Radware Ltd 20-F for FY2021
Radware Ltd (RDWR)
About this 20-F
Radware Ltd filed this 20-F on April 11, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $286.5M
- up 14.6% from $250.03M a year earlier
- Net income
- $7.81M
- down 18.9% from net income of $9.64M a year earlier
- Diluted EPS
- $0.16
- down 20.0% from $0.20 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Commission file number:
(Exact name of registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Financial Officer
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(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report (December 31, 2021):
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-Accelerated Filer ☐ |
Emerging growth company |
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International Financial Reporting Standards as issued by the International Accounting Standards Board |
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If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow:
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes
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“Companies Law” or the “Israeli Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;
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“dollars,” “$” or “US$” are to U.S. dollars; |
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“Nasdaq” is to the Nasdaq Stock Market LLC; |
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“NIS” or “shekels” are to New Israeli Shekels. |
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“ordinary shares” are to our Ordinary Shares, par value NIS 0.05 per share; |
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the “SEC” is to the U.S. Securities and Exchange Commission; |
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the "U.S." is to the United States; and |
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“U.S. GAAP” are to generally accepted accounting principles in the United States. |
FORWARD-LOOKING STATEMENTS
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Capitalization and Indebtedness |
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Reasons for the Offer and Use of Proceeds |
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Risk Factors |
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History and Development of the Company |
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Business Overview |
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Organizational Structure |
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Property, Plants and Equipment |
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Compensation |
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Board Practices |
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Employees |
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Share Ownership |
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Offer and Listing Details |
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Plan of Distribution |
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Markets |
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Taxation |
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Documents on Display |
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| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
| ITEM 3. |
KEY INFORMATION |
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Changing or severe global economic conditions could have a material adverse effect on our results of operations. |
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We depend upon independent distributors to sell our solutions to customers. If our distributors do not succeed in selling our
products and services, we may not be able to operate profitably. |
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We must manage our anticipated growth effectively in order to remain profitable. |
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The COVID-19 pandemic has impacted and may continue to impact our business, operating results and financial condition. |
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A shortage of components or manufacturing capacity could cause a delay in our ability to fulfill orders or increase our manufacturing
costs. |
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We rely on a few vendors to provide our hardware platforms and components for the manufacture of our products. |
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Our success depends on our ability to attract, train and retain highly qualified personnel. |
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Competition in the market for cyber security and application delivery solutions and in our industry in general is intense. If we
are unable to compete effectively, we may lose market share, and we may be unable to maintain profitability. |
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We must develop new solutions and enhance existing solutions to remain competitive. |
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Our reputation and business could be harmed based on real or perceived shortcomings, defects or vulnerabilities in our solutions
or if our end-users experience security breaches, which could have a material adverse effect on our business, reputation and operating
results. |
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As a security provider, if our internal network system is compromised by cyber-attackers or other malicious actors, or by a critical
system failure, our reputation, financial condition and operating results could be materially adversely affected. |
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Outages, interruptions or delays in hosting services could impair the delivery of our cloud-based security services and harm our
business. |
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Our global operations may expose us to additional risks. |
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We have incurred net losses in the past and may incur losses in the future. |
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A slowdown in the growth of the cyber security and application delivery solutions market would reduce our addressable market and
solutions sales. |
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If the market for our cloud-based solutions does not continue to develop and grow, we may incur capital and operation losses.
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Our solutions may have long sales cycles, which may reduce the predictability of our financial performance. |
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We may pursue acquisitions or other investments that could disrupt our business and harm our financial condition. |
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Our business in countries with a history of corruption and transactions with foreign governments increases the risks associated with
our international activities. |
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Currency exchange rates and fluctuations of exchange rates could have a material adverse effect on our results of operations.
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Undetected defects and errors may increase our costs and impair the market acceptance of our products. |
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Our business and operating results could suffer if third parties infringe upon our proprietary technology. |
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Our products may infringe on the intellectual property rights of others. |
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Laws, regulations and industry standards affecting our business are evolving, and unfavorable changes could harm our business.
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Some of our solutions contain “open source” and third-party software, and any failure to comply with the terms of one
or more of these open source and third-party software licenses could negatively affect our business. |
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An increasing amount of intangible assets and goodwill on our books may in the future lead to significant impairment charges.
