Welcome to the Radware Conference Call discussing Fourth Quarter and Full Year 2021 results and thank you all for holding. As a reminder, this conference is being recorded today, February 9th, 2022. I would now like to turn this call over to Yisca Erez, Director of Investor Relations at Radware. Please go ahead.

Thank you, Operator. Good morning, everyone and welcome to Radware’s Fourth Quarter and full-year 2021 Earnings Conference Call. Joining me today are Roy Zisapel, President and Chief Executive Officer, and [Indiscernible] Finance. A copy of today's press release and financial statements, as well as being the investor [Indiscernible] for the fourth 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 defer materially from Radware's current forecast investment. 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 the products, the timing in the amount of orders and other risk details from time to time in Radware's filings. 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 20, 2021. We undertake no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date of such statement is made. I will now turn the call to Roy Zisapel.

Thank you Yisca, and thank you all for joining us today. Q4 was another record quarter which closed a record year for Radware. Our strategy to grow our cycle security and cloud services has proven very successful. In turn, we've made great progress transitioning from mainly a product-based perpetual license revenue model, to revenue model that is based largely on ARR and subscription. The evidence of this shift is reflected in our 2021 performance. Total ARR reached a record of $190 million. Cloud and subscription ARR grew 23% year-over-year. Cloud and subscription revenues grew 44% year-over-year to $93 million. And now the account for 32% of total revenues up from 26% in 2020. And we exited 2021 with a run rate of more than $100 million of subscription revenue. Looking forward, we see great momentum and significant potential in continuing to grow our data center and application security offering. Our customers are advancing their monthly cloud infrastructure and have an elevated need for a strong security strategy. This is a huge market opportunity for us. It is further magnified by an extremely active cyber-attack environment and our recent statistics demonstrate that. Number of denial of service attacks that we blocked during 2021 increased by 45% compared to 2020. The web application attacks blocked by us grew by 88% and both attacks increased by 123% year-over-year. Based on these market drivers. The resulting needs for best-in-class cloud security. In our technology leadership, we continue to win many new customers and grow our existing relationships. In the fourth quarter, we closed several large Cloud deals. For example, a Fortune 500 financial services company chose our Cloud DDoS solution for our worldwide deployment to better protect and serve their global operations. Our global network footprint and quality together with our security leadership were…

Thank you, Roy. And good day, everyone. I'm pleased to provide the analysis of our financial results and this is performance for the fourth quarter and full year of 2021. I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. Reconciliation between the GAAP and non-GAAP results for the quarter are detailed in our press release. We had a strong quarter and a remarkable year with both top and bottom line growing double-digits in 2021 compared to 2020. Revenue for the fourth quarter 2021 was a record $76.6 million, an increase of 11% compared to the same period in 2020. Full-year 2021 revenue was also a record, reaching $286.5 million, an increase of 15% compared to 2020. Looking at geographies, 2021, revenue in the Americas grew 14% in the fourth quarter and 13% during the full year to $31 million to $129 million respectively. 2021 revenues in demand grew 23% in the fourth quarter and 26% during the full year, with $30 million and $98 million respectively. APAC revenues in the first quarter of 2021 were $60 million compared to $17 million in the same period in 2020 for the full-year 2021 APAC revenues increased 4% to $59 million compared to $57 million in 2020. I will now discuss expenses and profit. Gross margin for the fourth quarter of 2021 was 82.4% compared to 83.1% in the same period in 2020 For the full-year 2021, gross margin was 82.4% compared to 82.8% in 2020. Our gross margin can fluctuate from quarter-to-quarter due to product and geographic mix, as well as costs related to the supply chain. Operating expenses in the fourth quarter of 2021 increased 8% to $52.1 million compared to the same period in 2020. Full-year 2021 operating expenses also increased by 8% to…

Thank you Gil, I will now provide our guidance for the first quarter of 2022. We expect Q1 revenues to be in the range of $72 million to $74 million, representing 8% to 11% yield over the year. As we highlighted, we are increasing investments in the cloud business and we expect our operating expenses to be between $50.5 million to $52 million. With that and taking into account the declining Financial income, Q1 earnings per share is expected to be between $0.17 and $0.19. For the full-year 2022 revenues we expect to grow slightly above our three-year target. I will now turn the call over to the operator for questions, Operator.

