Welcome to the Radware Conference Call discussing Second Quarter 2021 Results, and thank you all for holding. As a reminder this conference is being recorded July 28, 2021. I would now like to turn the call over to Yisca Erez, Director, Investor Relations at Radware. Please go ahead.

Thank you, Christy. Good morning, everyone, and welcome to Radware's second quarter 2021 earnings conference call. Joining me today are Roy Zisapel, President and Chief Executive Officer; and Michael Goldberger, VP, Finance. A copy of today's press release and financial statements, as well as the investor kit for the second 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 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 the COVID-19 pandemic, 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 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 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. I'm excited to report strong second quarter results that exceeded our expectations with record revenue and accelerated growth. Our strong performance extended across all business lines and all geographies, including growth in large deals, record new customer business, and a record number of new cloud logos. Our achievements demonstrate the continued expansion of our cloud and application security businesses; our ability to execute on strong demand for our solutions, and our ongoing success in helping our customers protect their critical applications. Second quarter revenue was a record $70 million, representing year-over-year growth of 19% and one of the fastest growth rates we have seen in recent years. Cloud and subscription ARR continued to grow strongly at 27% in the second quarter, reaching another record. These results are underpinned by the accelerated transformation of enterprises to digital and the increase in global cyberattacks that make it critical for our customers to ensure they have the best possible cyber security solution for their business and application. In the second quarter, the strong demand for our solutions led to solid growth in bookings, and we earned some impressive wins. So why do we win? First, we are winning because of our superior technology. At the core of our technology, our sophisticated algorithms combine machine learning, fuzzy logic algorithms, as well as various behavioral-based detection and protection algorithms. Combined, these technologies enable our solutions to automatically adapt to the changing threat landscape and differentiate between genuine and attack traffic. That in turn positions us to deliver the widest, fastest, and most accurate security protection in an environment of constant attacks. One example is a large video gaming company in Asia Pacific, which experienced a complicated DDoS attack both inside and outside the country. When their existing security solution could not mitigate the attack and since time was of the essence to prevent severe disruption to their customers, they turned to us for an emergency cloud DDoS solution. Shortly thereafter they expanded their solution to a hybrid cloud DDoS by placing our defense for appliances at the edge of their data centers. Another example is a Fortune 500 company, one of the largest rental companies in the U.S. This company received a ransomware letter, which was followed immediately by a DDoS attack that exceeded their Internet capacity and brought them down. Our partner Cisco reached out to us, and we mitigated the attack. Following our success, the customer chose Radware's hybrid cloud DDoS protection based on our unique ability to manage this risk. These are just two examples that demonstrate the strength of our technology and our ability to successfully mitigate complex cyberattacks in real time. The second reason we are winning new business is because of the breadth of our cloud security offering. Hackers are utilizing a wide array of attack tools, and enterprises are looking for sophisticated security solutions to protect their applications and mitigate these cyberattacks. Our broad cloud security offering provides end-to-end protection for their assets and applications. We offer fully managed, integrated web application protection, combining attack mitigation, API security, and DDoS protection cloud service coupled with public cloud security. There are two notable cloud wins I'd like to share from the second quarter. We signed a large cloud application security and DDoS deal with one of the largest construction equipment manufacturers in the world. This Fortune 500 company was facing challenges protecting their applications. They chose Radware because of our deep security expertise and our ability to execute and deliver Web Application Security in any form factor. Ultimately, it became evident that Radware offered the best solution for securing several thousand applications across many different environments. The second major cloud win we signed in the second quarter was with the largest service provider in Latin America for a suite of Application Security Solutions, including Web Application Security, BOT management, and DDoS. The customer was severely impacted by both attacks and DDoS activity. After failing to contain the effects using rate limiting solutions, we guided the customers through the right way to address those issues. We provided the best protection and proved this from day one in real traffic proof of concept. The third reason we are winning new business is because of our proven reputation in our ability to expand our business across our existing customer base. Our customers continue to acknowledge our industry leadership and our ability to keep their applications safe and protected. For example, one of the largest e-commerce companies in the world, a long-time customer of our DDoS appliances, added our cloud DDoS solution last year. In the second quarter, they decided to strengthen their application security by adding our BOT Manager to their DDoS solution to meet their growing security needs. Fourth, we continue to win new business because of our partnerships. In the past few years, we've expanded our channel relationships. We continue to invest in training and educating our partners and expect these investments to bear fruit over time. In the second quarter, we signed a deal with a large U.S. hospital that was looking for more visibility and reporting. With the help of our partner CheckPoint, we presented the hospital with our latest capabilities and upgraded their solutions. We also see a large deal with a global online fashion retailer. This retailer was planning to extend their network and faced the potential increase in exposure to DDoS attacks, threatening their ability to deliver goods to their customers without disruption. We replaced this retailer's incumbent solution with our hybrid cloud DDoS solution. The key success factor in closing this deal was not only the strength of our protection but also our close relationships with CheckPoint. In summary, the momentum in our business continues to be strong across the board, supported by significant growth in our cloud security business. Our pipeline is robust, with the accelerating pace in digital transformation and the shift to the cloud providing many opportunities for us. We are confident in our ability to execute on them. Before turning the call to Michael, I would like to take this opportunity to thank our customers and partners for their trust in us. I would also like to thank our employees for their great efforts and dedication.

