Welcome to the Radware Conference Call discussing Fourth Quarter and Full Year 2023 Results, and thank you all for holding. As a reminder, this conference is being recorded February 7, 2024. I would now like to turn this call over to Yisca Erez, Director, Investor Relations at Radware. Please go ahead.

Thank you, Ian. Good morning, everyone, and welcome to Radware's fourth quarter and full year 2023 earnings conference call. Joining me today are Roy Zisapel, President and Chief Executive Officer; and Guy Avidan, Chief Financial Officer. A copy of today's press release and financial statements as well as the investor kit for the fourth quarter and full year 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 forecast and estimates. Factors that could cause or contribute to such differences include, but are not limited to, impact from changing our severe global economic conditions, 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 risks, difference from time to time in Radware's filings. We refer you to the documents that the company files and furnishes from time to time with the SEC, specifically the company's last annual report on Form 20-F as filed on March 30, 2023. 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. We ended the fourth quarter of 2023 with revenue of $65 million, and non-GAAP diluted earnings per share of $0.13. In the fourth quarter of 2023, total adjusted ARR as discussed in our last earnings call, grew to $211 million, a 7% increase compared to the same period in 2022. The ARR growth is driving recurring revenues, which accounted for 77% of total revenue in 2023. This is a 900 basis point increase compared to last year. The total ARR growth was fueled by cloud ARR growth of 22%, once again exceeding 20% year-over-year growth and reaching $65 million. Subscription revenue that is comprised of cloud and product subscriptions accounted for 44% of total revenue in the fourth quarter as well as for the full year, reaching $115 million for 2023. With that, we are making strong and steady progress to a cloud-security-as-a-service company. Looking forward, we are cautiously optimistic about 2024. First, we witnessed a better business environment in the fourth quarter. In addition to growth in our cloud and subscription business, we saw early signs of recovery in closing large CapEx deals specifically across Europe and Asia Pacific. The recovery is also reflected in the pipeline and the progress we made in moving existing projects forward. Second, the demand in the market for cyber protection solutions continue to be solid as attacks intensify. According to our full year 2023 Global Threat Intelligence Report, the number of DDoS attacks per customer grew by 94% compared to 2022. In addition, we observed a surge in malicious web application and API attacks which rose 171% last year. A significant part of this increased activity was driven by Layer 7 web application attacks or web DDoS attacks, a trend that has…

Thank you, Roy, and good day, everyone. I'm pleased to provide the analysis of our financial results and business performance for the fourth quarter and full year of 2023 as well as our outlook for the first quarter of 2024. Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. A full reconciliation of our results on a GAAP and non-GAAP basis is available in the earnings press release issued earlier today and on the Investors section of our website. Revenue for the fourth quarter 2023 was $65 million compared to $74.1 million in the same period of last year. Revenue for the full year 2023 was $261.3 million compared to $293.4 million in 2022. The decline in revenue is attributed to delays in closing large deals due to greater budget constraints by customers, primarily in the Americas. However, as Roy highlighted, we do see encouraging signs of improvement in macro headwinds and as a result, in customer spending. These positive signs are reflected in increased RPO at year-end and more traction to our solutions. In the fourth quarter, the cloud security business, which is the growth engine of the company, continued to excel, proceeding -- reducing cloud ARR growth of 22.5% year-over-year, reaching $64.9 million compared to $53 million, taking us another step towards becoming a cloud-security-as-a-service company. Our security business portion accounts for the large majority of total business of Radware. On a regional breakdown, revenue in the Americas in the fourth quarter of 2023 was $24.6 million compared to $31.9 million in the same period last year, representing a 23% decrease year-over-year. Revenue in the Americas for the full year of 2023 declined 17% year-over-year to $103.4 million compared to $100 million and $23.9 million in the…

[Operator Instructions] Our first question comes from the line of Alex Henderson with Needham. Your line is open.

Hi. Thanks. Just a couple of housekeeping to start off with. Can you talk a little bit about the direction of the interest line? It's hard for us to forecast it externally. And I would assume that interest rates starting to roll over, the interest rate might be coming down in 2024 and we don't want it to have a bad forecast on that. So can you give us some sense of what you think that's going to do?

