Radware Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to RADWARE's first quarter 2026 earnings call. Our presentation today will be followed by a question and answer session, at which time, if you wish to ask a question, you will need to either raise your hand using your mobile or desktop application, or press star 9 on your telephone keypad and wait for your name to be announced. I must advise you that this call is being recorded today. I now like to hand over the call to our first speaker today, Yuska Erez, Head of Investor Relations. Yuska, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to RADWARDS First Quarter 2026 Earnings Conference Call. Joining me today are Roy Dissel, President and Chief Executive Officer, and Gavi Dan, Chief Financial Officer. A copy of today's press release and financial statements as well as the investor kit for the first 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 differ materially from Radwell's current forecasts and estimates. Factors that could cause or contribute to such differences include, but are not limited to, impacts for changing or severe global economic conditions, general business conditions, and our ability to address changes in our industry, changes in demand for product, the timing in the amount of orders, and other risks detailed from time to time in one-word filings. We refer you to the documents 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 13, 2026. 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 Zissapel.

Thank you, Iska, and thank you all for joining us today. We started 2026 with solid execution across the business and steady progress against our long-term strategic priorities. Scaling our cloud security platform, growing our MSSP business, driving innovation, and executing with discipline across regions and functions. In the first quarter, we delivered another quarter of double-digit growth in revenue. marking the fourth quarter of double-digit growth in the past five quarters. Revenue grew 11% year-over-year to $80 million, and EPS was 30 cents. Cloud security is driving our growth. Cloud ARR grew 23% year over year in the quarter, supported by strong demand for application security, hybrid DDoS services, and our new API security. One CloudWin example is with a large government institution in Latin America, where hardware was selected to secure critical applications and national-level digital infrastructure. The customer expanded its deployment across our whole portfolio, including cloud application protection, API security, and advanced DDoS mitigation. The decision was driven by our ability to deliver real-time protection at scale for highly sensitive mission-critical environments. Another cloud deal we secured is a new logo, hybrid cloud DDoS deployment with a large global fintech company. The customer-selected Radnor Defense Pro X appliances combined with our cloud DDoS service to address escalating volumetric and low and slow attacks that were impacting payment availability. I would like now to share with you why we're so excited about the opportunity Radul is seeing in the security market. At our investor day, we outlined four major waves of disruption shaping our journey in the cybersecurity market. DDoS, application security, API protection, and now agentic AI security. RADAR operates at the intersection of all four, a position that becomes more critical as ATT&CK grows increasingly automated, distributed, and AI-driven. In particular, our new API security solution is one of the fastest-growing areas of our portfolio and a meaningful contributor to our cloud security momentum. Following the PANC integration, the API security testing company we acquired, we now offer an end-to-end API security solution spanning discovery, posture management, testing, and real-time runtime protection. We see strong customer traction with tens of projects in various stages across production deployments, upgrades, testing, and POCs. We believe many of our customers will choose to standardize their API security on Radware as part of our broader application security platform. and we feel very encouraged by the momentum and visibility we have as we look ahead to the rest of the year. Next, AI continues to be both a catalyst and a clear differentiator for our platform. Our long-standing investment in behavioral algorithms and AI-powered automation remains a key reason customers choose Radware. particularly as attackers leverage AI-powered automation and manual responses can no longer keep pace. In addition, advanced AI penetration and code scanning tools are accelerating vulnerability discovery and compressing the time between exposure and exploitation. This widens the gap between what organizations can identify and what they can realistically remediate. making prevention-only and shift-left approaches increasingly insufficient. Radul addresses this challenge through real-time, platform-based protection that secures application and infrastructure as attacks occur. Our architecture is designed to operate at scale to stop zero-day exploits, API abuse, and automated attack chains in production. In this environment, new AI security tools do not replace our cybersecurity platform. They underscore the necessity for runtime protection that can keep pace with machine speed threats. We see this as a clear tailwind for our business. Furthermore, with the emergence of agentic AI and the broad access right granted to AI agents, a new and expanded attack surface must be protected. We introduced agentic AI protection last quarter, further expanding our cloud security platform. While still early, we are already seeing strong engagement as customers recognize that runtime protection is essential for their agentic AI journey. From a go-to-market perspective, execution in North America remains a key priority and a significant contributor to growth. Revenues from the Americas grew 40% year-over-year, representing nearly 50% of total revenues. Investment in leadership, sales coverage, and partner engagement are translating into improved execution. Within our go-to-market framework, our MSSP business is increasingly becoming more pronounced. Led by large strategic MSSP partners, the momentum is accelerating globally. During the quarter, we made meaningful progress onboarding Tier 1 carriers and service providers and building a substantial pipeline across regions that we expect to convert in the second half of the year. To that end, we just announced this week a partnership with Chief Telecom from Taiwan. Chief operates the Taipei Internet Exchange, which is the largest carrier-neutral Internet exchange in Taiwan. and is the leading provider for direct private connections to global public clouds in the country. Through our partnership, ChiefWeek provides GodShields Pro, a new DDoS protection service for enterprises in Taiwan. The service combines hardware's AI-driven DDoS mitigation with ChiefTelecom local network, enabling in-network scrubbing that minimizes latency. Delivered as a subscription, Gold Shields Pro provides immediate, high-performance protection without the need for on-premise hardware. On the product side, our on-premise DDoS protection solution, Defense Pro X, is an outstanding quarter, driven by multiple large-scale refresh and expansion deals globally, including one of the largest SaaS companies in the world, a leading multinational e-commerce provider, and one of the largest healthcare systems in the U.S. DefenseProX delivers unmatched performance, scale, and resiliency, which customers consistently validate through repeat refresh and expansion activity. This powerful refresh cycle underscores the durability of our hybrid foundation while simultaneously accelerating subscription adoption. In summary, Q1 marked a very strong start to 2026 with solid execution across the business. We delivered double-digit growth in revenues driven by cloud ARR, strong momentum with our new API security offering, continued strength in our hybrid portfolio led by Defense Pro X, and solid execution in North America. We continue to execute against our strategy and are well-positioned for continued growth as we move through the year. With that, I'll turn the call over to Guy.

