Radware(RDWR) - 2023 Q1 - Quarterly Report

Executive Summary & Business Outlook Radware delivered solid Q4 and FY2022 financial results driven by cloud and subscription growth, while outlining a 2023 strategy focused on cloud security, mid-market expansion, and channel partnerships amidst macro headwinds Fourth Quarter and Full Year 2022 Financial Highlights Radware reported solid Q4 and full-year 2022 financial results, marked by double-digit cloud and subscription revenue growth, despite a slight Q4 revenue decline and reduced EPS - Cloud and subscription revenue delivered double-digit growth in 2022, with a record number of new cloud wins in Q4[2] Financial Highlights Summary | Metric | Q4 2022 (in millions) | Q4 2021 (in millions) | YoY Change (Q4) | FY 2022 (in millions) | FY 2021 (in millions) | YoY Change (FY) | | :-------------------------------- | :------ | :------ | :-------------- | :------ | :------ | :-------------- | | Revenue | $74.1M | $76.6M | -3% | $293.4M | $286.5M | +2% | | Non-GAAP Gross Margin | 82.7% | 82.4% | +0.3 pp | 83.0% | 82.4% | +0.6 pp | | Non-GAAP EPS | $0.17 | $0.22 | -22.7% | $0.68 | $0.81 | -16.0% | | GAAP Net Loss Per Share | $(0.09) | $(0.12) | +25.0% | $(0.00) | $0.16 | -100% | | ARR (as of Dec 31) | - | - | - | $202.4M | - | +7% | | Cash, Cash Equivalents, Deposits & Marketable Securities (as of Dec 31) | - | - | - | $432.0M | - | - | | Net Cash from Operating Activities | $9.6M | $28.9M | -66.9% | $32.1M | $71.8M | -55.3% | Strategic Focus and 2023 Outlook Radware's CEO, Roy Zisapel, outlined a strategic focus for 2023 centered on cloud solutions, expanding into the mid-sized enterprise market, and strengthening channel partnerships, alongside disciplined expense management, to drive profitable growth despite anticipated macro headwinds - The company expects macro environment headwinds to continue impacting results in the coming year but remains optimistic about long-term growth potential[2] - For 2023, Radware's strategy includes increasing focus on cloud security solutions, growing presence in the mid-sized enterprise market, and expanding channel partnerships[2] - Commitment to driving profitable growth through disciplined expense management[2] Financial Performance Overview Radware's 2022 financial performance showed mixed results, with full-year revenue growth, but declines in Q4 revenue, non-GAAP EPS, and operating cash flow, alongside a shift to a GAAP net loss Revenue Performance Radware's total revenue for Q4 2022 decreased by 3% year-over-year to $74.1 million, while full-year 2022 revenue increased by 2% to $293.4 million. Regional performance varied, with APAC showing strong growth in both periods, EMEA declining in Q4 but growing for the full year, and Americas showing slight Q4 growth but a full-year decrease Overall Revenue Radware's overall revenue saw a 3% decline in Q4 2022 but achieved a 2% increase for the full year, reaching $293.4 million | Metric | Q4 2022 (in millions) | Q4 2021 (in millions) | YoY Change | FY 2022 (in millions) | FY 2021 (in millions) | YoY Change | | :------- | :------ | :------ | :--------- | :------ | :------ | :--------- | | Revenue | $74.1M | $76.6M | -3% | $293.4M | $286.5M | +2% | Regional Revenue Breakdown Regional revenue performance varied, with APAC showing strong growth, EMEA declining in Q4 but growing annually, and Americas experiencing a full-year decrease | Region | Q4 2022 Revenue (in millions) | Q4 2021 Revenue (in millions) | Q4 YoY Change | FY 2022 Revenue (in millions) | FY 2021 Revenue (in millions) | FY YoY Change | | :------- | :-------------- | :-------------- | :------------ | :-------------- | :-------------- | :------------ | | Americas | $31.9M | $31.2M | +2% | $123.9M | $128.8M | -4% | | EMEA | $24.3M | $29.7M | -18% | $104.2M | $98.4M | +6% | | APAC | $17.9M | $15.7M | +14% | $65.3M | $59.3M | +10% | Profitability and EPS Radware's GAAP net loss for Q4 2022 improved to $(0.09) per diluted share from $(0.12) in Q4 2021, while the full-year GAAP net loss was $(0.00) per diluted share, a significant decline from $0.16 in FY 2021. Non-GAAP diluted EPS decreased in both periods, reflecting a reduction in non-GAAP net income | Metric | Q4 2022 (in millions) | Q4 2021 (in millions) | YoY Change (Q4) | FY 2022 (in millions) | FY 2021 (in millions) | YoY Change (FY) | | :-------------------- | :------ | :------ | :-------------- | :------ | :------ | :-------------- | | GAAP Net Loss | $(4.1)M | $(5.6)M | +26.8% | $(0.2)M | $7.8M | -102.6% | | GAAP Net Loss Per Share | $(0.09) | $(0.12) | +25.0% | $(0.00) | $0.16 | -100% | | Non-GAAP Net Income | $7.7M | $10.3M | -25.3% | $31.3M | $38.3M | -18.2% | | Non-GAAP EPS | $0.17 | $0.22 | -22.7% | $0.68 | $0.81 | -16.0% | Cash Position and Operating Cash Flow As of December 31, 2022, Radware maintained a strong liquidity position with $432.0 million in cash, cash equivalents, and marketable securities. However, net cash provided by operating activities