Some headwind in terms of reduced interest rate throughout 2024 as well as lower cash balance in 2024 versus 2023. But at the same time, we have tailwinds. We still have or had bonds in 2023 with lower interest because there were long-term bonds. So overall, the $3.8 million we posted in Q4, we expect more or less same level of interest income in 2024 fourth quarter.

Great. And just any guidance on the percentage tax rate that we should be thinking for the year?

The way we see for 2024, 15% tax rate will be visible [ph].

So no change in that. Great.

That’s right.

You do seem to have a little bit more confidence in the outlook. It does sound like the trajectory is starting to recover. Can you talk a little bit about what the pipeline looks like, what the -- how many -- is there an increase in large deals? Is the closure rate improving? Is the duration of the time to close deals stable or improving? What are the mechanics that give you that confidence?

Yes. Okay. So several points on that. So first, we started to see some first large deals closing in Q4. If you look on Q3 or Q2 we had challenges on closing those over $1 million deals. Second, the pipeline that was there was not moving to close at the regular rates that we've seen. In Q4 and also since beginning of this year, we are starting to see some of the deals moving forward. It's not completely back to previous levels, but definitely better. And that's why we chose the term, cautiously optimistic. It's definitely better. It's also better, by the way, in North America. So some of the deals that we had in the pipeline, some other deals are opening up, customers are more optimistic on their budgets and their ability to leapfrog the security infrastructure going forward. So overall, I would say it's neutral to positive across the world, and hence, we are feeling more positive about it as well.

So just to be clear, what you're saying there is that the deal closure time had been expanding to take longer to close the deal, and now you're starting to see that improve? Is that what I'm hearing?

Yes, and before, it's not even expanding, they were not closing. They were just pushed from quarter to the other. So now we started to see early signs of close and more concrete discussions in some other opportunities that give us confidence those will be closing probably in the first half of 2024. So definitely, we're seeing good signs there. By the way, you top that with the growth that we had during all recent years, including 2023, in cloud security, which we believe we can maintain that momentum. So overall, we obviously feel better. And last but not least, I mentioned that our RPO is now at record levels. ARR is at record levels. Obviously, all of that gives us more visibility towards 2024.

Sure. Absolutely. Just one last question on the cost side of the equation. Is it reasonable to think that we should be using that kind of 50 -- 49 to 55 million range for all four quarters? Is that kind of the cost structure for the year?

Yes.

Thanks. perfect. Thank you.

Thanks, Alex.

[Operator Instructions] Our next question comes from the line of Chris Reimer with Barclays. Your line is open.

Hi. Thanks for taking my question and congratulations on the strong results. You mentioned the weakness in North America recently and the gradual pickup that you're seeing now. I was wondering if you could talk about any other challenges or headwinds you're seeing maybe playing out through the year aside from that as deals start to close faster and you get a little more momentum.

I think for us, this is by far the largest challenge we see. We are looking, obviously, for a better year in 2024 in North America. But overall, we feel that the results internationally were good as it relates to us. We don't foresee specific unique headwinds to us beyond the regular geopolitical, China, Russia, the regular geopolitical challenges in the economy for us. But as it relates to us, I think it's North America predominantly.

Okay. And regarding SkyHawk, could you give us like an overview of the evolution of the business there and when you might think it will start to impact the business?

Yes. So SkyHawk is focused on a new niche marketing public cloud security, which is called Cloud Detection and Response, CDR. It's a very new market. There are other startups in that, but it's basically talking or addressing the need in real time to detect intrusion into your public cloud account and block it before the hackers are able to steal the valuable data, identities and so on. The solution is heavily based on machine learning and AI algorithms that based on multiple malicious indicators are able to understand whether what we are seeing, the anomalies we see are actually part of kill chain or an attack that is actually developing in real-time. I think the solution is very advanced and unique in the market. We are adding there a lot of usage of generative AI to detect new attacks as well as create new sensors and in real time, improve the product. But again, it's very early. I would not foresee in 2024 material impact on other revenues. As you see, we do consolidate the losses, although the company is fully funded, and that hurts our EPS. But we are strong believers in the technology, in the positioning, we think there will be a very good opportunity for shareholder value in public cloud security with SkyHawk, and we look forward to their success.

Great. Thanks. That’s nice color. That’s it for me.

Thank you.

There are no further questions at this time. I would like to hand the call back over to Roy Zisapel for some closing remarks.

Thanks a lot. Thank you for joining us, and have a great day.

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