00:02 Good morning. Welcome to the Radware Conference Call discussing Third Quarter twenty twenty one Results and thank you all for holding. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today. November three, twenty twenty one. 00:33 I would now like to turn this call over to Yisca Erez, Director and Investor Relations at Radware. Please go ahead.

00:42 Thank you, operator. Good morning, everyone and welcome to Radware's third quarter twenty twenty one earnings conference call. Joining me today are Roy Zisapel, President and Chief Executive Officer; and Michael Goldberger, VP, Finance. A copy of our -- 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. 01:11 During today's call, we may make projections or other forward-looking statements regarding future events or 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. 01:30 Factors that could cause or contribute to such differences include, but are not limited to, impact from the COVID-19 pandemic, general business conditions, and our ability to address changes in our industry, changes in demand for products, the timing in the amount of orders, and other risk details from time to time in Radware's filings. 01:52 We refer you to the documents that the company files and finishes from time-to-time with the SEC, specifically the company's last Annual Report on Form 20-F as filed on April twenty, twenty twenty one. 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. 02:15 I will now turn the call to Roy Zisapel.

02:19 Thank you, Yisca and thank you all for joining us today. We are pleased to report another strong quarter with double-digit growth across our major key financial metrics. In the third quarter, we set yet another revenue record hitting seventy three million dollars of revenue. This represents seventeen percent year-over-year growth. In addition, earning per share grew thirty two percent to zero point two three dollars on the same basis. 02:46 ARR grew sequentially by seven million dollars and nine percent year-over-year. The ARR growth consistent with previous quarters was driven by cloud and subscription ARR, which grew twenty six percent year-over-year and is increasing as a percentage of total ARR. The momentum in our cloud business is being supported by impressive growth in cloud application security, improved retention rates and the steady increase in the number of customers each quarter. 03:17 We are working diligently on expanding our cloud business. We're opening more points of presence for cloud application security and DDoS, so we can be closer to the customer and grow our business faster. We are already opening one to two new POPS each quarter across the world and plan to continue to do so in the coming quarters. 03:42 The strong performance I just outlined is attributed to the combination of strong market fundamentals, our ability to innovate and the breadths of our product offering. One of the market forces that continues to play in our favor is the consistent drive in the number of cyber-attacks. In fact, they’re at record levels and are becoming larger and more complex. 04:06 During the third quarter of twenty twenty one, we blocked thirty percent more DDoS attacks, twice as many web application attacks and three times more bad bot requests compared to the same period last year. 04:20…

09:34 Thank you, Roy and good day, everyone. I'm pleased to provide analysis of our financial results and business performance for the third quarter of twenty twenty one. I would like to remind you that unless otherwise indicated all financial results are non-GAAP. Reconciliations between the GAAP and non-GAAP results for the quarter are detailed in our press release. 09:57 As Roy outlined, we had a strong quarter with both the top and bottom line results far exceeding our expectations. Revenue for the third quarter of twenty twenty one was a record of seventy three point four million dollars representing an increase of seventeen percent year-over-year and marking the third quarter in a row of double-digit growth. 10:19 We recorded growth from all revenue types predominantly subscription. We continue to expand our subscription business as reflected in total ARR, which grew nine percent in the third quarter and specifically, cloud and subscription ARR which grew twenty six percent compared to Q3 twenty twenty. 10:40 Looking at geographies, Americas are a primary region, which represents forty nine percent of total revenue, grew eighteen percent in Q3 twenty twenty one compared to the same period of last year. The reported strong growth in EMEA which represents thirty two percent of total revenue and grew twenty nine percent in Q3 twenty twenty one compared to the same period of last year. APAC revenue increased one percent in Q3 twenty twenty one compared to Q3 of twenty twenty and accounted for the remaining nineteen percent of total revenue in the quarter. 11:18 We will now discuss expenses and profit. Gross margin for the third quarter twenty twenty one increased to eighty two point six percent compared to eighty two point two percent in the same period of last year. Our gross margin can fluctuate…

13:40 Thank you, Michael. Before opening the call for Q&A, I will provide our guidance for the fourth quarter. We expect Q4 total revenues to be in the range of seventy four million dollars to seventy six million dollars and full year twenty twenty one total revenue to be in the range of two hundred and eighty four million to two hundred and eighty six million dollars. 14:03 We expect our fourth quarter twenty twenty one operating expenses to be between fifty one million dollars and fifty two million dollars, including increased investments in the business, coupled with the continued negative impact from the strengthening of the Israeli Shekel. 14:21 With that, Q4 twenty twenty one fully diluted earnings per share is expected to be in the range of zero point two one dollars to zero point two two. And full year twenty twenty one, fully diluted earnings per share is expected to be in the range of zero point eight dollars to zero point eight one dollars. 14:38 I will now turn the call over to the operator to start the Q&A.

14:44 [Operator Instructions] Your first question comes from the line of George Notter with Jefferies. Your line is open.

14:59 Hi, guys. Thanks very much. I guess maybe I would start. You guys have made a push I think into hiring more folks in North America on the sales front. I guess I would just check-in and kind of see where you guys are in terms of ramping that sales effort? And then also there was a CFO search underway I thought I'd ask about that one as well. Thanks guys.

