to this growth, with cloud Annual Recurring Revenue (ARR) rising by 15% to $71.6 million. Radware's outlook for the fourth quarter of 2024 remains positive, with revenue projections between $71 million and $72 million and non-GAAP diluted EPS expected to be between $0.23 and $0.24.
Key Takeaways
- Radware's Q3 2024 revenue increased by 13% year-over-year to $69.5 million.
- Non-GAAP EPS for Q3 2024 more than tripled to $0.23 from $0.07 in Q3 2023.
- Cloud security business grew, with cloud ARR up 15% to $71.6 million.
- Subscription revenue now makes up 47% of total revenue.
- Gross margin improved to 82.3%, and net income rose to $10.2 million.
- Q4 2024 revenue is projected to be between $71 million and $72 million, with non-GAAP diluted EPS between $0.23 and $0.24.
Company Outlook
- Radware expects Q4 2024 revenue to be in the range of $71 million to $72 million.
- Non-GAAP operating expenses for Q4 are projected at $50.5 million to $51.5 million.
- The company anticipates a modest increase in operating expenses, with around $1 million more in Q4, mainly for sales and marketing efforts.
Bearish Highlights
- There has been softer demand from service providers in North America.
Bullish Highlights
- Significant cloud DDoS deal secured with a major U.S. communication provider.
- Strong performance from OEM partners, including Cisco (NASDAQ:CSCO) and Check Point.
- Successful transition to the upgraded DefensePro X platform, with only 20% of the installed base upgraded so far.
- Strong growth in the EMEA region, with a healthy mix of on-premises, carrier, and government deals.
Misses
- No specific misses were discussed in the earnings call.
Q&A Highlights
- Zisapel discussed the ongoing upgrades to cloud scrubbing centers and the company's strategic investments in sales and marketing to sustain growth.
- He also expressed optimism about future growth opportunities, including security MSSP and 5G deployments.
In summary, Radware's third quarter of 2024 reflected significant growth in revenue and earnings, driven by the company's robust cloud security business and strategic partnerships. The company's focus on profitable growth, alongside strategic investments to scale operations, positions Radware favorably for the upcoming quarter and beyond. Despite some challenges in North American service provider spending, the overall outlook remains optimistic, with strong performance in other regions and product lines. Radware's stock performance and future prospects will be closely watched by investors as the company continues to navigate the dynamic cyber security landscape.
InvestingPro Insights
Radware's strong financial results for Q3 2024 are further supported by data from InvestingPro. The company's impressive gross profit margin of 80.48% for the last twelve months aligns with the reported 82.3% gross margin in Q3, underscoring Radware's ability to maintain high profitability in its core operations. This is particularly noteworthy given the competitive nature of the cybersecurity industry.
InvestingPro Tips highlight that Radware holds more cash than debt on its balance sheet, which provides financial flexibility to invest in growth initiatives such as the ongoing upgrades to cloud scrubbing centers mentioned in the earnings call. This strong liquidity position is reinforced by another tip indicating that Radware's liquid assets exceed short-term obligations, suggesting a solid financial foundation to support its expansion plans.
The company's stock has seen a significant price uptick over the last six months, with InvestingPro data showing a 28.72% price total return. This positive momentum reflects investor confidence in Radware's growth strategy and aligns with the company's optimistic outlook for Q4 2024.
While the article notes that Radware's non-GAAP EPS for Q3 2024 more than tripled to $0.23, it's important to consider that InvestingPro data shows the company was not profitable over the last twelve months on a GAAP basis. However, an InvestingPro Tip suggests that analysts predict the company will be profitable this year, which is consistent with the positive guidance provided for Q4 2024.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Radware, providing a deeper understanding of the company's financial health and market position.
