Good morning, everyone, and welcome to Radware’s Fourth Quarter and Full Year 2016 Earnings Conference Call. Joining today are Roy Zisapel, President and Chief Executive Officer; and Doron Abramovitch, Chief Financial Officer. A copy of today’s press release and financial statements as well as the investor kit for the fourth quarter are available on 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. We wish to caution you that these statements are just predictions and we undertake no obligation to update these predictions. 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 the documents the Company files from time-to-time with the SEC, specifically the Company’s last Form 20-F filed on April 21, 2016. Please note that in February, management will participate in the JMP Technology Conference in San Francisco. With that I will turn the call to Doron Abramovitch.

Thank you, Anat. Good morning, everyone, and thank you for joining us on the call today. We reported solid results for the fourth quarter of 2016 and we are pleased with underlying momentum in our business in the second half of the year, which positions us well for 2017. Bookings for the fourth quarter were strong, reaching a record level, reflecting solid performance across product lines and primarily a strong performance of our subscription business. Book-to-bill ratio was significantly larger than 1 for the fourth quarter and for the full year. The metric that best reflects bookings growth is the total deferred revenue balance. This balance grew 20% from $101 million at the end of December 2015 to $121 million at the end of December 2016. Let me remind you, the total deferred revenues takes into account the deferred revenues on the balance sheet and in addition bookings in this by invoice but didn’t collect and are therefore not on the balance sheet. This figure can be found in the investor kit which is posted on our website. The average duration of the total deferred revenues balance as of December 2016 was 1.79 years compared to 1.74 years for December 2015. The growth in total deferred revenues has meaningful impact on our visibility as we start the year. As of December 2016, approximately $76 million out of the total balance of $121 million or 63% are scheduled for revenue recognition during 2017. This compares with $67 million out of the December 2015 balance of $101 million, which were scheduled for revenue recognition during 2016. Let’s now discuss our income statement. Q4 revenues were $51.7 million, down 6% from Q4 last year. Looking at the geographic breakdown, revenues from the Americas were $22.7 million, representing 44% of total revenues; revenues from…

Thank you, Doron, and good morning, everyone. The fourth quarter was a strong quarter for Radware with robust business activity reflected in both record bookings and solid progress in our strategic initiatives. Our business model continues its desired strategic transition towards more subscription sales. We believe this meets our customer needs and at the same time, creates a consistent and profitable revenue stream for Radware. In the full year 2016, the number of our cloud customers grew more than 70% compared to 2015. New cloud customers include service producers, financial institutions and top brands in the consumer goods, automotive and hospitality industries. The vast majority of these are completely new customers to Radware. The growth in cloud and overall subscription sales, as well as in service sales, overall deferred revenues balance increased 20% year-over-year and reached $121 million as Doron noted. Our customer needs are becoming increasingly complex in today’s technology environment. Digital transformation is everywhere affecting businesses fundamentally. On the one hand, applications have become the center of any business and users expect a flawless experience. On the other hand, the delivery environment has become more complex and expands across private data centers, global networks and the cloud. At Radware, our goal is to secure the digital user experience of all applications at all times. Therefore, our focus is to continue to enhance our unified infrastructure offering for delivery and security of applications. And we believe, we already have a very strong and market-leading solution offering. In this context, I would like to share with you a recent example. One of our customers, our North American service provider that deploys Radware across roughly 50% of its data centers, experienced an attack that took one of its data centers down. This data center is protected by a competitor as a…

Thank you. [Operator Instructions] Your first question comes from Mark Kelleher from D.A. Davidson. Your line is open.

Great. Thanks for taking the question. Could you just talk about where we are in the transition to subscription? Is that still a headwind; have we migrated enough over there, so that it’s not so much of a headwind; what -- where are we in that process?

So, I think the transition continues. I will not call it a headwind, because as you can see, the revenues recognized from the total deferred revenue coming into this year is reflecting a nice growth. But, as you’ve seen in 2016 as well as in the last quarter, we are deferring significant amount of bookings due to that growth. We believe that’s a very positive trend, and we are seeing this subscription business accumulating very nicely.

Okay. And then as just another question, can you just talk about the Cisco ramp? I know you announced that OEM relationship, I think in the summer of 2015; so, we are coming up on a couple of years now since that’s been announced. Is that getting any traction, do we expect the investments to pay off there?

Yes. So, you’re right. It was a long cycle as it was a co-development of the next generation firewall of Cisco. The release and the go-to-market obviously is not dependent on us; it’s on Cisco readiness. But, I believe that will clear in the next couple of weeks; we are going now into RSA and Cisco Live Berlin. I believe those are a major opportunities for a major security announcement on Cisco’s behalf. And as I have mentioned, we are part of this next generation firewall initiative by them. And as a result, we believe that the impact or the focus of the Cisco sales team and channel team will start once those products are released to market.