saw a significant decrease in both the fourth quarter and the full year 2022 compared to the previous year Cash, Cash Equivalents, Deposits & Marketable Securities | Metric | As of Dec 31, 2022 (in millions) | As of Dec 31, 2021 (in millions) | | :---------------------------------------------------- | :----------------- | :----------------- | | Cash, cash equivalents, short-term and long-term bank deposits, and marketable securities | $432.0M | - | Net Cash Provided by Operating Activities | Metric | Q4 2022 (in millions) | Q4 2021 (in millions) | YoY Change (Q4) | FY 2022 (in millions) | FY 2021 (in millions) | YoY Change (FY) | | :------------------------------ | :------ | :------ | :-------------- | :------ | :------ | :-------------- | | Net cash provided by operating activities | $9.6M | $28.9M | -66.9% | $32.1M | $71.8M | -55.3% | Detailed Financial Statements This section provides a detailed look at Radware's financial position, income, and cash flows for 2022, highlighting changes in assets, liabilities, profitability, and cash movements Condensed Consolidated Balance Sheets Radware's balance sheet as of December 31, 2022, shows a slight increase in total assets to $647.4 million from $635.4 million in 2021, primarily driven by increases in short-term bank deposits, intangible assets, and goodwill. Total equity saw a minor decrease, while total liabilities increased | Metric | Dec 31, 2022 (in thousands of US dollars) | Dec 31, 2021 (in thousands of US dollars) | | :-------------------------------- | :----------- | :----------- | | Assets | | | | Cash and cash equivalents | $46,185 | $92,513 | | Marketable securities (Current) | $44,180 | $39,497 | | Short-term bank deposits | $207,679 | $155,879 | | Total current assets | $335,870 | $320,706 | | Total assets | $647,405 | $635,370 | | Liabilities and Equity | | | | Deferred revenues (Current) | $108,243 | $99,922 | | Total current liabilities | $166,439 | $165,887 | | Total liabilities | $278,962 | $265,377 | | Total equity | $368,443 | $369,993 | Condensed Consolidated Statements of Income Radware's consolidated income statement for Q4 2022 reported a net loss of $4.1 million, an improvement from a $5.6 million loss in Q4 2021. For the full year 2022, the company recorded a net loss of $0.2 million, a significant shift from a net income of $7.8 million in 2021, primarily due to increased operating expenses and higher taxes on income | Metric | Q4 2022 (in thousands of US dollars) | Q4 2021 (in thousands of US dollars) | FY 2022 (in thousands of US dollars) | FY 2021 (in thousands of US dollars) | | :-------------------------------- | :------ | :------ | :------ | :------ | | Revenues | $74,083 | $76,642 | $293,426 | $286,496 | | Gross profit | $60,166 | $62,594 | $239,542 | $234,050 | | Total operating expenses, net | $65,274 | $57,726 | $242,881 | $215,825 | | Operating income (loss) | $(5,108) | $4,868 | $(3,339) | $18,225 | | Net income (loss) | $(4,124) | $(5,591) | $(166) | $7,811 | | Diluted net earnings (loss) per share | $(0.09) | $(0.12) | $(0.00) | $0.16 | Condensed Consolidated Statements of Cash Flow Radware's cash flow statement shows a significant decrease in net cash provided by operating activities for both Q4 and the full year 2022. Investing activities shifted from providing cash in 2021 to using substantial cash in 2022, largely due to a $30 million payment for the SecurityDAM Ltd. acquisition. Financing activities continued to be a net cash outflow, primarily due to share repurchases | Metric | Q4 2022 (in thousands of US dollars) | Q4 2021 (in thousands of US dollars) | FY 2022 (in thousands of US dollars) | FY 2021 (in thousands of US dollars) | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net cash provided by operating activities | $9,560 | $28,934 | $32,148 | $71,774 | | Net cash provided by (used in) investing activities | $5,625 | $14,995 | $(56,018) | $7,849 | | Net cash used in financing activities | $(11,469) | $(14,621) | $(22,458) | $(41,881) | | Payment for the business acquisition of SecurityDAM Ltd. | - | - | $(30,000) | - | | Repurchase of shares | $(12,301) | $(17,449) | $(59,492) | $(52,471) | Non-GAAP Financial Measures & Reconciliations This section clarifies Radware's use of non-GAAP financial measures and key performance indicators, providing detailed reconciliations from GAAP to non-GAAP figures Explanation of Non-GAAP Measures and Key Performance Indicators Radware utilizes non-GAAP financial measures, such as gross profit, operating expenses, operating income, net income, and diluted EPS, to provide a clearer view of ongoing operations by excluding items like stock-based compensation, amortization of intangibles, and litigation costs. Annual Recurring Revenue (ARR) is also defined as a key performance indicator for the recurring components of the business - Non-GAAP measures exclude stock-based compensation, amortization of intangible assets, litigation costs, acquisition costs, exchange