Thank you, Roy, and good day, everyone. I will review the financial results and business performance for the first quarter of 2026, as well as our outlook for the second quarter of 2026. Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are in our gap. A full reconciliation of our results on a gap to non-gap basis is available in the press release issued earlier today and in the investor section of our website. As announced last quarter, the results of our subsidiary Skyhawk have been classified as a discontinued operation effective the first quarter of 2026 and are presented accordingly. As a result, All financial results discussed today related solely to continued operations. In connection with this change, the previously reported half segment will no longer be presented separately. Comparative prior year figures have been adjusted to align with this presentation and ensure consistency. We started 2026 with a solid first quarter, delivering revenue of $79.8 million, representing a year-over-year growth of 11%, and marking this the fourth quarter of double-digit growth for the past five quarters. Cloud security offerings continue to play an important role in our overall performance. Cloud ARR grew 23% year-over-year, in the first quarter, reaching $98 million, increasing to 39% of total ARR, up from 35% in the first quarter of 2025. This growth was the primary driver of total ARR, which increased 9% year-over-year to $250 million in the quarter. Looking at regional performance. the Americas region delivered robust growth, with revenue increasing 40% year-over-year to $38.4 million. On a trading 12-month basis, revenue in the Americas grew 15% year-over-year. Revenue from the Americas region represents nearly 50% of total revenue, and we are encouraged by the momentum in the region, which is also reflected in the strong pipeline for the coming quarters. EMEA revenue in the first quarter was $25.1 million, a decrease of 11% year-over-year. On a trailing 12-month basis, revenue in the EMEA increased 8% year-over-year. In APAC, first quarter revenue was $16.3 million, the same as in the first quarter last year. On a trailing 12-month basis, revenue in APAC increased 3% year-over-year. Turning to Profitability Gross margin was relatively consistent at 82.2% in the quarter compared to 82.4% in the same quarter last year. The slight change year-over-year reflects a favorable revenue mix, partially offset by supply chain and foreign exchange impacts. During that quarter, we experienced supply chain pressure primarily driven by higher memory component costs. While this had a modest impact on gross margin, we are actively managing these dynamics through pricing and procurement. Looking ahead, we expect memory-related cost pressure to persist in the near term. However, we believe we can manage it effectively and maintain margin discipline throughout the year. Operating income for the first quarter increased 4% year-over-year, to $11 million, while operating margin declined by 90 basis points to 13.8%. The decline was directly impacted by a negative $2.6 million impact on currency exchange changes, predominantly the strengthening of the Israeli shekel. To set exchange rate currency, the operating income for the first quarter would have been $13.6 million, a 28% increase year over year. Financial income for the first quarter was $4.5 million, compared with $5.2 million in the same period last year, primarily reflecting lower market interest rate and reduced cash balances following share repurchase over the past two quarters. Looking ahead, we expect financial income to gradually decrease over the remaining quarters of 2026, reflecting these same dynamics. Our effective tax rate for the first quarter was 14.3% compared to 13.7% in the same period of 2025. We expect the effective tax rate to be between 14% to 15% in the coming quarter. Net income from continued operation in Q1 2026 was $13.4 million compared to $13.6 million in Q1 2025. And the losing earnings per share from continued operations were 30 cents compared to 31 cents in the same period last year. Turning to cash and the balance sheet. Cash flow provided by continued operation in Q1 2026 was $19.9 million compared to $24.6 million in the same quarter last year. During the first quarter, we repurchased shares in the amount of approximately $29.4 million. We ended the quarter with a strong liquidity position, holding approximately $434 million in cash, cash equivalent, bank deposit and marketable securities. And now to the guidance. We turn into our guidance to note that our operating expenses and EPS outlook reflect current foreign exchange rate. Strengthening of the Israeli shekel will impact operating expenses and EPS over the course of the year. We expect total revenue for the second quarter of 2026 to be in the range of 81 to 82 million dollars. We expect Q2 2026 non-GAAP operating expenses to be between 56 to 57 million dollars. Expected increase in Q2 2026 OPEC versus the first quarter of 2026 reflect our continued investment in innovation and go-to-market, along with approximately $2 million of exchange rate impact associated with the U.S. dollar weakening. We expect Q2 2026 non-GAAP diluted net earnings per share to be between 28 and 29 cents. I'll send the call back to the operator and we'll be happy to take your questions.