Your next question comes from Jess Lubert from Wells Fargo Securities. Your line is open.

Hi, guys; couple of questions. First, you mentioned that you were fairly optimistic regarding 2017. It seems like a lot of the demand metrics you’re highlighting on the call are fairly positive. So, maybe just first, I was hoping you could help us understand to what degree you would expect the business to grow this year and how you’re thinking about seasonality beyond Q1; is there any reason to think as we get into the back half of the year we should see better than typical seasonality?

So, I would not want the call to go into guidance and focusing the full year. We are seeing, as you said, improved metrics around the business and the prime metrics that we are focused beyond booking and the revenues are obviously the total deferred that shows the accumulation of subscription and the power of the model on one hand and the cash flow, the cash from operations that I think show the power of the booking and the quality of the booking. So, our metrics in the last two, three quarters are showing very positive signs there, and we are focused in 2017 at the high level to continue this trend. But, I would not want to go into specifics beyond the guidance of Q1 we’ve provided.

And then, Roy, can you maybe just touch base in the telco business? It’s a fairly nice sequential uptick. Can you help us understand what drove that; was that a handful of big deals; was it something more sustainable; and to what extent will you expect to see further improvement in the telco business next year?

So, in general, we think the service provider and carriers is behaving well, and they’re starting to invest more in security; obviously in our sight, the meaning to several large deals that are landing in a certain quarter. But overall, we are seeing progress in the amount of Tier 1 service providers, we’re able to penetrate with our security offerings on hand, and we are seeing the carriers starting to invest more strategically in security. They’re building business units for that; it’s becoming part of the offering; it’s becoming very important for them to launch new service that will protect the customers. So, we’re seeing beyond just deals, I would say an IT buying or infrastructure buying. I think those are longer term trends that carriers view security more and more strategically. And as a result, I believe they will be ramping their investments in 2017 and beyond. And if that takes place as we see it, I believe Radware will be a prime beneficial of this trend, given our leadership in technology and scale in the market of the DDoS and attack mitigation.

And then just last one from me, you mentioned on the call, M&A would be a focus for the business. I would love to get a sense of how M&A stacks up from a use of cash perspective, will that be prioritized versus buybacks or deals likely to be dilutive? How are you thinking about M&A this year?

So, I gave a general comment on M&A; it’s no different than the strategy we had before, but we wanted also to set the stage following the Seculert acquisition. There is two types of acquisition targets we’re looking, technology ones, generally dilutive but not much and complementing the solution we have, and business acquisitions that we are planning that might be bigger in size with some customer base and revenues coming to it. And then we are planning to be either breakeven or accretive. In terms of prioritizing cash for buybacks versus M&A, we’re not prioritizing one over the other, as long as the business continues to generate well. And in the level of $40 million and given especially the technology acquisition sizes that we are seeing, I think there might be room for both, but obviously that’s for the Board to take based on the situation.

The next question comes from Joseph Wolf from Barclays. Your line is open.

Thank you. Just on the housekeeping side and then I have a technology question. Gross margin is, I guess still in the range, and it’s obviously still at a higher level. But are there any trends where it’s down a little bit versus last year and should the current level be something that continue or it’s just there is some kind of mix issue going on? And then, just connected to that and without giving any guidance for 2017, just any comments on overall seasonality in terms of your customers purchasing right now?

Okay. Hi, Joseph. I will take the first part of the question. As you mentioned, it’s a mix issue. And these levels, we do see sometime between countries, between specific deals and of course between the product lines that we have some differences. But, the 82% that we gave as Q1 guidance is reflecting the overall trend for our margins.

Regarding the seasonality of the customers, we don’t foresee in 2017, so far at least, different seasonality than we’ve seen in previous years. So that’s our planning assumption.

Okay. And then, Roy, thank you for the example with that North American carrier. And I had two questions as a follow-up on that. One is, when you have a situation like that, you said you have 50% market share over there already and they had a legacy, did that deal turn into a situation where you replaced and now you’re at a 100% or 75% of that customer’s data centers? And second, when you come in for that sort of I guess emergency response, what kind of premium pricing are you able to extract as you -- when you get called in for that kind of specialization? And then, as sort of the follow-on, can you, in the context of Seculert which I admit to not fully appreciating what they do yet. Could you give an example of what Seculert would have added to your capability in that scrubbing situation or another example you can provide?

