Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to the Radware Q2 2019 Earnings Conference Call. All lines have been place on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Anat Earon-Heilborn, VP, Investor Relations. You may begin your conference.

Thank you, Sharon. Good morning everyone and welcome to Radware's second quarter 2019 earnings conference call. Joining me 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 second 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 forecasts and estimates. Factors that could cause or contribute to such differences include but are not limited to general business conditions and our ability to address changes in our industry, changes in the macro product, 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 or furnishes from time to time with the SEC, specifically the company's last annual report on Form 20-F as filed on April 16, 2019. We undertake no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made. With that, I will turn the call to Doron Abramovitch.

Thank you, Anat. Good morning or good afternoon everyone. I'm pleased to provide a review and analysis of our second quarter results. The quarter reflects solid execution on our strategy and the results met or exceeded are our guidance for revenues as well as growth operating and net profits. Revenues for the second quarter were $60.5 million up 6% year-over-year. Revenues for the first half of 2019 were $122 million, growing 9% over the first half of 2018. Revenues from the Americas represented 46% of total Q2 2019 revenues and increased 16% from Q2 2018. Revenues from EMEA decreased 15% from Q2 last year and represented 28% of total revenues; and revenues from Asia-Pacific grew 17% from Q2 last year and represented 26% of the total. The geographic mix of revenues was strongly affected by the dynamics of revenue recognition. The Q2 revenues reflect with some delays, the bookings trends we talked about in previous quarters, meaning the transition into subscription in the Americas and the softness in the EMEA will refer to in our Q1 call. For the last 12 month period, Americas revenue has increased 3% from the previous 12 month period; EMEA revenues increased 19%, and Asia-Pacific revenues increased 10%. I will discuss all the expenses and profit all in non-GAAP terms. The differences between the GAAP and non-GAAP results for the quarter are detailed in our press release. Gross margin for the second quarter grew to 83.2% from 82.4% in Q2 last year, benefiting from higher proportion of subscription revenues. The condition to subscription based business model has a positive impact on our growth margin due to the high gross margin associated with software subscription and that the capacity utilization of the Cloud Scrubbing centers increases. Of course, product and geographic mix in a specific quarter…

Thank you, Doron. We are pleased to report solid second quarter results with robust business activity and consistent progress in our strategic initiatives. With first half of '19 revenue growth of 9% year-over-year, coupled with our guidance for Q3, we are confident that will we meet our full year target. Today, we are offering the widest and strongest protection against data center attacks, expanding DDoS protection, web security, anti-bot, anti-scanning, encrypted traffic security and workload protection. We eliminate for our customers the trade-off between choosing a set of best of breed tools versus going with an integrated platform for data center security. We are considered by third party analysts, a leader in many of the individual components, such as B-bots, anti-bot, ADC, SSL, etc., thus providing the strength of best of breed security with the operational ease and advantages economics of an integrated platform. On the financial side, this strength translates into very rapid growth of our subscription and cloud services, thus providing us with increased visibility and a consistent revenue stream. Based on the first half of 2019 bookings, we are well positioned to meet the goal we shared in the past two analyst meetings for subscriptions to exceed 30% of total booking of the company in 2020. A few weeks ago, we announced a deal, that is a good example of the way this broad and integrated offering serves customer needs. We announced a multi-million dollar three year expansion deal with an existing world leading SaaS customer. This customer protects its global data centers and Software-as-a-Service solutions using our hybrid cloud deals. The solution is comprised of our DefensePro and Alteon appliances installed across the globe in their data centers. Our cloud data service and the fully managed security service by our emergency response team. Another major win…

[Operator Instructions] And we have a question from Alex Henderson with Needham and Company.

Hey. You broke up a little bit when you gave the revenue number. Can you just give me that revenue guide again?

Yes, Alex. So, we expect revenues to be between $62 million and $64 million for third quarter.

Thanks. So, I was hoping you could talk a little bit about the Cisco stuff, give us a little bit more granularity. You said it improved -- it's not that visible in the numbers to me. So, I mean, is it bigger than a breadbox or smaller than a slice?

Yes. So, as we reported also -- I think couple of quarters ago, Cisco continue to enhance the product portfolio from Radware, that they're offering to their customers as part of their global price list with full measurement on their sales force, and we're starting to see, a rise in activity across the world, and it's across the complete product line. So, we know clearly, our DDos software and appliances are a deceive our Cloud WAF, our Cloud DDos offerings and so on and we're seeing a mix of these across the different business problems we saw. In Q2, it's already started to translate into bookings that were higher than in previous periods and also our expectation now for Q3 is for a -- and not recording booking quarter with Cisco. So all in all, there's a lot of traction in the field. We are seeing deals that we could not have approached before or without Cisco, and some of them, significant ones we're already won. So overall, good progress, and the team is very optimistic about the future there.