Full transcript - Radware Ltd (RDWR) Q3 2024:
Operator: Welcome to the Radware Conference Call discussing Third Quarter 2024 Results, and thank you all for holding. As a reminder, this conference is being recorded October 31, 2024. I would now like sto turn this 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 third 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 financial statements as well as the investor kit for the third 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. These forward-looking statements are subject to various risks and uncertainties, and actual results could differ materially from Radware's current forecast and estimates. Factors that could cause or contribute to such differences include, but are not limited to, impact from the changing or severe global economic conditions, 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 filings. 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. 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. I'm pleased to report another solid quarter, which exceeded our guidance. We achieved 13% year-over-year revenue growth while successfully managing our operating expense. Given the strong leverage in our business model, we recorded substantial increase in non-GAAP EPS in the quarter, delivering earnings of $0.23 per share, more than triple the EPS recorded in the third quarter of 2023. These results underscore the significant progress we are making in executing against our strategy, despite the challenging economic environment and cautious spending behavior of our customers. We continue to see strong traction across multiple areas of our business. To start, our cloud security business continues to grow. During the third quarter, we added a record number of new cloud customers, contributing to 15% year-over-year growth in cloud ARR. Our cloud security business represents a significant long-term market opportunity and a key growth driver. We are focused on accelerating growth by expanding our channel, expanding our global cloud security network, further broadening our cloud security suite and aligning our organization to support these efforts. One of our key cloud wins is a multi-million dollar cloud DDoS deal with a major US communication provider, replacing their incumbent vendor. A few years ago, after suffering a costly DDoS attack, the customer has turned to a different provider, but faced service issues and limited traffic blocking granularity. This led them to initially implement an on-premise DDoS mitigation with Radware. Last quarter, we expanded the relationship to include cloud DDoS services, consolidating the infrastructure under Radware. In addition to cloud ARR, total subscription revenue also grew double-digits and now accounts for 47% of our total revenue. As a reminder, our subscription revenue is comprised of product subscriptions and cloud subscriptions. During the third quarter, we saw significant strength in our security product subscriptions. This momentum was driven by our DefensePro X refresh, which carries more content of software subscriptions. The third quarter was also marked by a strong performance among our OEM partners. Both Cisco and Check Point are setting records for total bookings and are on track to achieve record yearly results. In addition, our cloud application security was added to the Cisco Enterprise Agreement. The expanded agreement will streamline purchasing and licensing for Cisco customers and unlock future growth opportunities for Radware. One example of our collaboration with Cisco is a significant deal with a major railway company. Following a DDoS attack that bypassed the customer incumbent provider, we demonstrated the superiority of our solutions and secured a cloud security suite deal. This includes DefensePro X for on-premise application and network protection, cloud DDoS service, Web DDoS for Layer 7 application DDoS, Firewall-as-a-Service and network analytics. This deal demonstrates the breadth and effectiveness of our platform, reinforcing the value and stickiness of our solution. We continue to see more customers upgrading their security posture with DefensePro X. Our AI-powered solution stands out in detecting and blocking web DDoS attacks while ensuring legitimate traffic flows uninterrupted. With less than 20% of our installed base already migrated to DefensePro X, the growth potential of this product refresh cycle is substantial, not to mention additional opportunities with new customers and cross-sell prospects. In the third quarter, we closed several significant DefensePro X deals, including a multi-million dollar agreement with a leading financial group, building on a successful cloud expansion in the first quarter. Similarly, we secured the DefensePro X and Web Application Firewall deal with a major Internet and telephony provider in EMEA, demonstrating our technical leadership. During the third quarter, our solution continued to earn us recognition by industry analysts. For the fourth consecutive year, Quadrant Knowledge Solutions named Radware a technology leader in their SPARK Matrix analysis for the web application firewall market. We received the highest rating in technology excellence. Additionally, we were named a leader in the 2024 SPARK Matrix for Bot Management, ranking strongest in both technology excellence and customer impact. On the product front, one of our strategic initiatives is to continue to broaden our cloud security platform. In the last quarter, we introduced a new cloud service, the Threat Intelligence Service. With this new service, we are opening the door for customers to access the high value attack data lake that we use internally. SOC teams can use the real-time intelligence and preemptive warning about potential attacks and attack sources to make more informed decisions about application and data center threats. Additionally, we are launching our AI SOC expert for DDoS services following last quarter EPIC-AI release, which integrates advanced AI and generative AI algorithms in our cloud security stack. The new AI SOC expert automatically detects unmitigated attacks and creates remediation and mitigation plans, significantly reducing response time. We're excited about the opportunities this framework presents to us and our customers and the impact it will bring going forward. In summary, we are pleased with our third quarter results, continued ARR growth and double-digit revenue gains despite the current business environment. Our cloud security business remains robust and the strong momentum behind DefensePro X with its high subscription component continues to drive double-digit growth in subscription revenue, now nearly 50% of total revenues. As we close out the year, we remain focused on executing our strategy to sustain growth and position ourselves for long-term success. 