Okay. So, first regarding the situation as a carrier, as said, we were protecting 50% of the data centers. And with both on-prem high end mitigators as well as cloud service, the attack was on another data centre that was protected by legacy equipment. Now, what happens after that situation is that they diverted, as I said, the traffic, I didn’t specifically but because of the problem that there were several days up and down, they actually diverted the traffic almost the whole the United States to get to a data center with free capacity for Radware mitigator. So, the diversion was not done over 50 miles or 100 miles. They took a major networking and latency decision because they didn’t have any other way out. Now following such an incident where you’re proving dramatic superiority and really a knock out in attack mitigation, the customer decided that he will replace of course the other vendor with us over 2017 in all the data centers. It doesn’t happen overnight but it definitely dramatically accelerated his plans with Radware to cover data centers that he had some equipment for but now he understands this, completely exposing the sense of urgency is there, the business impact is there and financial justification is there and now, he built it into his budget. Regarding the Seculert acquisition, I will give you an example of what they can detect now. Some of the attack campaign that someone takes over a computer in the enterprise network can take months. If you’re just trying the incident that happens right now to decide whether its attack or not attack, not always, you have the complete picture and information. Sometimes started -- something started nine months ago, then there is another step of penetration after several months. The final…

Okay. So, this is effectively, to use the movie terms, this is protecting against the long con.

Yes.

Okay. All right; that was very helpful. And just in terms of management, final question on these guys, did the founders stay with the company? You said you have 20 employees. Is everybody part of the team and is the earn-out based on management sticking around and really integrating with Radware?

Yes. The founders were not there, the initial founders when we acquired, but management, the key management people are staying. And when we design the earn-out, you would assume based on multiple parameters, some you’ve mentioned from our performance base.

Your next question comes from Catharine Trebnick from Dougherty. Your line is open.

Nice to see a solid print. One activity I wanted to give -- if you could give us more background on, are you seeing the acceleration in your opportunities of the Tier 1 and Tier 2 carriers and then call providers following the Dyn DoS attacks last fall; would you say that’s one of the trends driving?

Yes. I would say, the Dyn attack, and I’ll take it even broader. The Mirai bot that was the vehicle by which Dyn was attacked but also other targets around the world like TalkTalk in the UK, Deutsche Telekom, Craigs, [ph] Blog-on-Security, [ph] and so on. I think the evolution of the tools, the attack vectors towards IoT and the damage that those platforms, those attack platforms can create, made many people having those strategies, absolutely especially in the carrier market. So, that happened only -- Mirai botnet is with us, September, October and so on. It’s relatively recent. But people took notice and some of them are feeling it last month, this month in their network. So, definitely that causes acceleration.

Okay. And then the follow-on is Roy competitive landscape. A10 has DDoS products; NetScout has Arbor, F5 is talking about their DDoS. Can you just give us some opportunities? It seems like -- where are you guys; are you seen any of these focus in some of the networks? I know the network you just not mentioned on 50%, there is another competitor; that’s second, first in that particular network from what I’m aware of. But can you give us some more background on the bake-offs and whether selecting you over maybe A10 or an F5 or NetScout?

Yes. So, the competition you’ve mentioned is with us for -- it’s not new; those are the competitors for several years. One of them by the way was the product I’ve mentioned as being in the other data center that sells. And I think there is a very, very big difference in our capabilities and our approach which is unique. When you come to security, many of the systems around the world in the past and till today are based on certain type of rules that are preset to what’s good and what’s bad. You can look at an antivirus, IDS, IPS and so on. So signatures, data bases or things that are bad and then you compare the traffic towards bad and if you have a match, you say that’s bad traffic. And the other major technology people are using is very basic threshold. If you have more traffic than X, it’s bad; if you have less, it’s normal. We have all these capabilities, but those are basic. We think they are incapable of dealing with the threat landscape and with the hacking sophistication. We believe in security, it’s going to be only about algorithms and math, and ability to detect anomalies based on math, algorithm, behavioral, machine learning fuzzy logic. This is what we’re doing since 2006. This is our advantage. And every time a new attack tool comes out, or any hacker that changes the beat, the attack program everyone else is failing. And they’re failing because they’re using those old models, very static, not dynamic, not learning, not algorithmic. So, it’s very easy to fool them, fool them multiple ways. Either they don’t detect or they block legit users. And we think our investment in behavioral security, in the fuzzy logic algorithms that we’ve built is proven day-in, day-out that that’s the only way to combat those attacks. I think you can see the evidence to the success, not only from way I explain the technology, take Cisco, take Check Point that have done their homework, take the largest CDNs in the world, the top tier carriers now, everyone I think is understanding the difference and some of them taking very, very significant steps in adopting us over others.

Your next question comes from Alex Henderson from Needham. Your line is open.

Hi, a couple of questions. The first one just mechanically, I’m a little confused by the guidance. So, you gave guidance and then you said you get to an EPS, and you said we’ve got to adjust that by $0.02 relating to the acquisition. So, shouldn’t we be adjusting -- I assume that there is cost coming in. I assume that that’s not in the 39 to 40.5 OpEx number and not in the cost of goods sold number; that’s an adjustment to all of those lines?