So on the European side, you had indicated after the first quarter the real erosion in bookings and that despite a very strong print on the revenues that you are concerned about the outlook. Obviously, the revenues came in, not surprisingly. Have you seen any meaningful pickup in the bookings in the EMEA? And -- how we thinking about that as we look out into the back half?

Yes. So, no, I don't want to go into booking per quarter etc., but sometimes even bookings increased and they did, an even significantly overall our view of Europe is continues to be cautious, especially on Germany and the U.K. So I would separate, the specific booking results, which again were extremely good versus our current view for the year that we still see weakness in Europe.

Can you give us any break between your kind of conventional, traditional business and the security and SAS related stuff? Any metrics around the newer portion of the business security versus traditional, would be very helpful? Thank you.

Yes. Not any new specifics to share beyond my comments that there, we see real strength in cloud and product subscriptions and that we are on our very strong and our way to, for the subscription portion to be 30%, not only of new bookings, but of total bookings of the company. So there is strong progress still.

Next question comes from Ittai Kidron with Oppenheimer.

Hey, guys. Good quarter. Roy, can you talk about enterprise, which again, for not a quarter? I guess, this time was, you're going flat on a year-over-year basis. Is this just a reflection of the transition to a subscription where all of that revenue are actually is counted as service provider because it goes through the third party service providers? Help me understand the dynamics there?

I think it's a mix one in -- overall in enterprise, the deferral of revenues is higher and you see, I think the growth on the total deferred as a result primarily, of course, from our enterprise business and the fact that most of the cloud subscriptions, product subscriptions are going into that segment, so that's obviously one. And second, I think, last year we had some very nice growth in the enterprise and in some regions we had weakness, I've mentioned in EMEA and better execution that we would like to see maybe in the U.S. I would not read too much to it, I think the deferred revenues that does show a very strong trend in -- in bookings in the enterprise. Our cloud business and product subscriptions is in all-time high. So overall, from that perspective I'm quite satisfied with the performance. However, I think it was leveraging our partners, better execution on our end, there is definitely room for acceleration there.

Okay. Then, speaking of partners, you mentioned also on your prepared remarks the -- the importance of building a third party kind of reselling motion. Can you give us some more color on how many partners do you have now? How many are critical to your subscription businesses? Any concentrations, regional color, how many -- you've never really given too much color on that front?

Yes. So, we have multiple sets of channels. We have -- what we call the traditional channel, the networking and the security VARs, in that we have definitely over 100 across the globe. And then we have the one that we are treating most strategically because of the scale and ability to a bring us in front of many of the very large enterprise customers and the fact that they carry only us, is their solution, unlike the traditional VAR, that can carry multiple competing product lines. So over the -- with the OEMs, we announced publicly Cisco checkpoint and Nokia, we do have -- other OEM partners, that they are not -- we cannot share publicly their name, and this is a very important, we think in a high -- highly -- high potential channel for us, and we are seeing many, many large enterprise wins through these channels predominantly checkpoint Cisco bringing us and some new career opportunities that we are unable to go alone to, through Nokia. Then there is a set of channels that we treat as the cloud and hosting and providers in the global system integrators that adopt our offering as they are offering to the customers as a service to the customers, also here we are investing more and we're seeing good growth. We've seen several Fortune 500 wins in the second quarter through that channel and we are adding resources also to cover better and leverage the relationships that we have in this segments. So all in all, we're seeing good progress in the strategic channel. We're seeing a good revenue and booking growth, but we think we're very early still in the -- if we look versus the potential we have there -- we're still very early in the cycle.

Thanks. Next question comes from George Notter with Jefferies.

Hi, there. Thanks very much, guys. I guess, I was really interested in your comments about Cisco and the bookings improvement there, and I'd love to learn more about that. I, certainly heard what you said about, more of the products going into the Cisco price list, is that -- is that the simple reason why the Cisco trends seem to be inflicting here or is there something else going on in terms of, training their organization or some of their sales and marketing efforts that's getting that -- that business going. So, any more color there would be great?