To ask a question, please raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be announced. The first question is from Joe Gallow from Jefferies.

Hey, guys. Thanks for the question. Can you just walk through the total ARR performance a little bit in one queue? Cloud was very strong, but you saw a decline in total ARR of 1 million quarter per quarter. Can you just kind of walk through that dynamic and how we should think about total ARR growth in 2026?

Yeah. I think the trends that we've seen in Q1 happening to us generally are almost every year, although this year there was a small decline so far. And it's because many of the contracts are expiring at the end of the year, and then we might see some churn, which is not exactly linear throughout the quarters. But we do continue to expect strong crowd growth in the 20s, and we do expect like we've guided before, for ARR to continue between 8% to 9%, and as the cloud portion of the total ARR growing, that figure to continue to accelerate. Last year, I think in this period, we were at the 7% give or take ARR growth. Now we are at 9%, and we think that trend would continue to happen as we scale the cloud.

Okay, that makes total sense. Thank you for that. And then just as a follow-up, you mentioned memory-related costs will persist. Yeah, how are you thinking about pricing? Are you able to kind of raise prices to offset some of that? And have you seen any changes in buying behavior related to memory costs from your customers?

We just took an action and raised, for some of the hardware platforms, that are highly affected by memory. We did increase price list by 5% to 8%. We didn't see yet a change in buying behavior, although those pricing changes will now go into effect end of Q2. Our customers will be made aware of that, and I believe there will be some some acceleration in some of the hybrid projects. But I don't expect a major change. We didn't increase prices by 10% or 20%. We are much more, I would say, disciplined in discounting to make sure gross margin stays intact. And, of course, pushing a lot of the cloud security, the API security, and AI that are isolated from those memory and supply chain issues. Thank you very much.

Our next question is from Jeffrey Hobson from Needham. Jeffrey, please go ahead.

Hi. Thank you for the question. At your annual say, you're talking a little bit about a new go-to-market strategy with a hunter-farmer model. Any update on where we are with that transition or any early contributions?

So, thanks a lot, Jeffrey. As we stated, you know, North America was our first to execute this transition. And in the last several quarters, I think we started to see very strong growth and contribution. from this activity, and we believe that would, you know, that would continue. As we progress, we're very happy with the initial results, both on farming and on hunting. We are now, country by country, depends on the situation globally, we are executing that in Europe and in Asia, and we believe that we would see the same results. So I think the model itself proved itself. We're seeing very good results, not only in the numbers, by the way, which is the most important, but also in our strengthening customer relationships, in the cross-sell and the broadening of the usage of our platforms in the key accounts. So we have many leading indicators to the improved business traction that we have, and we are continuing with implementation.

Thank you. And you have new products in both API security and AI security that you've been highlighting, and I think those are going to be big, longer-term drivers of growth. But Do you expect, like, a large meaningful contribution from those products in 2026, or they're still very early in the ramp?

So it is very early. You know, the AI security we just launched, I don't know, three months ago, and the sales cycles in enterprise are six to nine months on the short side, I would say. However, as it relates to API security, I was actually – We were actually very surprised with the strong traction already in Q1. We were able to close double-digit number of customers orders already within that quarter, and the traction continues to be very, very strong. API security, I think it's much more immediate. It's a very easy expansion of our platform, especially for our existing customers. It's enabling another module on the same cloud platform. It's the same buyer, and we see a lot of interest in the market. So I actually would increase my expectations from a API security contribution for 2026 versus where I was, I would say, in the analyst day or three months ago. And AI, we continue, you know, we increase the number of POCs. I believe we will start to closing orders this quarter. And from there, hopefully, we'll see a strong ramp. It's earlier to talk about it versus API where, you know, we see the business right now.

Perfect. Thank you very much.

Okay, we have no further questions. I'd like to hand the call back to Roy for closing remarks.

Okay, thank you everyone for joining us and have a great day.