15:24 So thanks, George. The bidding environment is challenging. We are hiring in the U.S. But we are not yet full versus our plan. So we are doubling our efforts there. We've increased somewhat the level of sales people, but they’re still far from where we are heading and going into twenty twenty two. We're planning to increase that even further. So we have a lot of work to do in that front. We are progressing, but we would like to accelerate it. 15:53 Regarding the CFO search, we have nothing to report yet, but obviously when we have, we will announce it publicly immediately.

16:02 Got it. Okay. And then how do you think about the environment in terms of the deals. I mean, it sounds like you're still -- there are deals out there in the marketplace that you guys aren't seeing. Any sense for -- how much opportunity you guys might have as you ramp up the sales force or what do you think about your ability to really address the market at this point?

16:31 The opportunity is immense in cloud security. And obviously, we're just scratching the surface. I think we are represented to a certain degree in the very high end, most prestigious logos, but everything mid-size of the market and below we simply don't have the capacity today to approach and we are increasing our efforts both organically through increased sales force across the globe, predominantly in North America, but now we're hiring also in EMEA and Asia-Pacific as well as through our other go-to-market channels.

17:15 Okay. Thanks very much.

17:18 Your next question comes from the line of Chris Reimer with Barclays. Your line is open.

17:25 Hi. This is Chris on for Tavy Rosner. Thank you for taking my questions. Can you provide some color on the traction you are seeing with the OEMs?

17:37 Yeah. So the OEMs continue to perform for us, every quarter, specifically, they are providing us with many new logos, as they are marketing our solutions to their existing customers. We are working now on ways to further penetrate the OEMs on more solutions and to grow our business with them even further. I did refer in the call for one large European customer that was brought us by checkpoint [Technical Difficulty] brought to us by Cisco this quarter, so we continue to see activity around the world, but definitely going into twenty twenty two, we believe also there's an opportunity to increase it even further.

18:21 Okay. And just looking across the geographies, you delivered strong growth in EMEA, Americas this quarter. APAC was kind of moderate. Can you comment on some of the dynamics you're seeing across the different regions?

18:37 Yeah. At a high level, if I'm looking more on our booking numbers, so overall, all regions performed well, when it translates to revenue, I know that APAC shows flat to slight increase, however, from booking perspective they were good. And I think one comment I want to make on the different regions is obviously our cloud solutions are stronger in North America and in EMEA and APAC depends on the specific market within APAC is a bit slower to adopt cloud solutions in general and cloud security in our case in particular. So we're more in greenfield early scenario there and therefore, it might limit the growth rates that we can achieve. However, we believe the potential across the world. And if you look where we are opening data centers in North America, it's in Europe, but it's also in Latin America, it's in Asia Pacific. We think that cloud security is a very large opportunity globally and that all regions should be able to grow nicely as we go forward.

19:51 Okay. Thank you. That's it for me.

19:55 Your next question comes from the line of Andrew King with Colliers Securities. Your line is open.

20:02 Hey, guys. Thanks for taking my question. Congrats on the great quarter. Two questions for me. First off, if you could just parse out the 5G opportunities with the carriers and how that -- how you expect that to start layering into growth, also how that's been impacted by COVID? And then also can you just break down a little bit, you called out new -- strong new customers, how much of that was driven by emergency onboarding versus traditional sales processes?

20:33 Yeah. So for first regarding 5G, we see that is a broader opportunity in carrier security, and I referred to some examples in my call. Today, we don't actively have projects in 5G networks that are particular to the 5G deployment versus next generation care network disaggregated network, et cetera. So we don't focus on the 5G specifically for -- as a growth driver for the coming eighteen months. However, we do see a broader opportunity as 5G networks are being built and that are much more application specific and with the rise -- potential rise of 5G use cases for IoT, for autonomous cars and so on that would require to deploy security at the edge. And here we think the opportunity is massively bigger than what we are seeing today in carrier networks. But for the short-term, I would not characterize 5G as a specific growth driver for us outside of the global growth we're seeing in the carrier segment as a whole. 21:47 Regarding the emergency onboarding, I think we had several this quarter, but I think we had less than we had in Q2 or Q1 this year. So the growth in Q3 is not triggered by specific emergency onboarding. We did see however many customers that had an attack and I gave some examples in my script failed to protect the attacker since passed, but given that they failed and they went down, they had to search for a solution. So this -- we don't call emergency onboarding as we're not onboarding them and under a specific attack, but definitely failure of existing topologies or solutions to protect is a very strong driver to upgrade and to change the incumbent solution. So this we've seen across the world multiple examples in the third quarter.

22:46 Great. Thanks for taking my questions.

22:50 [Operator Instructions] Your next question comes from the line of Alex Henderson with Needham. Your line is open.