[Operators instructions]. I'm going to pause for a moment to compile the Q&A roster. And our first question comes from the line of George Notter with Jefferies. Please go ahead.

Hi, guys. Thanks very much. Roy, maybe just to continue on that, so you’re -- in terms of the guidance for the full year. If I look back, your guidance at one point for the long-term CAGR was 9% to 10%, so I assume you're looking for a slightly better revenue growth this year than that type of number. Is that mid-teens, is that low teens, high-teens? Is there some kind of tighter parameters you can put around that?

Yeah. Unfortunately, our guidance was 7% to 9% and that's what I'm looking for.

Right. Okay. I think you -- at one point, the long-term growth rate was 9 to 10 and then this is at the Analyst Day from 2020. And then I think you took it down at one point subsequent to that. Is that so -- okay. So the bogey is 7% to 9%?

Also in the Analyst Day, the figure I will send you over, after the call, the material.

Sure, no worries. Of course, [Indiscernible]

It's in line with that.

Great. Okay. And then OEM bookings is a number you guys have given us in the past. Yes. I think you gave it in terms of compares in prior years, 2020, 2019. But how did you guys do in terms of OEM bookings in 2021, is there a number for that?

So we did -- depend on DEM, though. Some did better than the others, but the growth, the significant growth in absolute revenue did not come from there. It came from our other channels, other indirect business. As I've mentioned in the script and in other script along the way, we see the OEMs contributing a lot in bringing completely new customers to us and this continues to be strong. Going into next year, we are trying obviously to accelerate with several programs the OEM revenues. Having said that, I think our own go-to-market strategies also the enterprise and the carriers executed well in 2021.

Got it. Okay. And then if I back earlier in earnings season, it seems like this was long ago, but one of your competitors, F5, was having issues with component availability. They were seeing a bigger shift towards hardware in their business. It sounds like from the monologue here today that you guys aren't really seeing those issues, nor the shift towards hardware. But can you talk about what you're seeing in terms of supply chain impacts?

So I think we're exposed to what everyone is seeing. Obviously, component prices are going up, supply chain there are some challenges, but we built some more inventory and we're paying more. We're paying more for the components; we're paying more for the shipment. You see some of the impact in our gross margin, but we ensure a continuous supply of our products to our customers.

Okay. All right. Fair enough. Thanks very much. I appreciate it.

Thank you.

And our next question will come from Chris Reimer with Barclays. Please go ahead.

Hi. This is Chris [Indiscernible] for [Indiscernible] from Barclays. Thank you for taking my questions. Looking at the revenues across geographies, you delivered strong growth EMEA and North America while this quarter APAC was down. Can you comment a little on some of the dynamics you're seeing, especially in APAC and then in general just across the different regions?

Yeah. So it's a high level given we're selling more and more cloud security solutions. Obviously we grow better where the region is more aligned to cloud, computing hybrid cloud in zone. APAC, again obviously depends on the country but in a general statement is a bit after the Europe and North America in these trends. And we see that in our ability to generate high amount of sales from our cloud security solutions there. We are working hard to accelerate that. And especially in specific markets that we believe can be good payment of cloud security business. But for now, the growth rate there is more challenge versus the more developed markets for cloud security.

And just -- is there any other -- is there any color you can provide on the M&A pipeline, and can you expand a little on the investments you're undertaking to support growth in the business?