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Additional tax liabilities, including due to tax positions we took, could materially adversely affect our results of operations and
financial condition. |
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The adoption of tax reforms and the enactment of additional legislation changing the United States’ taxation of international
business activities could materially impact our financial position and results of operations. |
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If we are unable to realize our investment objectives, our financial condition and results of operations may be adversely affected.
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We rely on information systems to conduct our businesses, and failure to protect these systems against security breaches and otherwise
to implement, integrate, upgrade and maintain such systems in working order could have a material adverse effect on our results of operations,
cash flows or financial condition. |
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Major disruptions or deficiencies of our information systems could disrupt our operations and cause unanticipated increases in our
costs. |
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Our business may be affected by sanctions, export controls and similar measures targeting Russia and other countries and territories
as well as other responses to Russia’s military conflict in Ukraine, including indefinite suspension of operations in Russia and
dealings with Russian entities by many multi-national businesses across a variety of industries. |
Risks Related to the Market for Our Ordinary Shares
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Yehuda Zisapel, our chairman of the board, Nava Zisapel, and Roy Zisapel, our President, Chief Executive Officer and director, may
exert significant influence in the election of our directors and over the outcome of other matters requiring shareholder approval.
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Provisions of our Articles of Association and Israeli law as well as the terms of our equity incentive plan could delay, prevent
or make a change of control of us more difficult or costly, which could depress the price of our ordinary shares. |
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Our share price has been volatile in the past and may be subject to volatility in the future. |
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If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences.
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If a U.S. person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income
tax consequences. |
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Political, economic and military instability in the Middle East or Israel may harm our business. |
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The tax benefits we may receive in connection with our preferred enterprise program require us to satisfy prescribed conditions and
may be terminated or reduced in the future. This would increase taxes and decrease our net profit. |
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We have obtained benefits from the Israeli Innovation Authority, that subject us to ongoing restrictions. |
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It may be difficult to enforce a U.S. judgment against us or our officers and directors and to assert U.S. securities laws claims
in Israel. |
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Your rights and responsibilities as a shareholder will be governed by Israeli law, which may differ in some respects from the rights
and responsibilities of shareholders of U.S. companies. |
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increasing throughput, capacity, performance and efficiency of our core products, to cope with growing velocity and complexity of
attacks; |
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adapting to fundamental changes in our customers’ data centers’ infrastructure and changes in the locations of applications
and data by offering relevant solutions for multi-clouds and hybrid cloud environments; |
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offering new solutions to adapt to the changes in applications’ deployment frameworks and workflows, microservice based architecture
(Kubernetes orchestration), massive usage of Application Programming Interface (API) stacks and new edge delivery technologies in response
to the rise of modern applications buildup and delivery requirements; |
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adapting to changes in the cyber threat landscape, by extending our security coverage to include cloud-native attacks (cloud access
management and workloads), application level attacks, usage of open source third party libraries, encrypted attacks, automated attacks
and edge delivery related attacks; |
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developing and enhancing our cloud and virtual offerings and expanding our managed security services capabilities to address the
industry trend of providing services for the cloud and through the cloud – organically and inorganically; and |
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increasing our support offerings to address the industry trend of increased customer reliance on third party-provided or managed
information technology services. |
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adversely affect the market’s perception of our security solutions, |
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cause current or potential customers to look to our competitors for alternatives, |
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require us to expend significant financial resources to analyze, correct or eliminate any vulnerabilities, and |
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lead to investigations, litigation, fines and penalties, any of which could have a material adverse effect on our operations, financial
condition and reputation. |
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post-merger integration problems resulting from the combination of any acquired operations with our own operations or from the combination
of two or more operations into a new unified entity; |
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diversion of management’s attention from our core business; |
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substantial expenditures, which could divert funds from other corporate uses; |
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entering markets in which we have little or no experience; |
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loss of key employees of the acquired operations; and |
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known or unknown contingent liabilities, including, but not limited to, tax and litigation costs. |
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A large portion of our expenses in Israel, principally salaries and related personnel expenses, are paid in NIS, whereas most of
our revenues are generated in U.S. dollars. When the U.S. dollar is weak, our foreign currency-denominated expenses will be higher, whereas
if the U.S. dollar is strong, our foreign currency-denominated expenses will be lower. If the NIS strengthens against the U.S. dollar,
