Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Roy Zisapel. Please go ahead.

Thank you. Good morning, everyone, and welcome to Radware's Second Quarter 2013 Earnings Conference Call. Joining me today is Meir Moshe, our Chief Financial Officer. Meir will start the call by reviewing the financial results. And afterwards, I'll discuss the business highlights of the second quarter. After my comments, we'll open the discussion for Q&A. Meir?

Thank you, Roy, and welcome, everyone, to our second quarter conference call. First, I would like to review the Safe Harbor language. During the course of this conference call, we make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially, including, but are not limited to, general business conditions and our ability to address changes in our industry, changes in demand for products, the timing and the amount of orders and other risks detailed from time to time in Radware's filings. We refer you to documents the company files from time to time with the Securities and Exchange Commission, specifically the company's last Form 20-F filed in March 2013. And now, ladies and gentlemen, for the financials. Revenues for the second quarter totaled to an amount of $46.8 million compared to revenues of $45.1 million in the first quarter of 2013, representing 3.8% sequential growth. Non-GAAP gross margin remained at 82%. The non-GAAP net income this quarter totaled to an amount of $7.1 million or $0.15 per diluted share compared to net income of $7 million or $0.15 per diluted share in the first quarter of 2013 and net income of $10 million or $0.21 per share in the second quarter of 2012; stock-based compensation expenses in amount of $1.3 million; amortization of intangible assets is in amount of $800,000; exchange rate expenses in amount of $63,000, bring GAAP net income this quarter to $4.9 million or $0.11 per diluted share compared to net income of $7.6 million or $0.16 per share in the second quarter of 2012. Non-GAAP operating expenses reached $31.9 million this quarter. The headcount for the end of this quarter was 809 employees. Following shares purchased in the amount of approximately $3 million, our overall cash position, including cash short-term and long-term bank deposits and marketable securities, amounted to $272 million and we have no debt. Shareholders equity amounted $282 million. Guidance for the third quarter. We expect revenues to range between $47 million to $48 million; 82% gross margin; OpEx will range between $31.8 million to $32.1 million; financial income at $1.2 million; and non-GAAP EPS to range between $0.15 to $0.16. To summarize, we continue to see a strong market need for our type of product and we believe that we can drive the company back to growth, as well as increase our profitability in the next quarters. And now, I would like to turn the call over to Roy.

Thank you, Meir. Our second quarter results reflect an overall sequential improvement in sales, yet we still have work ahead of us to improve our execution and growth, especially in our international markets. On the positive side, during the quarter, we continued to see strong performance from our North America region. Our U.S. business delivered a record quarter with significant year-over-year growth. We see sizable opportunity from carriers, large enterprise and cloud providers, all of which are in need for better security, better response time for hosted and centralized Web applications and better availability of the mission-critical applications. However, our results in EMEA remained weak. In June, we made a change in the leadership of the region and appointed Yoav Gazelle to head our sales in EMEA and CALA. Before joining us, Yoav was President of the Americas and Europe for ECI Telecom, and he brings to Radware significant experience in large account sales, especially in the carrier market. We are very focused on improving our results, both in EMEA and Asia Pacific, and believe the impact of such a recovery on our overall results will be significant. On the OEM front, we saw improved contribution from our Check Point partnership, that is now nearing the $1 million mark for the quarter. And also some sales through our Juniper relationship specific to a large Tier 1 provider in the U.S. We believe we can continue to grow the Check Point revenues over the coming quarters. From a product perspective, in the second quarter, overall product sales grew year-over-year, which allowed us in the first quarter, and we believe also in the second quarter, to slightly increase our market share. Our services business is not growing in line with our competitors, which resulted in lower overall growth rates at the company…

[Operator Instructions] We have a question from the line of Mark Sue from RBC.