Absolutely. We continue to be active in the market to search for M&A candidates. However, I must tell you that some of the pricing we're seeing on private companies are making it hard for Radware to upon it at this time. However, we have the time and the patience to find the right candidate and the right opportunity to do an M&A. Regarding the investments we're making, as I've mentioned in my note, we're focusing on growing our security business and specifically the Cloud security. So we're making investment in dedicated sales head count in marketing investments towards that, as well as significant investments in the Cloud infrastructure, and the R&D to support future growth.

So really just all around. That's it for me. Thank you.

And our next question will come from Alex Henderson with Needham. Please go ahead.

Great. Thank you very much. So I was wondering if you could give us a sense of your target headcount increases in 2022.

We're targeting, give or take, 100 to 120 [Indiscernible] during the year.

Okay. And do you have any guidance towards your expected growth rate later on in 2022, which, I don't know, is one of the key drivers of the business. Are we definite to say 25% type growth again?

Yeah. So we're not giving specific guides for the ARR, but you should see that total ARR in recent quarters, was 9%. And that's also by the way, the guiding figure for the whole of revenue growth. For a Cloud and subscription, we were in the, as you've mentioned, we were in the mid 20s and we would like to keep it. Again, it requires more work from us, but that's the direction we're taking.

I see. This is a little bit more of a longer-term question, but you signed 1820 pretty significant wins with companies that are going to be reselling your product as a service into their local economies whether it be the deal in Poland or whether it'd be the one in Spain or a couple in Latin America. You've had a bunch of these. My sense is that those programs take a long time to roll out from the time they are announced and so there's somewhat of a pent-up, incremental revenue growth that's coming down the pike. Can you talk about how those major wins will translate into revenues? And I'm assuming that that's not much of an impact in '22 but probably '23, '24, it starts to be a considerable driver of your growth.

So like you've mentioned, we think those local partners, dedicated partners are key ways for us to grow our footprint. It does require a lot of training for the management work, doing marketing with them, white labeling, and so on. We started to see the first fruits with some of them, obviously not all of them will be successful, but we do see very good progress in this, what we call active [Indiscernible] cloud resellers. And we started to gain the first wins, I would say in the second half of the year, it's still not enough big number, but the signs are very good and we are ramping our investments. Also in those channels, sales marketing programs towards this go-to-market, which we believe is a unique opportunity for us.

So the 23, 24 ramp [Indiscernible] business is that right?

I think it would also contribute to 2022. I will not push it as far as 2023, but there is a ramp and we plan to sign more. So we think this type of dedicated channel is very profitable for our Cloud sales.

Cisco has implemented, I think, four price hikes over the last year, including one effective February 1st, which I understand to be 10%. How does that -- how do the price increases at Cisco impact you and what are you doing on price relative to the increase in supply chain costs and inflation in semiconductors and the like?

So fiscal price list, the increases obviously applied to all products, including products that they carry for mastic and implement the price hikes by themselves based on their view of the market. And regarding us, we did not increase our price live so far we were absorbing the cost from one end. Of course, we were looking at different structures, etc. but we did not implement a price increase. We're looking into that for now. We are staying as is.

And so the price hikes from Cisco, does that impact your growth with Cisco? Are you expecting that to -- I'm struggling with the disconnect here between 20% plus price hikes and big backlogs at these companies. And the fact that most enterprises are increasing their IT spend in single-digits. How do we think about the give-and-take between price hikes and decreased volume production or orders going forward?

So I think price list is one component, there's also a question about what discounts and whether some of those customers maybe with Cisco in this case, have agreements not with price list discount but by the actually price figure. So far I did not see the 20% price hike on Cisco in our end. I know there are some plans for certain percentage points and we will see if they maintain the same discount levels. We will see an increase from that. Absolutely. But it's too soon to tell.

Just to be clear, so when Cisco takes up prices in your product, that's not passing through your prices, therefore, do they capture that price?

No. If assuming they sell it in a set -- in the same discount as before, we would see a bigger portion of that on our end. So there are certain discount and certain thresholds and transfer price, there's multiple parameters, but in general, Alex, to make it simple, if Cisco will sell in higher prices, we will get a bigger share.