Thank you, Roy, and good day everyone. I'm pleased to provide the analysis of our financial results and business performance for the second quarter of 2021. I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. The reconciliation between the GAAP and non-GAAP results for the quarter is detailed in our press release. We had an outstanding quarter with both the top and bottom line results far exceeding our expectations. Second quarter 2021 revenue reached a record of $70 million, representing an increase of 19% year-over-year and accelerating growth from 11% in the first quarter of 2021. Total revenue was driven mainly by our application security and our cloud business. In the second quarter of 2021, cloud and subscription ARR grew 27% compared to Q2 2020, and total ARR was $177 million, an increase of 8% compared to the same period last year. Looking at geographies, we had growth across all regions. America's revenue grew 2% in Q2 2021 compared to the same period of last year and accounted for 40% of total revenue in the second quarter. EMEA and APAC were very strong, with EMEA revenue growing 36% in Q2 2021 compared to the same period of last year, accounting for 35% of total revenue, and APAC revenue increasing 32% in Q2 2021, accounting for 25% of total revenue in the quarter. I will now discuss expenses and profit. Gross margin for the second quarter of 2021 reached 82.3%, compared to 83.1% in the same period of last year. Our gross margin can fluctuate from quarter to quarter as a result of product and geographic mix. Operating expenses in Q2 2021 were $48.6 million, up 10% from Q2 last year. The increase resulted from higher commissions as well as travel and marketing expenses that were lower in Q2 2020 due to COVID-19. Excluding FX impacts, our reporting expenses would have been $1.4 million lower due to the weakening of the dollar versus the new Israeli shekel. Operating income more than doubled to $8.8 million, demonstrating once again the good leverage in our model. The increase in operating income led to an expansion in the operating margin. In Q2 2021, operating margin expanded by 530 basis points to 12.6% compared to 7.3% in Q2 2020. Financial income was $1.7 million, compared to $2.6 million in Q2 of last year. Similar to last quarter, and as we highlighted in previous quarters, the financial income is impacted by declining yield of marketable securities and deposits. The tax rate for the quarter was 15.4%, compared to 13.1% in Q2 2020. The expected tax rate for 2021 is approximately 15% to 16%. Earnings per diluted share for the second quarter of 2021 increased 50% to $0.19, compared to the same period last year. Turning to the balance sheet and cash flow items. Cash flow from operations was $9 million in Q2 2021 compared to $18 million in the second quarter last year. Total cash and financial investments at the end of June 2021 were $440 million. As of the second quarter of 2021, we used $4.6 million to repurchase 163,000 of our ordinary shares. In the first half of the year, we used $35 million to buy back our shares, leaving $45 million available under our 2021 repurchase plan. I will turn the call back to Roy, who will provide the outlook for the third quarter.