Roy, if I look at the trajectory of the revenues over the past several quarters and what you're guiding to now, it looks like there's 0% revenue growth. And even if I look at sales execution improving potentially in December and you were to do $50 million and improve sequentially, that would still imply 0% revenue growth. So I'm just trying to get a sense, if the market is healthy, what do you think is causing the 0% revenue growth? You're seeing activity at some of the partnerships, so parts of your business might be declining. Or what can you really do to kind of get back to your levels of growth this year and next? Because there's a lot of promising things that we see on the horizon, but at the same time, the base of your business is contracting.

Yes, so I think the market underlying growth drivers are very good, as you also mentioned, but I do believe and it's evident from the numbers of the application delivery market, is that in the first half, the market was reduced in size. You can see that by the product sales with our largest competitors that are down between 5% to 10% year-over-year per quarter. So I think the reason for that is actually not the market itself, but some new platform pricing by some of the competitors that have simply brought down the average sale price. I don't think it's the underlying market conditions. Now this result in less revenues, I think on the overall market, having said that, we are seeing growth in our product sales. And so Radware, specifically, are seeing there's several specific execution issues around the service portion of our business that I've mentioned and EMEA that are hurting our overall performance. So I think although we are not showing growth in our overall business, I think we can address that. I think we are demonstrating better traction in executing product and I do think the underlying market is strong. I think there's a temporary, I would say, decline in market size because of vendor pricing more than anything else.

Okay. So do you feel that this, as the market slows and everyone wants to keep their market share, this aggressive enterprising will continue, hampering your ability to grow your revenues? And then secondly, Roy, as you fix Europe, how can you ensure investors that North America will out-execute, Asia will continue to out-execute? So you get to the point where the overall bank [ph] organization is running along as opposed to kind of fixing this region and then turning around and fixing the other region? Maybe some operational point of view if you could help us there?

I think we have demonstrated very good traction and progress in the Americas for almost 2 years now, consistently. And I think we are growing the organization and the traction that we then have. Obviously, I cannot guarantee future growth rates next year or 2 years in a specific region. But I do believe that the underlying business that we see in the Americas with the bidding [ph] partners and getting back EMEA and Asia Pacific to levels that we were already executing within in the company is something that is very much in our power and capability to do. So although, obviously, we're very focused on that and I think the good part is that the product business, which is the, I would say, the more challenging part of the overall business is behaving well or above market. And we need to fix certain geographies and service business that I think -- I believe we know how to do it.

Our next question comes from the line of Alex Henderson from Needham & Company. Alexander B. Henderson - Needham & Company, LLC, Research Division: Can you just give us the split on the geographies? And also the split between enterprise and service provider?

Okay. On the geography, this is the U.S., the North America, it's 40% of the revenue this quarter, while EMEA, 25%; and Asia Pac, 35%. The split between enterprise and carrier, the enterprise this quarter was 71%; and the carrier, 29%. Alexander B. Henderson - Needham & Company, LLC, Research Division: Okay. So if I were to look at that on a growth basis, it looks like from a segmentation perspective, that the primary hit here -- or the U.S. business continues to do pretty well, the primary hits in the international markets. To address the issue in Europe with the sales change, how long will it take for that change in management to play through the operations? Can you talk a little bit about the lead book activity rates and the like? And then just a similar kind of question around what are you going to do to fix the APAC results?

Okay. I think we need to give some time for the new leadership in EMEA to demonstrate results, but I'm confident that like in the Americas, once we do the right change, the impact can be quite visible in a short time frame. So we just -- we're 1 month into this change. At the same time, I think we have a very senior team in the mid-level management that knows the market, that was able to, for years, to generate for us excellent results. So I think this combination is that, it's not something that we're starting from scratch and rebuilding and now going for a 2-year cycle of let's see how we are building expertise in the region. In Asia Pacific, I think the issue is of smaller scale and more focused on specific countries. And we are addressing that as such. So I think if I take all of that together, having the U.S. continue to grow, and I think you can see some acceleration even in the U.S. growth from the last quarter, coupled with improved execution internationally, I think it's a very achievable way for us to get back into growth. Alexander B. Henderson - Needham & Company, LLC, Research Division: So the 29% growth in the U.S. market seems to be demonstrating some of the validity of your product cycle strength. Can you talk about the split between virtual hypervisor-based type sales and conventional market conditions? Is there any change in the mix of how the customers are deploying the gear?