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 third quarter of 2024 as well as our outlook for the fourth 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 to non-GAAP basis is available in the earnings press release issued earlier today and on the Investors section of our website. Revenue for the third quarter of 2024 reached $69.5 million, up from $61.6 million in the same period last year, representing 13% year-over-year growth. This growth was driven primarily by the expansion of our cloud security business, the DefensePro X refresh and increased revenue from OEM partnerships. Total ARR increased by 9% year-over-year to $223.6 million, with cloud ARR rising 15% to $71.6 million. This growth boosted recurring revenue to 83%, up from 79% in Q3 of last year. On a regional breakdown, revenue in the Americas in the third quarter of 2024 grew 11% year-over-year to $27.7 million and accounted for 40% of total revenue. On a 12-month trailing basis, Americas revenues decreased 1% year-over-year. EMEA revenue in the third quarter of 2024 increased 30% year-over-year to $25.2 million and accounted for 36% of total revenue. On a 12-month trailing basis, EMEA revenue was flat year-over-year. APAC revenue in the third quarter of 2024 was $16.6 million, which represent a decrease of 5% year-over-year and accounted for 24% of total revenue. On a 12-month trailing basis, APAC revenue decreased 3% year-over-year. I'll now discuss profit and expenses. Gross margin in Q3 2024 was 82.3%, an expansion of 120 basis points from Q3 2023. Operating income reached $7.2 million compared to operating loss of $0.5 million we had in the same period last year. We successfully grew our revenue while keeping operating expenses just below $50 million. We were pleased with our progress in leveraging our existing assets and resources to accelerate top line growth and enhance profitability. We remain committed to this approach, selectively increasing R&D investment to strengthen our offering and drive further growth in cloud security. We intend to increase our go-to-market investment to capitalize on new opportunities in the cybersecurity market. By strengthening our sales and marketing capabilities, expanding our partner ecosystem and enhancing customer engagement, we believe that we are positioning ourselves to accelerate growth and extend our market reach. This strategic investment will enable us to better serve existing customers, and we expect to capture market share in high-growth areas. Radware's adjusted EBITDA for the third quarter increased to $9.2 million or $11.9 million, excluding the Hawks' business compared to $1.6 million or $4.2 million, excluding the Hawks' business in the same period of last year. Financial income was $4.9 million in the third quarter and tax rate for the third quarter of 2024 was 15.5% 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 third quarter more than tripled to $10.2 million as compared to $2.9 million in the same period last year. Diluted earnings per share for Q3 2024 increased to $0.23 compared to $0.07 we had in Q3 2023. Turning to the cash flow statement and the balance sheet. Cash flow from operations in Q3 2024 reached $14.7 million compared to the negative cash flow of $9.8 million in the same period last year. Year-to-date, cash flow from operations now totaled $58.9 million and free cash flow was $54.6 million. We ended the third quarter with approximately $412 million in cash, cash equivalents, bank deposits and marketable securities. I'll conclude my remarks with guidance. We expect total revenue for the fourth quarter of 2024 to be in the range of $71 million to $72 million. We expect Q4 2024 non-GAAP operating expenses to be between $50.5 million to $51.5 million. We expect Q4 2024 non-GAAP diluted net earnings per share to be between $0.23 and $0.24. I'll now turn the call over to the operator for questions. Operator, please?
Operator: [Operator Instructions] And your first question comes from the line of George Notter from Jefferies. Please go ahead.
George Notter: Hi, guys. Thanks very much. Nice to see the good results here. I guess I was curious about kind of the DefensePro X upgrade. You mentioned that only 20% of the installed base of DefensePro has been upgraded. Could you tell us a bit more about current shipments? I'm just curious about what mix you're currently shipping in terms of DefensePro versus DefensePro X. And then also, I was just curious about kind of looking forward in the transition, is there a date out in the future when you guys would end of sale or end of life the DefensePro platform? I would imagine that would be a leverage point in terms of driving DefensePro X adoption. Thanks a lot.
Roy Zisapel: Thanks, George. So we are -- we don't have any shortage of shipment, if that was what you alluded to, but it's a process, especially with the large customers, this migration to the new platform in production and so on. DefensePro X brings with it significant advantages in terms of security. First, we've added a lot of new algorithms against most current attacks like the Web DDoS or the Layer 7 application attacks, the DNS sophisticated attacks. So a lot of AI and machine learning, additional algorithms that needs stronger platforms, stronger CPUs. That's what we have in DefensePro X. In addition, it's our next-generation FPGA that's built into the platform. We've completely revamped that layer, giving us between 3x to 5x performance across many, many different performance metrics in security. So very significant host power capabilities. And we rounded it up with a new generation of the management, analytics and automation system, which we call cyber controller. And that's why we have way more, what I said, subscription content with it. So it's important to note that, that for the same $100 of sales of a product with, let's say, content of 1 year, the DPX comes with more subscriptions. Now regarding your second question about the end of sale, I think roughly 60% to 70% of the current DefensePro line was announced end of sale in the last, I would say, 90 to 180 days. We still have some platforms on the DefensePro line that will go end of sale probably Q1, Q2 next year. But we definitely saw the impact once we announced end of sale. In the last 2 quarters, there's a significant ramp in the move to DPX. And I think also our view for this quarter is strong regarding that.
George Notter: Got it. So would you say it's more than half of the hardware sales at this point? Is that fair to say?
Roy Zisapel: Of the lineup of DP, yes. Yes.
George Notter: Got it. Okay. I guess I was just asking about sales.