I see. Okay. I'll cede the floor thank you.

Our next question will come from Andrew King with Colliers Securities. Please go ahead.

Guys, thanks for taking my questions. Congratulations on the good quarter. I just wanted to dive into the guide a little further. Can you just detail out what supply chain applications you have built into your revenue guidance for this next quarter and what you have built in when you say that, you're looking to growing 7% to 9% for the smart [Indiscernible]?

The question was what we've built in terms of the guidance into the supply chain in the first quarter?

Yeah, first quarter, and for the full-year.

Okay. So we took slightly lower the gross margin. You saw already some of it in Q4 results. For next year, we think it might be a little bit lower depending if the current pricing environment would stay, which is our current assumption. So it doesn't depend only on the components. It also depends on our product mix, but our current assumption is for a slight decline in the gross margin.

Got it. Thank you. And then, within your new customers, how many of those were emergency on-boarding versus traditional sales processes?

How many of them were what? [Indiscernible]

[Indiscernible]

For this quarter -- I don't think we had many emergency onboarding this quarter, maybe around 10 or so. So Q4 was not a massive quarter, I think, in terms of emergency onboarding, but we did see many, many customers coming simply because of the overall environment. We saw many customers that came after a failed attack at a block that they experienced in previous months and now they are revamping security. So the environment is very, very active and customers understand that there is not enough to say I have a security solution. You really need to make sure it will block the attack. So I think at this in the large enterprises [Indiscernible] notion of really going deeper into the success of the technology and realized to block attacks, this notion is becoming more and more critical in the decision process

Got it. Thank you.

And we do have a follow-up from Alex Henderson with Needham. Please go ahead.

Great. Thanks. So you've given us a guidance on the revenue was 7% to 9% for 2022, you've also said that you're going to increase investments. So if I think about the OpEx line, should I be anticipating that that's growing at all faster than the 7% to 9%? Is that what you're implying? I think the exchange rate versus last year is still somewhat negative in the first half but it's flattened out and actually rolled a little bit so that it's not as onerous as it was in the back half of the year. So can you talk a little bit about what you're thinking in terms of OpEx growth?

It depends on multiple factors. It might be at the high-end of the revenue growth, maybe a little bit higher. At this point, we're not trying, I would say, to optimize the operating margin or the cash flow of the company. We reached already 70 million a year cash flow. We are investing for growth. So that would be our prime consideration for 2022.

And given the environment around the inflation around parts, I would assume that your gross margins will remain under some pressure, therefore, flat to at least to down somewhat? Is that fair?

I said a slight decline. Yes.

I see. Okay.

In addition to the inflation, there are also significant salary hikes in the cyber market. Meaning if you look on the macro of supply chain issues, interest rates going down and therefore financial income going down, FX, salary hikes, etc., the macro is putting some pressure. But on the other hand, our business in Cloud security, the trends we're seeing, the strength in the market is causing us to invest more.

Yeah. So you tapped into my next question, which was on the churn rate in the wage inflation environment and your ability to hire. If I recall I think you were seeing a little bit of an elevated churn versus, say, the 2019 time frame, obviously it's different versus or the 2020 period, and you were also seeing wage inflation. But you'd also said that you were seeing some pressure on your ability to hire. Has that improved? I've heard a couple of companies say that that they're seeing some improvement in hiring availability. So could you comment on these three metrics?

I would say Alex, we're trying harder. I don't think the market is difficult in that sense, both on the retention and the [Indiscernible]. But we try harder, we double down on the hiring and recruiting resources and efforts and we are growing the headcount.

Okay. So there's no change in conditions on either churn, wage inflation, or ability of the hire --

No.

Is that fair? Okay. Yeah. I'll cede the floor. Thanks.

And with no further questions, I'd like to turn the call back to Roy Zisapel for closing remarks.

Thank you, everyone and have a great day.

And this concludes today's conference. Thank you for your participation and you may now disconnect.