In the ADC market we are selling today, all our platforms are basically running virtual instances on top of them. So the only shift we might see is between a completely virtual appliance running on an X86 server and a outdoor-based appliance that runs multi instances. Currently, we don't see a big shift between the 2. We still see the virtual appliances being deployed either in cloud, in public cloud environments or in environments that are more in the enterprise lab testing staging. Just yesterday, for example, Alcatel-Lucent announced that their CloudBand, cloud platform. They're using Alteon as the ADC, the virtual ADC running on their cloud-based platform. So we continue to see traction with our Virtual Application Delivery Infrastructure, both in hardware and in the software services as stand-alone. Alexander B. Henderson - Needham & Company, LLC, Research Division: I hear what you just said, but I'm pretty sure that a large number of your customers are not turning the licensing on for -- to use the virtual licenses. So can you look at your experience in terms of what customers are actually doing? I mean, obviously every box you sell is capable of being virtualized, but that's not the experience in the field, I don't believe.

So I think the large enterprises -- the small enterprises are not utilizing, I would say, more than 5 instances today. But the large enterprises and definitely carriers are. And we are seeing more and more licenses being sold. I think the virtual instant license sale, meaning the fewer software sales of virtual instances have risen significantly in the last several quarters. We don't see yet full adoption of complete virtualized infrastructure with hundreds of instances, but we do see enterprises today running between 10 to 15 instances, and we see carriers running between 100 to our top carrier that runs today 3,000 instances. And so we're definitely seeing rise in the amount of instances, that is start -- that is mainly focused on the higher end of the market and the cloud market. And we believe those trends will go and extend themselves over time to the overall market. But I agree with you that the small-medium enterprises today don't run market delinquencies more than 5. But I think another point that is important on the small-medium enterprise is that we are the only vendor that offer these customers virtualize in isolated instances. So their options in the low end, even if they need a very small amount of instances, let's say, 3, is either to buy Radware for that or not to run in an isolated fashion. So we do have -- even though they are in less need of huge amount of -- or for instance, as in density, we do have a strong architecture benefit also in the small and medium enterprises.

Our next question comes from Ittai Kidron from Oppenheimer. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: Roy, can you give us a little bit more color into Europe? What countries are working, not working? When was the change of leadership? How long do you think it will take before you would expect it to deliver to your standard?

So the change was done in June, beginning of June. And we are seeing overall weakness mainly in South Europe, in the Mediterranean, but we're seeing a weakness across the whole region. In terms of when we believe it will go back to the levels that we've seen, I don't want to give today an exact date and time, but we're working with a lot of focus. Because we believe that's a relatively easy game that we can get and we're talking some meaningful quarterly revenues that we believe we can get back and with that fix a lot of the growth questions that are on these calls. So I believe that EMEA can provide us with another $4 million to $5 million of additional revenues per quarter, and that takes by itself, and we're not counting on it alone, but only this fix can get us above 10% year-over-year growth. So obviously, we're seeing the problem. We've done the -- what we believe is the right change, and we are now looking in working with the region to go back as soon as possible to where we were. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: Are you -- on the call you mentioned, I think to Mark's question, some kind of rising price competition. Can you give us a little bit more color on that? Are there either specific regions where you see that more versus less? Or are there specific vendors you see that from more or less?

I don't think there's increased price competition. I think the -- what's happening in the market is that F5 was their new platform, came in very low price points. So if you're selling, let's say, the 5-gig platform in the price that you used to sell your 1-gig platform, it's basically bringing the revenues of the overall market down. What it caused is that all of the vendors are applying the same price points for these capacities, which means I don't think there's significant share gains or losses across the vendors. But I think the overall revenues of all the vendors is under more pressure. I think as a result, F5 product revenues are down 10% and 5%, ours are slightly up. On the overall market size, if you looked on Q1, reports went down. Once in a deal, I don't think the vendors are more or less aggressive than before. It's just the pricing level that was set. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: Just -- so you think that, that type of price behavior though is cannibalizing the market?