Thank you, Michael. We expect Q3 total revenues to be in the range of $70 million to $72 million. We expect the continued strength of the Israeli Shekel to cause year-over-year increases in our dollar operating expenses throughout 2021. We expect our operating expenses to be between $49 million and $50 million. This operating expense level reflects an estimated $1.3 million negative impact from FX compared to Q3 2020 rates. With that, Q3 2021 fully diluted EPS is expected to be in the range of $0.18 to $0.20. With our first half published results, the guidance we just shared for the third quarter, and the continued strength we see for the second half, I would like to note that our yearly growth rate will be close to 12% year-over-year, well above our published model of 7% to 9% annual growth rate. This accelerated growth is driven by the increase in subscriptions and specifically cloud security. I will now turn the call over to the operator for questions.

Our first question will come from George Notter with Jefferies.

Hi, thanks very much and congratulations on the nice results here, guys. I wanted to start by asking if you had any supply chain impacts in the quarter. It seems like it's been a constant worry in recent quarters, but I know you didn't expect to see much coming into the quarter. Just following up on that, was there any impact in terms of either missed revenue opportunities or margin?

We had very little impact on revenues. There is an obvious impact on our costs as some of those component pricing has gone up significantly, especially if we would like express delivery or to get more quantities earlier. But the overall impact is minimal, definitely in comparison to what others are experiencing.

And then I wanted to ask about the gross margin in the quarter. You guys were running above 83% for many quarters; now you're below that threshold. I think you've been investing more in your scrubbing centers. Can you talk about the gross margin performance and what caused that downward trend year-on-year and how you see the outlook for the rest of the year?

I think overall, it's a mix between product and cloud security and subscriptions. Obviously, we are investing a lot in building and scaling our cloud security infrastructure. Demand is strong, and that has had a minor, but not significant, negative impact on our gross margin. We're guiding around 82% gross margin, and we think for the time being that's a conservative way to think about it. As we scale, there is an opportunity, of course, to improve that.

Your next question will come from the line of Andrew King with Colliers Securities.

Congratulations on the big quarter. I want to delve a little bit more into the growth of the ARR metric since you have been reporting it has been slowing slightly, going from 12% to 10%, now 8%. Can you provide a bit more clarity into that trend?

Yes, the total ARR growth is a balance between our devices for appliances, service attached contracts, and on the other end, the subscription and cloud contracts we have. We continue to see, as I've noted, very strong growth in cloud and subscription, which is currently 27% and scaling every quarter. We did have a weaker service attach in ARR this quarter, predominantly driven by one large customer that decided to refresh their devices to next-generation models. In the meantime, they are without valid support contracts. So we saw some weakness in the service attached contracts; however, the cloud and subscriptions continue to drive us forward.

Great. In one of your press releases during the quarter, you mentioned an increase in emergency onboarding as a result of Radware re-emerging. Can you talk about how that balance between emergency onboarding versus traditional sales process from this quarter compares to historical data?

Yes, so every time cyber activity ramps up, since the start of COVID, it's breaking new records every quarter. Obviously, that impacts our sales cycles and makes it more and more strategic and critical for our customers not only to protect but to even upgrade their protections to what is considered best of breed or their best available options. Every time a customer is under attack, especially under DDoS, it means they are experiencing downtime in their business, and as everyone moves digital, that represents a huge business interruption and risk. When customers are facing ransomware or other attacks, they realize they cannot manage it alone. They need to approach us, and certainly some of our competition, but increasingly they are looking to us for assistance. So, there's definitely a positive impact from that. But the impact is even greater because even if a customer is not directly attacked, they see their peers in the industry, they recognize the increasing need for cybersecurity, and the corresponding budget allocation is growing.

If I could just squeeze one more quick one in here, APAC really saw a nice bounce back in growth. Do you see those headwinds declining, or was this a one-time bounce back this year?

I think we've said in response to several of the previous quarters about the declines in APAC. We mentioned that bookings looked promising, and we would eventually see this reflected in the P&L as well. Bookings in Q2 continued to be strong, and while I don't know if it will reach the extent of Q2, I believe we will see continued growth in Asia Pacific.

Your next question will come from the line of Tim Horan with Oppenheimer.

Why is the Americas growing so much slower than the Rest of the World, and is there an opportunity for that to accelerate somewhat? I also had a follow-up on the bookings.

Overall, I want to say, on the bookings, I know in revenues this time you see a slight growth rate, but overall bookings continue to be strong, especially in the U.S. enterprise. We didn't have a strong quarter in U.S. service providers, and that impacted the DDA. As a result, we expect that to change in the second half, but U.S. enterprise business continues to be very strong and leads our global business in terms of cloud and subscription. We are very pleased with the progress we are making in North America and the Americas in general, especially on enterprise business.