rate differences, and tax-related adjustments to allow for meaningful comparisons of operating results[8][12] - Annual recurring revenue (ARR) is defined as the annualized value of booked orders for term-based cloud services, subscription licenses, and maintenance contracts in effect at the end of a reporting period, serving as a key performance indicator for recurring business components[13] GAAP to Non-GAAP Reconciliation (Income Statement Items) The reconciliation highlights significant adjustments from GAAP to Non-GAAP figures, primarily driven by stock-based compensation, amortization of intangible assets, and acquisition costs. These adjustments resulted in higher Non-GAAP gross profit, lower Non-GAAP operating expenses, and a positive Non-GAAP operating income and net income, contrasting with GAAP losses in some periods | Metric | Q4 2022 GAAP (in thousands of US dollars) | Q4 2022 Non-GAAP (in thousands of US dollars) | FY 2022 GAAP (in thousands of US dollars) | FY 2022 Non-GAAP (in thousands of US dollars) | | :-------------------------------- | :----------- | :------------- | :----------- | :------------- | | Gross profit | $60,166 | $61,270 | $239,542 | $243,645 | | Total operating expenses, net | $65,274 | $54,909 | $242,881 | $213,966 | | Operating income (loss) | $(5,108) | $6,361 | $(3,339) | $29,679 | | Net income (loss) | $(4,124) | $7,697 | $(166) | $31,305 | | Diluted net earnings (loss) per share | $(0.09) | $0.17 | $(0.00) | $0.68 | - Key adjustments from GAAP to Non-GAAP include: Stock-based compensation (Q4 2022: $9.66 million; FY 2022: $27.35 million), Amortization of intangible assets (Q4 2022: $0.99 million; FY 2022: $3.70 million), and Acquisition costs (Q4 2022: $0.82 million; FY 2022: $1.96 million)[24][25] GAAP Net Income to EBITDA and Adjusted EBITDA Reconciliation Radware provides a reconciliation from GAAP net income to EBITDA and Adjusted EBITDA, showing that while GAAP net income was a loss in Q4 and a minimal loss for the full year 2022, Adjusted EBITDA remained positive and substantial, reflecting the add-back of non-cash and non-recurring expenses such as share-based compensation and acquisition costs | Metric | Q4 2022 (in thousands of US dollars) | Q4 2021 (in thousands of US dollars) | FY 2022 (in thousands of US dollars) | FY 2021 (in thousands of US dollars) | | :-------------------- | :------ | :------ | :------ | :------ | | GAAP net income (loss) | $(4,124) | $(5,591) | $(166) | $7,811 | | EBITDA | $(2,230) | $7,352 | $8,353 | $28,421 | | Adjusted EBITDA | $8,247 | $13,020 | $37,667 | $47,208 | | Share-based compensation (added back) | $9,658 | $5,372 | $27,353 | $17,574 | | Acquisition costs (added back) | $819 | $296 | $1,961 | $925 | Company Information & Disclosures This section provides an overview of Radware's business, includes a safe harbor statement regarding forward-looking information, and details for the Q4 and full-year 2022 earnings conference call About Radware Radware is a global leader in cyber security and application delivery solutions, offering award-winning products for infrastructure, application, and corporate IT protection across physical, cloud, and software-defined data centers. The company aims to help enterprises and carriers maintain business continuity, achieve productivity, and manage costs - Radware is a global leader in cyber security and application delivery solutions for physical, cloud, and software-defined data centers[15] - Its solutions portfolio provides infrastructure, application, and corporate IT protection, and availability services to enterprises globally[15] Safe Harbor Statement This section contains forward-looking statements subject to various risks and uncertainties, including global economic conditions, supply chain issues, geopolitical conflicts, and the ability to implement strategic initiatives. Actual results may differ materially from forecasts, and Radware undertakes no obligation to update these statements - The press release includes forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from current forecasts[14] - Key risk factors include global economic conditions, natural disasters, public health crises (e.g., COVID-19), component shortages, geopolitical conflicts (e.g., Russia-Ukraine), ability to implement cloud business strategy, competition, and changes in government regulation[14] - Radware undertakes no commitment to revise or update any forward-looking statement, except as required by applicable law[14] Conference Call Details Radware hosted a conference call on February 8, 2023, to discuss its Q4 and full-year 2022 results and 2023 outlook. Replay options were available via telephone and webcast for a limited period - Radware management hosted a conference call on February 8, 2023, at 8:30 a.m. EST to discuss Q4 and full year 2022 results and the 2023 outlook[9] - A replay was available for two days via telephone and for 12 months via webcast on the Company's website[9][10]