I think it's evident in the numbers of F5 in the overall market. And I think it impacts also us. Again, in Radware, specifically, I think we could -- without that, I think our product growth would have been much higher. It would not have solved the specific issues I've mentioned, that we are intending to fix and focus on, like our service revenues in EMEA. But I think you would have seen overall, across all vendors, better growth. I think to -- the wrong assumption is that the market is decelerating or the growth drivers are not there because of the overall revenues you are seeing from the vendors. I think that's not the right conclusion. In my opinion, the underlying reason is different. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: Okay. Meir, a couple of questions for you. Can you give us roughly what is the contribution of security to your overall revenue?

Ittai, you know that we don't break it to the market overall, so I can't share it with you. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: Okay. And on the OpEx side, it came in a little bit high. Why did it come a little bit on the high side? And what are the drivers there?

No. Actually our guidance was $31.8 million. We came to $31.9 million. This including about $300,000 as a result of the weakness of the Israeli shekel, so it translated into higher U.S. dollars. This is the reason for that. Everything, this is in -- based on our plans.

And our next question comes from Joseph Wolf from Barclays Capital.

I have 2 questions. The first one is you mentioned Check Point now running at, I think, $1 million a quarter. I'm wondering if the sale of the DDoS product is actually also happening from Radware itself, and whether you're at the same level as Check Point with that product? And what the opportunities are as you see that in terms of how big that can get?

Okay. I think the market for DDoS and more broadly, attack mitigation, it's today estimated at around $300 million a year. But obviously with the increased amount of cyber attacks and such security incidents. In the end of the day, I believe every [indiscernible] large enterprise and data center would need such a solution in the edge, in the perimeter of the data centers. So I think we are progressing well in that market, both through our own channels and sales force, as well as through the Check Point relationship. Obviously, our participation in the market is greater than the revenue that we're seeing through Check Point, but it gives us, I would say, a larger coverage and better penetration into some key accounts. Penetration that we plan to use to cross-sell also our other solutions. So, so far, I think it's progressing very well with Check Point, and we hope to see that continue.

But no, you won't say whether your own contribution is as high as Check Point's right now?

Yes, we don't want to break exactly our -- we give you credit that you can add those numbers and get to the full security and revenues.

And then just -- you talked about services a couple of times. I'm wondering how you view that in terms of what kind of initiatives do you have or can you put in place that would boost that? Or why is it lagging right now as you look out at the market?

Well, I think we need to be more focused on that, so we're building a separate sales team for services that will be handled outside of the regular geography sales teams across the world. We think with better focus and organization processes that are specifically tailored to this business, we can get it, at least to the product growth rate and probably much higher than that.

I just went through your -- just on that point of hiring, if I look at the website, there aren't that many sales jobs available. I'm wondering if there are more than that in your plans, or how many sales you can claim to add over the coming 2 quarters.

So we continue to -- no, we continue to add sales teams across the world based on where we are seeing growth and opportunity. And some of those positions are posted on the website. And some, it's people that we know or that we are already working with, and the hiring is not done over the website. So I'm not sure the website is the right leading indicator for the amount of things we are planning to add. Specifically in North America, we continue to add. And as you can see, we are enjoying very good growth rates, and we think there's more and more opportunities so we are adding each and every quarter. We continue to add sales teams, and we're adding, in addition to that, across the world for specific markets that we see increased potential for.

And our next question comes from the line of Jess Lubert from Wells Fargo.

A couple of questions here. First, the deferred revenue declined sequentially in the quarter. Can you discuss what drove the down tick there? And maybe talk a little bit about how you're feeling about overall visibility going into the September quarter, and when you think about the close rates that are embedded in the guidance you presented, how they compare to what you did actually experience this past quarter. Have you done anything differently in formulating your guidance, be a little bit more on the conservative side?