So, I think there is multiple parameters, so first if you recall our initial deal, we're integrated DDoS software on top of the Firepower Next Gen Firewall, and in those deals, we were limited in the potential to where Cisco sold an NG firewall, and when that NG firewall was internet facing, where data flows was a problem. Once the product portfolio was in hand, even indeed those two Cloud DDoS and to app -- and stand-alone appliances, not to mention the broader portfolio with necessary inspection, in WAF and Cloud WAF, etc., we are now -- we can now look at a way more opportunities, with the Cisco team. So this is the item one. The fact that we are not confined to Firepower sales only. Second, I think it's a time effect, if we are training more, as we're working more as we're starting to win more, the news are separating. And third, I think given the early wins and those strategic importance, the Cisco sales management for security is acknowledging the value. We'll follow the relationship and are pushing even further the teams to explore more opportunities. So I think again, we're early on, but we're seeing very encouraging signs. I think, we're seeing very nice wins and what I'm most interested in, some of these accounts are definitely accounts that we could not touch by our own sales force. So, we completely incremental to our own network and we look forward to provide even better results in the coming quarters.

That's great. And then I guess, I also wanted to go back and I guess, you're more about your efforts on encrypted traffic. Can you just talk about, how SSL capability kind of layers in with the rest of the product portfolio and how you see that? In terms of ramping an opportunity for new revenue.

Okay. So, I think this is a very big problem today in security, because more and more of the traffic of the network traffic is now encrypted for privacy and other reasons, predominantly through SSL and DDoS. When you encrypt the traffic, all your network security devices are blind to the content and cannot detect any attack that is passing through. The only way for you to a -- to bring back the power to the -- to those different systems is by terminating, by opening the traffic, showing -- let all those security tools scanning and try to detect attacks that way. But, that means that you're terminating the encrypted traffic before the end point, before your servers. Some customers would like to do it, some would not, but in order to do that, definitely the customer has to be in control of the one that wants to protect us, to have the certificates, the key for the encryption. Now, if you look on a service provider that the traffic flows through their network maybe to the end customer or in transit, they probably would not have the keys, or the certificates. And as a result, they're blind to all the encrypted traffic flowing through those systems. So for them to be able to protect against encrypted attacks without opening or without decrypting the content we think is -- and that's what we hear from them, it's a game changer. On the enterprise side and especially on software-as-a-service side, they can theoretically protect against encrypted attacks, especially floods, by building huge capacity of SSL termination. By itself, it's an issue budget operational and so on, but it's -- at least technically possible, but put aside the budget considerations. It adds a lot of latency, you terminate all connections, all traffic even when you don't have an attack and 99.99% of the time you're not being attacked. So you will hitch performance. You will need to put the very, very expensive and slow and limited infrastructure to do that, and your game is security, but it's quite limited. What we are doing with these new set of algorithms, we are changing the game. We can detect attacks without terminating and then we can decide what to do? To block what we see if the attack traffic or to forward that specific portion of the traffic for decryption while all the rest continues to flow. So it changes latency in enterprise. It changes that the -- the budget, the trade-off for security, it improves customer experience and so on. So, again, very, very important, we are very, very pleased with the capabilities and what we're seeing already in our cloud, on our Cloud DDoS data, our ability to do that, and I think it's a very unique competitive advantage.

Next question comes from Tavy Rosner with Barclays.

Thanks for taking my questions. I got disconnected for a minute. I am sorry if you're already touched on that, but can you comment on the deferred revenue? I mean, we're looking at the evolution of, the balance sheet deferred revenue going down sequentially while the uncollected billed amounts were going up significantly. So anything to read into that?

No. So this is why we referring to the total deferred revenues and by that it eliminates the short term, long term and what we build and what we didn't. So, I advise to look on the trend of this $172 million in the break of what will be in the next 12 months, to be recognized as revenue. This is the -- the only trend that in our mind is significant.

Got it. And you mentioned Cisco and the announcement of the -- your product within their portfolio. What about checkpoints and Nokia? Anything they are evolving over there?

They continue to contribute. With checkpoint also, we are quite optimistic that we are gaining mind share and definitely new logos, but I don't think at this point it's in the scale of the Cisco relationship and the Cisco momentum. We are working, of course, with them to grow it further into accelerate it.

Okay. That's helpful. And just a last one from me, please. Looking at the acquisition pipelines, do you guys have any incremental target that you think could be a credit for you guys compared to the last quarter?

So, you know, we continue to look and to be active in the market. Obviously, we will report only when something is -- we concluded it. So, at this point, nothing to share, but obviously we're looking for more opportunities. We are very happy with how the anti-bot acquisition, the ShieldSquare acquisition is shaping up. We won several new customer that's fully integrated now in our Cloud WAF and in our end-to-end stack. So, the -- there is a little bit good feedback from our customers. So, over there, integration is going well and as a result, we are looking to see if there is further opportunities.

At this time, I'll turn the call over to the presenters.

Thank you very much and have a great day.

This does conclude today’s conference call. You may now disconnect.