No, the lines are already adjusted. The 39.5 to 40.5 OpEx is already including the acquisition. We just wanted to emphasize that there is in the beginning of the year, there will be some loss due to the development and until we will be able to fully implement this business. So, there is an impact. Without this one, our performance, our EPS should be a bit higher, like I said, by approximately $0.02.

So, the math that you gave us, gives us the zero to 2, and then you’re pointing out that there is a $0.02 impact, which is why it’s not 2 to 4.

Yes.

Okay. Thanks, that clarifies that. One more question, and I think this is just me being dumb, but if I take your revenues from 2016 and your revenues from 2015 and subtract the two and take your deferred revenue and the increase of $20 million in deferred, your total deferred number, I am coming out with a flat number. And, can you help me explain, for stupid people like me, why that’s not flat? I mean, obviously you’ve delivered much better than that given the dollar per share and in cash generation. So, I am still missing something here in my logic of why that’s not a lesser revenue growth rate than what you are implying?

Okay. Alex, thanks for the question. I think it’s the key point you’re raising. When we’re talking about subscription, some of the contracts we’re getting is five-year contract but invoiced quarterly or invoiced yearly. When it’s invoiced quarterly, yearly, monthly, you are not seeing at all, even in the total deferred, the stuff we did not invoice. So, if I have a five-year contract, one-year contract invoiced monthly and we’ve booked in December, in the total deferred, you’re going to see only one month, the first month. You’re not going to see, because it was not invoiced at all, all the rest. Also, we have a committed contract, no confirmation, no exit et cetera. So, there is another layer of those future invoices…

So, if I were to use an ARR calculation as opposed to total deferred calculation, I would be seeing what kind of growth rate in ARR?

Only on the cloud subscription, yes, correct.

But I would see a significant growth rate in ARR, reported ARR?

Yes.

Your next question comes from Michael Kim from Imperial Capital. Your line is open.

Hi, guys. With regards to the Seculert acquisition, beyond the technology integration, do you see an opportunity to develop sort of additional cloud service SKUs, provide an add-on sale opportunity or for AMS enhancing the value proposition and driving maybe a little bit better pricing?

Yes. We see that opportunity, but let us update you when we are releasing or when time comes.

Okay. And then just on the sales organization, can you talk a little about some of the investments that you’re working on in EMEA and APAC, how you see kind of the sales organization developing both from a leadership perspective and then down to the second level beyond that?

So, as I mentioned in my remarks, we are adding resources where we see the focus of us going forward. So, I’ve mentioned security, I’ve mentioned cloud services. In both areas, we are adding field resources, security architect, cloud architect, cloud services, sales people and so on. In addition, I have mentioned Check Point and Cisco and the OEM in general, we are adding field resources also around that, because we believe that would be a growth area for us. So, we are adding resources very aligned with my prepared comments, and we are targeting some of the key markets in APAC and EMEA. Apart from that, we are obviously dealing with regional execution issues like the normal course of the business that we are addressing.

Great. And then, lastly, with the ramping number of new -- net new cloud customers, how should we think about the opportunity to expand into those customers over time? Does it look similar to what we’ve seen historically with the on-premise data centers and traditional deployments?

So, we think when we are serving the customer as a cloud operator, sometimes we are becoming, not only the security provider, sometimes also the networking provider for that data center or for that application. We think those relationships are quite strategic and are taking place quite often. We believe this trusted advisor position, we can get to through those relationships is very strategic in order to leverage the rest of our portfolio, both the on trend devices as well as the ADC product line et cetera. So, we are -- we see this trend of adding net new customers and so many, so the cloud initiative is a very positive one for the overall business.

Your next question comes from George Notter from Jefferies. Your line is open.

Hi, guys. Thanks very much. I guess I wanted to go back to the Cisco Firepower relationship. And earlier in the call, I think you guys mentioned that there is a particular release that you’re looking for out of Cisco. I’m a little bit confused, because I know there is a couple of iterations of Firepower that have been shipping already, there is a service provider, product, there is an enterprise based conversion as well. I guess, I want to be really precise on what you’re looking for there and how it translates into OEM sales? Thanks.

So, as I’ve mentioned, some of those models are in early availability. The current platforms that are available are mainly available in the firewall version, in the ASA type firewall. And our core target for the OEM is the next-gen firewall of Cisco. And I think there is a major release that should take place quite soon, after several delays. And that’s the prime I think focus of the Cisco security sales organization and of other OEMs.

There are no further questions at this time. I’ll turn the call back over to the presenters.

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

This concludes today’s conference call. You may now disconnect.