Okay, as for the deferred revenues, it's -- we mentioned several times this time on the call. Roy mentioned that the service revenues, this is lagging behind the product growth. And typically, in second quarter, is not big quarter for service renewals. And therefore, you're right, the overall deferred revenues declined by about $800,000 this quarter.

And any comments on visibility? Has that improved, has it deteriorated?

I think we're giving the same -- our guidance is based on the same level of visibility that we have over time and same parameters that we estimate for close rates. So I would not say it has improved or deteriorated, quite the same.

And then maybe just digging into the previous question a little bit more on the hiring and investment plans going forward. I guess, I'd just like to understand how you're thinking about hiring and the need to invest relative to what you're seeing from a business momentum perspective. To what degree you're willing to continue to ramp OpEx even though, let's just say, the top line were to remain challenged? And it does seem right now like a lot of your competitors are investing quite aggressively. So just would love to get an update on how you're thinking about current business momentum relative to plans to invest in sales, marketing, R&D, et cetera.

So we will continue to make our investments, like we've done in the past. I think the company is very strong financially and I think we are, from a technology and market point of view, we are positioned very well. In areas that we need to fix our execution, we will not in -- no, we will not add more resources before we're getting things working well. But in areas like the Americas, where our growth is 30%, the competition is flat or 3%, 4% up, we're taking a lot of market share, we want to take advantage of what we're seeing in the market and obviously ramp up our investments. So I think I would not say we're going to be aggressively hiring, it depends on the region and the area, and we will be very considerate of the growth of the business. We want to do healthy decisions for the business. And so you will see us very -- we're hiring and adding reinforces, specifically. And with growth, enabling more and more growth through additional investments. But definitely, we're looking to grow revenues faster than operational expenses, and we are very considerate with such a -- for such parameters in our business decisions.

Roy, last one for me. Can you talk a little bit about what you're seeing in China, specifically? I know that was an area that was a little bit challenged last quarter. And help us understand how you're thinking about business fundamentals in China. As we approach the September quarter, are you seeing any signs of improvement there? Are things still fairly challenged in the region? How are you thinking about China?

Yes. It's still an area of relative weakness for us, although it has improved a bit since Q1. We had some major wins in key, I would say, in key tenders there in the market. And we think overall, our execution has improved, but it's still an area of weakness relative to last year. So I would say, in Asia Pacific, we have some initial movements, I hope in the right direction. And our key attention now is to accelerate that while focusing on EMEA in terms of geographic spread.

Roy, just as a follow-up on that, can you talk about anything you're doing different in China or the broader Asia-Pac region in order to get things moving back in the right direction? And when we think about Asia-Pac, is the business skewed more to the ADC or the security market?

No, across all regions, our main business is the ADC. And that's the lion's share of revenues. I would say, compared to North America, Asia Pacific is even more ADC-centric. In terms of the actions we're taking, it's obviously we are looking to increase our security business in Asia Pacific, and we are focusing our attention to the areas that we feel we are most strong, virtual data centers, cloud data centers, Web acceleration, et cetera. And we coupled that with ongoing review of our teams and whether we need to do some specific changes in the team. But again, in Asia Pacific, I don't see that area as anything out of the ordinary that is continuously going on in the company.

Our next question comes from the line of Rohit Chopra from Wedbush.

Meir, I just want to -- I may have missed this in the call, but I just want to get a sense of what the buyback was this quarter. You put on a 1-year buyback, so I just want to get a sense of if that impacted results.

Yes, I mentioned in the call that actually we repurchased shares this quarter in the amount of $3 million. It was about 200,000 shares.

Sorry about that. And then, Roy, you mentioned on the competitive landscape, different pricing schemes from F5. You didn't talk about A10 and Citrix. Citrix and Cisco now have, I think you called it, "Some type of formal integrated product out there." I just want to see if those guys are causing any issues in the market. And then, Roy, I think it's also important to try to understand if there are any -- is there any improvement with IBM? Or any other partnerships out there as you try to grow the top line? Maybe you can talk about partnerships?

