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Radware Ltd (RDWR)

Q2 2012 Earnings Call

July 26, 2012 8:45 am ET


Roy Zisapel – Chief Executive Officer, President, and Director

Meir Moshe – Chief Financial Officer


Joseph Wolf – Barclays

Ittai Kidron – Oppenheimer & Co.

Rohit Chopra – Wedbush Morgan

Mark Sue – RBC Capital Markets



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Good afternoon and thank you very much for standing by. Welcome to the Radware Second Quarter 2012 Results. (Operator instructions) I must remind you all that this conference is being recorded today, Thursday, the 26


of July, 2012.

I would now like to hand the conference over to your speaker for today, President and CEO of Radware, Roy Zisapel. Please go ahead, sir.

Roy Zisapel

Thank you. Good morning, everyone, and welcome to Radware's Second Quarter 2012 Earnings Conference Call. Joining me today is Meir Moshe, our Chief Financial Officer. Meir will start the call by reviewing the financial results, and afterwards I'll discuss the business highlights of the second quarter. After my comments, we will open the discussion for the Q&A. Meir?

Meir Moshe

OK. Thank you Roy, and welcome everyone to our second quarter conference call. First, I would like to review the Safe Harbor language. During the course of this conference call, we make projections or other forward-looking statements regarding future events or the future financial performance of the company.

We wish to caution you that such statements are just predictions, and that actual events or results may differ materially, including, but are not limited to general business conditions and our ability to address changes in our industry, changes in demand for products, the timing and amount of orders, and other risks detailed from time-to-time in Radware's filings.

We refer you to the documents the company files from time-to-time with the Securities and Exchange Commission, specifically the company's last Form 20-F, filed in March 2012.

Now ladies and gentlemen for the financials: Revenues for the second quarter totaled to a record of $46.8 million, representing 14% increase year-over-year. Non-GAAP diluted EPS amounted to $0.43. Non-GAAP operating expenses amounted to $28.7 million bringing non-GAAP operating profit $9.8 million, all to a record operating margin of 21%.

The non-GAAP net income for the second quarter of 2012 amounted to $10 million, or $0.43 per diluted share, compared to net income of $7.3 million, or $0.32 per diluted share for the second quarter of last year.

Stock-based compensation expenses in the amount of $1.4 million, amortization of intangible assets in the amount of $760,000, and exchange rate expenses in the amount of $300,000 bring the GAAP net income this quarter to $7.5 million, or $0.32 per diluted share, compared to a net income of $4.9 million, or $0.21 per share, in the second quarter of 2011. The non-GAAP gross margin remains at 82% as in the previous quarter.

The headcount for the end of this quarter was 764 employees.

During the second quarter, we generated cash from operation in the amount of $11 million. Thus, our cash position, including short-term and long-term bank deposits and marketable securities, increased this quarter to $250 million while we have no debt.

Shareholders’ equity amounted to $247 million.

Guidance for the second quarter: we expect revenues to range between $47 million to $48 million, 82% gross margin, operating expenses will range between $28.6 million to $29 million, financial income at $1.3 million, and non-GAAP EPS to range between $0.44 to $0.45.

As you can see, ladies and gentlemen, revenues are up. Operating profitability continues to improve. Cash is up by $11.4 million, and we expect better results in the next quarter.

And now I would like to turn the call over to Roy.

Roy Zisapel

Thank you, Meir. Before I address the key operational highlights of the quarter, I would like to take a moment and comment on the Juniper-Riverbed deal. We were aware of the Enterprise opportunity at Juniper. Juniper, as announced in their earnings release, wanted to purchase a licensed source code in the application delivery space and integrate it into their products, [targeted] at a data center.

Without commenting too specifically on the deal, Radware’s strategy is to partner for the long term and build OEM channels. We don’t think that selling or licensing our intellectual property for these amounts is a good business decision for our company.

We continue to maintain a constructive and strong relationship with the carrier side of Juniper where we provide the application delivery for their M-X platform of carrier routers. And as we own the underlying intellectual property, we will continue to develop significant enhancements to the capability and functionality of the core application delivery engine, which will be incorporated in the products we sell directly to our enterprise and carrier customers, as well as in the products that reach the markets through our partners, such as Juniper.

Regarding the enterprise application delivery, we don’t believe Juniper will be in the market with an enterprise application delivery offering for at least two years or more. With our current investment of over 350 R&D people, and our increased investments in this space, we expect to make significant advances from our current technology leading market position that we feel will be quite difficult for others to match.

In addition, our view is that selling standalone application delivery products to the enterprise market requires sizeable sales and system engineering specialization, a capability that is a significant barrier to entry.

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