the dollar value of our Israeli expenses will increase and may have a material adverse effect on our business, operating results and financial
condition; |
| • |
A portion of our international sales are denominated in currencies other than U.S. dollars, such as Euros, thereby exposing us to
currency fluctuations in such international sales transactions; |
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We incur expenses in several other currencies in connection with our operations in Europe and Asia. Devaluation of the U.S. dollar
relative to such local currencies causes our operational expenses to increase; and |
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The majority of our international sales are denominated in U.S. dollars. Accordingly, devaluation in the local currencies of our
customers relative to the U.S. dollar could cause our customers to decrease orders or default on payment. |
| • |
blocking sanctions on some of the largest state-owned and private Russian financial institutions (and their subsequent removal from
SWIFT); |
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blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians and those with
government connections or involved in Russian military activities; |
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blocking sanctions against certain Russian businessmen and their businesses, some of which have significant financial and trade ties
to the European Union; |
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blocking of Russia’s foreign currency reserves and prohibition on secondary trading in Russian sovereign debt and certain transactions
with the Russian Central Bank, National Wealth Fund and the Ministry of Finance of the Russian Federation; |
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expansion of sectoral sanctions in various sectors of the Russian and Belarusian economies and the defense sector; |
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United Kingdom sanctions introducing restrictions on providing loans to, and dealing in securities issued by, persons connected with
Russia; |
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restrictions on access to the financial and capital markets in the European Union, as well as prohibitions on aircraft leasing operations;
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sanctions prohibiting most commercial activities of U.S. and EU persons in Crimea and Sevastopol; |
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enhanced export controls and trade sanctions targeting Russia’s imports of technological goods as a whole, including tighter
controls on exports and reexports of dual-use items, stricter licensing policy with respect to issuing export licenses, and/or increased
use of “end-use” controls to block or impose licensing requirements on exports, as well as higher import tariffs and a prohibition
on exporting luxury goods to Russia and Belarus; |
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closure of airspace to Russian aircraft; and |
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ban on imports of Russian oil, liquefied natural gas and coal to the United States. |
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operating results that do not meet forecasts by securities analysts; |
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announcements concerning us or our competitors; |
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the introduction of new products and new industry standards; |
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general market conditions and changes in market conditions in our industry; |
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the general state of securities markets (particularly the technology sector); |
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political, economic and other developments in the State of Israel, the U.S. and worldwide, including, for example, the recent military
conflict in Ukraine and the COVID-19 pandemic; and |
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any of the events underlying any of the other risks or uncertainties set forth elsewhere in this annual report actually occurs.
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subject to limited exceptions, the judgment is final and non-appealable; |
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the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel; |
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the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts; |
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
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the judgment is enforceable under the laws of State of Israel and its enforcement is not contrary to the law, public policy, security
or sovereignty of the State of Israel; |
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties;
and |
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted
in the U.S. court. |
| ITEM 4. |
INFORMATION ON THE COMPANY |
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Products – We offer a range of physical products, software products, product subscriptions
and cloud-based subscriptions (or a combination of these) for enterprise and carrier data centers, as part of their IT and application
infrastructure. |
| • |
Customer Services (Services) – We offer technical support, professional services, managed
services and training and certification to our customers. |
| o |
DefensePro Attack Mitigation Device. DefensePro® is a real-time network attack mitigation
device that protects the data center and application infrastructure against network and application denial of service, application vulnerability
exploitation, network anomalies and other emerging network attacks. |
| o |
AppWall Web Application Firewall. AppWall® is our Web Application Firewall (WAF) that
is designed to secure the delivery of mission-critical Web applications and APIs for corporate networks and in the cloud. AppWall is an
ICSA Labs certified WAF that combines positive and negative security models designed to prevent data theft, manipulation of sensitive
corporate and customer information and help achieve Payment Card Industry (PCI) compliance. |
| o |
Radware Kubernetes WAF. Radware Kubernetes WAF is a Web Application Firewall solution for
CI/CD environments orchestrated by Kubernetes. Our Kubernetes WAF integrates with common software provisioning, testing and visibility
tools in the CI/CD pipeline offering both IT security and DevOps personnel detailed insight down to the pod and container levels, and
enables organizations to implement application and data security in on-premise and cloud-based implementations. |
| o |
DefenseFlow Cyber Command and Control Application. DefenseFlow® is a network-wide cyber
command and control application that helps service providers to scale and automate network DDoS attacks response. DefenseFlow acts as
a cyber-defense control-plane that collects and analyzes multiple sources of security telemetries and based on this information, applies
designated intelligent security actions. DefenseFlow enables service providers to handle large amounts of customers efficiently and with
minimal errors. |
| o |
Alteon® Application Delivery Controller/Load Balancer. Alteon is our Application Delivery
Controller (ADC). It provides advanced, end-to-end local and global load balancing capabilities for web, cloud and mobile-based applications.