Okay. So I think in terms of the pricing comment that I have, I think what we're seeing is limited to the impact is driven by the F5 cycle. I don't see differences in terms of the other vendors. Everyone, I think, is responding exactly the same to that cycle, and that is adjusting in the price points accordingly. So I don't see difference there or anything else than that. I don't see today Cisco involved a lot in ADC tenders. They do have this alliance with Citrix. But for the most part, we say the tenders about ACE replacements and Cisco not being part or not playing an active part in the RFP answer. Regarding the partnerships, I don't want to provide specific updates before we can announce something publicly. But as you know well, we are working on increasing partnerships and alliances. I've mentioned the Alcatel-Lucent around the cloud data centers on the call that they just launched yesterday. So we continue to be active there and we continue to see that as a very good growth driver for us, an ability to utilize our technology to reach more customers. But at this point, I have no specific updates on the names you've mentioned or others.

[Operator Instructions] And we have a question from Rajesh Ghai from Craig-Hallum Capital Group.

Rajesh Ghai of Craig-Hallum. I just wanted to get some color on your success in North America. Over the last couple of quarters, I guess, by my math, I think it grew 19% [ph] in North America the last couple of quarters. What seems to be working there, the specific vertical where you see some success? Is it in security side versus ADC side? And anything specific that you can tell us in terms of what's been working over there?

Okay. I think in the Americas, we are able to -- in the ADC on the virtual and cloud data centers, so we have major wins both in large enterprises, as well as cloud data centers and carriers for our ADC. In addition, obviously, the security product line is doing very well in the Americas, given the large amount of attacks on financial services, carrier infrastructure and online retailers. So I think in the Americas, we increased our participation in the market. We've added people to increase our coverage, and we're still far from covering well the overall market. So from our point of view, our growth opportunities in the Americas are almost limitless. We are not covering huge markets still in the U.S. with a lot of business potential that we should. And as a result, the more success we're seeing, the more we're adding more capabilities, coverage, people, channels to our U.S. organization. And so far so good. We're seeing -- we are participating in larger deals, in bigger and bigger brand name spend. Not only our total revenues are growing, but we're also finishing with record results of new customer revenues, which is also a very important indicator for us. And so it's not only the amount of business we're getting from existing customers, but our ability to grow the new customer contribution as well.

Okay. And there have been some press reports recently about the U.S. federal government awarding some pretty large cyber security contracts for the next few quarters. Can you tell us how you positioned against that opportunity? And how you're going to address the go-to-market for those -- for that -- for those contracts?

So in the U.S. federal market, we are working through system integrators and resellers, and they are representing us. I think as it relates to attack mitigation, the denial of service attack mitigation launching [ph] at the edge, we have a very strong solution, and our partners recognize that. And I believe some of them will use it as part of their replies to those major opportunities. We are not covering it directly. We think those are very large hundreds of millions of dollars of deals that require very broad set of tools and system integration capabilities and relationship. And as a result, we are working with some of the large system integrators. I don't want to specifically name programs or parties we are working with, but we are obviously seeing that as an upside, as a big upside opportunity. And we believe we can continue to grow the U.S. market without strong participation in the federal market.

What is the timing of those opportunities? Is it going to be this year? Or it could be next year? It could...

I don't have specific information. I think those are complex tenders even when they are announced. There was a recent tendering cloud in the U.S. government. There can be all kinds of legal proceedings afterwards. I think timing is unclear.

Okay. And if you could tell us what the contribution from strangled -- Strangeloop was in Q2? And what's implied in the guidance?

As we forecasted when we acquired it. It's still small, relatively very small, contribution to revenues. And we believe that by the end of the year, when we are integrating it into our Alteon ADC, that contribution will go up.

[Operator Instructions] And there are no more questions. Please continue.

Okay. Thank you, everyone, for joining us, and have a great day.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.