23:01 Thanks. So I was hoping you could talk a little bit about the progress you're making with the service provider and other partners that you're signing to resell your technology across various, what I would describe is more narrow verticals. For instance, the transaction in Brazil with Azion or the one in Spain. Those projects obviously have a longer duration to when they start to show up in the revenues, but potentially could be quite large once those programs ramp. So, have you got any more experience with that, that you can share that gives us some sense of the timing of how those will ramp. I think you’ve ended like sixteen or seventeen of them over the last eighteen months?

23:59 Yeah. You're right. And Alex, we continue to focus on that. We see carriers hosting providers CDN, specialty application hosting and development provider is a very good source of new customers for us and the reason is that everyone needs today security. If you're hosting somewhere, you would expect that environment, that provider to be able to secure your application. If you are relying on a third-party for an application hosting or specific part of your business transaction you would expect them to be able to provide you with security solutions coupled with that application. 24:45 And what we've seen is that those partners can be very, very impactful as part of the relationship and sometimes is part of the transaction, their ability to sell our solutions. We are ramping them not all of them are successful, but we're seeing every quarter, more and more customers coming from what this trend that we start calling them active, active resellers that are bundling or sometimes they are leading with our solutions to their customers. So for example, with the Azion relationship, you've have mentioned, I know we've closed already this quarter, another customer and last quarter we did a couple. So definitely continuous progress and I think the more of these we bring in and they don't overlap each other. Each one is operating in different markets, different verticals the more we bring, I think it completely augments an incremental to the channels to market we have now.

25:47 So I mean, it clearly seems like there's a lot of wood behind the arrow and -- here and the arrow is in flights. So when do these partnerships really hit the steep part of the ramp, is it a six to twelve to eighteen month process to get these people to build out their marketing programs and how do you share revenues or costs or how do they get compensated as part of it?

26:21 Yeah. So, it depends on the size of the partner and their operation. But I would say, it's around six months to get going and to start training those sales force and then being able to teach and close deals more independently. The business model is simple, it's like a reseller. There's a price list for the service that's competitive in the market. And we agree with them on a certain discount from that price list, it's obviously more than a regular reseller, it's less than global OEM like Cisco or checkpoints, so it’s somewhere in the middle, which provides them strong margin and big upsides to serve that critical need that the customers already expect from them in some cases.

27:13 Given the trajectory of those wins are we in the early phases of the steep ramp part? I mean, are we getting going to put to the shin of the S curve over the next year that going to be a big driver?

27:30 We are still early. It should grow significantly next year, but in the global numbers it would be still a low component, but it will contribute. It will start contributing to our numbers and growth rates.

27:48 Okay. Second question, can you talk a little bit about the rate of subscription and cloud growth which you're expecting and in your guide twenty six percent in the current period at this point. What do you think the whole year number looks like for that subscription number?

28:08 I think we said that it's around this area, if you look also on previous quarters, it's pretty consistent the growth rates even if the numbers scale and I would look for it to continue. I think the growth driver of the cloud portion within it, which is even obviously a much faster growth rate continues and we're putting more investments into it. So this is what we would be looking for also going forward.

28:36 Okay. And then, within the numbers, can you talk about whether you had any supply constraints? I didn't hear? So first call, the insistence systems come down, but that's been on hasn't mentioned supply constraints at all. And I know you do self from hardware. So can you talk a little bit about whether you had a book-to-bill above one or below one or at one or what the supply constraints and whether that's impacting your costs at all?

29:11 Yeah. So we do like everyone else. I think that's supply constraints, it hits us mainly on the -- obviously on the appliance business. There's some minimal impact on the timeline of building new cloud nodes, as sometimes we rely on third-parties for switching routing and so on, but it mainly hits us on our own appliances and at certain product lines, we do see both significant cost increases as well as delays. 29:42 But I don't think it's a major impact in the overall. We built some inventory ahead of time, if it would persist that problem will become of course bigger and bigger, if it could persist. But at this point, I think we're managing it relatively well. It hit us somewhat, but definitely less of an impact for our cloud security solutions or public cloud or software subscriptions where it's completely unrelated to it. So overall, I think we're in a good shape, definitely relative to the industry, although there is some impact, of course.

30:19 So your book-to-bill was consistent with around one then, it sounds like there is no backlog built?

30:26 It is slightly above one or we've built more backlog through the deferral and so on. We will report it in the end of the year, but you will see that our total backlog as increasing.

30:42 All right. And then the shekel obviously had an impact in the quarter, in the guide, I was surprised how much it spiked in the last month and half or so? So what is the impact of the shekel in your four Q calculus?

31:03 Well for the next quarter, it will be less likely impact us year-over-year it will be around six hundred thousand for the fourth quarter.

31:17 And if it increase at this level, would it be in for the full year twenty two?

31:26 I think per quarter, it reaches now at zero point zero one or zero point zero two EPS, this quarter, it was a bit more one point five million dollars. So it's more, but going forward, quarter at this level is zero point zero one dollars to zero point zero two dollars per quarter.

31:41 Thanks. That's helpful. I'll cede the floor.

31:48 There are no further questions at this time. I will now turn the call back over to Mr. Roy Zisapel, CEO.

31:55 Thank you very much for joining us today and have a great day. Thank you.

32:00 Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.