Roy Zisapel: Yeah. George, also, I want to note that some of the customers without their platform end of sale are upgrading as well because of the security needs and content. So absolutely, end of sale is a trigger. But the biggest trigger, I must tell you is the security coverage and capabilities.
George Notter: Got it. Okay. That's great. And then one last one. Obviously, you guys have built out this global cloud services model with scrubbing centers and PoPs. Obviously, I think going back, the installed base of devices in those locations with DefensePros. I mean are you also going back and upgrading those cloud scrubbing centers? And then does that drive incremental revenue for you? Or is that just a straight-up replacement of CapEx costs that you've invested historically?
Roy Zisapel: Of course, we are upgrading our cloud. Our cloud runs always the latest and greatest algorithms. Sometimes even we have it on AB testing and so on, leveraging the power of the cloud and the flexibility it brings us. So definitely, we are putting all our new generation stuff into those clouds. It's a replacement of our CapEx investments. You're right. But in turn, the additional capabilities, the stronger efficacy I've mentioned here in my notes, some of the customers we've displaced incumbents. For example, the communication provider, I referred to that was a very large cloud contract, probably close to $1 million ARR. And that was done based on our significant capabilities in blocking voice over IP attacks, SIP, UDP, randomized attacks, all of that. And that's squarely based on these algorithms and capabilities.
George Notter: Great. Super. Thanks very much. Appreciate it.
Roy Zisapel: Thank you.
Operator: Your next question comes from the line of Chris Reimer from Barclays (LON:BARC). Please go ahead.
Chris Reimer: Hi, thanks for taking my questions and congratulations on the strong results. You mentioned the 47% of total revenues being subscriptions. Wondering if that was a quarterly number or if that's a cumulative year-to-date number? Anything on that?
Guy Avidan: Yes. The 46% is a year-to-date number.
Roy Zisapel: 47%, quarter, 46% year-to-date.
Chris Reimer: 47% on the quarter and 46% year-to-date. Got it.
Guy Avidan: Subscription revenue in the last nine months, that's 46%.
Chris Reimer: Got it. Okay. And can you talk maybe about what's driving the strong traction in EMEA? You mentioned last quarter, there was a large deal. I'm just wondering what kind of clients you're seeing now and what the behavior is like in that region?
Roy Zisapel: Yeah. I think we're relatively content with our performance in EMEA. We have many of the main markets executing well in a very diversified manner. We do see strong cloud deals there, and I've mentioned some of the key wins in my remarks. We do see very good cooperation with both Cisco and Check Point in the region. So I think it's our best region for that globally. And we do see a lot of also the large on-prem in carrier, government deals as well. So it's really a very healthy mix of our business with strong growth in cloud, strong OEM execution. And I think it shows in the consistent results.
Chris Reimer: Got it. Yeah, that's great color. Thanks. That's it for me.
Operator: Your next question comes from the line of Ryan Koontz from Needham & Company. Please go ahead.
Ryan Koontz: Thanks. Most of my questions have been answered here, but on the Americas, it looks like that was a little soft. Is that mostly coming from kind of a weaker service provider spending environment, I assume? And any pipeline indications if you think that can inflect to higher growth going forward?
Roy Zisapel: Yeah. So, you're right, service provider was weak in North America. Although we have high expectations, both on the security MSSP and securing their networks and securing 5G deployment. So although this quarter and this year so far was not good, I would not write it off at all. We do have high expectations for the future. North America for us is an area of investment. And I think we are putting a lot of effort. We see huge potential. We have marquee wins there, and we need to scale that. I think that's significant upside to our current performance, and we look forward to report on progress in the coming quarters.
Ryan Koontz: That's great. It sounds like you're optimistic. And in terms of modeling, in terms of OpEx and what you're doing on the go-to-market side, do you think you can continue to grow top line here? And how much investment you need to make on the sales and marketing side to sustain that kind of growth? I know you've done some changes in go-to-market of late. Can you maybe expand on your thoughts on that?
Roy Zisapel: Yeah. So I think it's a mix. I think there's some more leverage and efficiency we can get from the current OpEx, but given the size of opportunities and their global distribution, we are going to make investments also on the go-to-market, specifically as it relates to our cloud security. So I think it's a mix. It's a profitable growth, what we're looking for, continued leverage, but we are at the point that we would like to start investing again for stronger growth.
Guy Avidan: And in terms of number, we said that we are growing. We will continue to grow. We were shy of $50 million overall OpEx, and we said it's -- we expect around $1 million more in Q4, predominantly from sales and marketing and Roy already alluded US.
Ryan Koontz: Right. Great. Thanks for taking the question. Appreciate it.
Operator: There are no more questions. I will now turn the conference back over to Roy Zisapel for closing remarks.
Roy Zisapel: Thank you, everyone, and have a great day.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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