Great color! I think you said you had a tripling in new customer bookings. Can you talk about the growth rates typically contributed by new customers versus existing ones? Any additional color would be appreciated. Thanks.

Every quarter, the vast majority of our business comes from existing customers. This quarter, existing customers continued to perform well for us, but we also saw an outstanding contribution from new logos.

Your next question will come from the line of Tavy Rosner from Barclays.

This is Chris Reimer on for Tavy. Thank you for taking my question. You talked about enterprises accelerating their digital transformation. Are you seeing traction for your solutions covering public cloud infrastructures?

Yes, we do. The other main product we have is cloud native protection, and that continues to grow well, from both a customer and ARR perspective. We have seen good results with our Kubernetes WAF, which is targeting applications, infrastructure predominantly in public cloud but also in private cloud. We observe a very strong solution to protect the data plane, the application plane, and the control plane of our customers when they transition an application to public cloud. We had very pleasing wins, but I didn't specifically mention them in my prepared remarks. There are indeed many exciting new logos that approached us, as well as growth with existing accounts. So, we certainly see more business, specifically in the public cloud. Many of our large enterprises, as I mentioned, some of the wins like the construction company and others, have workloads spread across hybrid environments. Some operate in legacy data centers, while a larger portion are migrating over time to AWS, Azure, and GCP. We are contracted to protect applications across all environments. Importantly, many of our customers are already migrated or migrating in various stages of this hybrid infrastructure, and we are providing comprehensive protection for all applications in all data centers, reaffirming our esteemed security solutions.

Just is there any color you can provide on the M&A pipeline? You emphasize that you are disciplined with respect to multiples, and I am just wondering how you see the space at the moment.

Yes, we continue to be active in that space. However, the pricing of private companies does not favor accelerating our pace of acquisitions, but we persist in seeking opportunities.

The next question comes from the line of Alex Henderson with Needham.

First off, great quarter; it's nice to see those results! I was hoping you could provide a bit more granularity on revenue streams or order streams from your partners in aggregate. I know you do not want to break out specific companies, but could you provide total information on performance with partners?

There was solid contribution across the board. When I look at the contributions from the group, particularly, it aligns well with the increase in new customer business. I mentioned the Fortune 500 win through Cisco, and I believe there were others in this quarter. I also mentioned CheckPoint bringing in significant global 2000 customers. One example not mentioned in my prepared remarks is related to one of the top five global banks that came through our CheckPoint relationship for a multi-million dollar deal related to our security business. So, we continue to see noticeable traction in large customers through those partners, predominantly with carriers like Nokia and also across the board with Cisco. I believe this is a core strategic element for us, especially in recruiting new customers and then expanding and nurturing those customers.

Was the partnership revenue growth, especially in the cloud piece, the primary factor in driving growth for the company? Did it grow at the same rate, or was it less?

In the cloud, it continues to grow strongly. When I think of the key deals we've closed, all of them involved the cloud and subscription component, so I can state that they are performing very well for us.

Looking at your pipeline with the partners, is it as strong coming out of the quarter as it was coming into the quarter? Did the pipeline strengthen?

Although we had a record quarter with a significant number of closures, we are beginning this quarter with a stronger pipeline. So, there has been strong new pipeline generation.

I assume, given your lack of constraints, that you're not seeing any meaningful or significant changes in the timeline for orders. I know we've talked to a lot of companies that are constrained and have visibility into orders two or three quarters ahead. That doesn't seem to be the case for you; is that correct?

Yes, for us in that respect, business is as usual.

Perfect. On the pricing side, I assume you are not seeing significant changes in pricing either, given you are primarily a software company; is that also fair?

Correct.

Can you give us a rank order of the strength of the partnerships, which ones were the strongest or the lagging? Was Cisco the top performer, followed by Nokia and then CheckPoint or some other order?

Thank you for the question, but unfortunately, I will not evaluate that at this time.

Ladies and gentlemen, I will turn the call back over to Roy for any closing remarks.

Thank you all for joining us today. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect at this time.