Designed to guarantee application service level agreement (SLA), Alteon ADC incorporates a set of next-generation services including secure
sockets layer (SSL) offloading, HTTP/2.0 Gateway, vision analytics for application performance monitoring Application Performance Monitoring
(APM), AppWall Web Application Firewall (WAF), Authentication Gateway, bandwidth management, and SSL inspection security. |
| • |
Alteon Deliver. For applications that require high performance ADCs with advanced layer 4-7
ADC functionality. |
| • |
Alteon Perform. For deployments requiring performance optimization, advanced application
performance monitoring, global server load balancing, link load balancing and automated/optimized ADC service operation. |
| • |
Alteon Secure. For applications that require our most advanced protections, including an
embedded Web Application and API Protection (WAAP) module, authentication gateway, bot management, threat intelligence feeds (ERT
Security Updates Service, ERT Active Attackers Feed and ERT Location-based Mitigation) and SSL processing from perimeter security devices
(with its embedded SSL inspection module). |
| o |
LinkProof. LinkProof® is a multi-homing and enterprise gateway solution that allows
service level availability and continuous connectivity of enterprise and cloud-based applications. It is an application-aware multi-homing
and link load balancing module that delivers 24/7 continuous connectivity and service level assurance, improved performance and cost-effective
scalability of bandwidth for corporate and cloud-based applications. |
| o |
Security Updates Subscription (SUS). Our Security Update Subscription is a security advisory
signature service dedicated to protecting network elements, hosts and applications against the latest security vulnerabilities and threats.
The Security Update Subscription delivers weekly, emergency and custom attack signature updates to current subscribers to protect against
known attack patterns. The service is available for DefensePro and AppWall products, including AppWall for Alteon. |
| o |
ERT Active Attackers Feed. Our Emergency Response Team (ERT) Active Attackers Feed (EAAF)
is available on top of our security product offering. EAAF offers real-time detection and mitigation of active attacks and infections
as they occur. EAAF correlates data from multiple sources — Radware’s Global Deception Network, Cloud Security Services customers
and the Company’s ERT researchers — and automatically generates continuous, validated lists of IPs currently involved in malicious
activity related to distributed denial-of-service (DDoS) and web attacks. |
| o |
ERT Protection Packages. Our ERT Protection packages bundle our ERT services into two packages:
ERT Silver Protection Package and ERT Gold Protection Package. ERT Silver Protection Package consolidates Security Update Subscription
(SUS), ERT Active Attackers (EAAF), and Geolocation Protection (GEO) subscriptions. ERT Gold Protection Package includes ERT under Attack
Service on top of the ERT Silver Package. |
| o |
Alteon Global Elastic License (GEL). Alteon GEL is a purchasing and deployment subscription
that enables a high level of flexibility for ADC services across datacenters, private and public clouds. GEL enables dynamic ADC capacity
allocation and the ability to move that capacity across environments, without having to invest separately in a dedicated ADC infrastructure
for each and every location where organization’s applications are deployed (e.g. on premise, public cloud etc.). This application
delivery licensing model helps to eliminate planning risks in the purchase and deployment of ADC services, enabling continuous investment
protection of the ADC infrastructure throughout its lifecycle duration. |
| o |
APSolute Vision. APSolute Vision is the network management tool and network monitoring tool
for the Radware family of cyber security and application delivery solutions. It provides our customers immediate visibility to health,
real-time status, performance and security of our products from one central, unified console (even if the customer has multiple data centers).
A vision analytics module provides an intuitive, customizable GUI with granular forensic insights into application performance, denial-of-service
and web application attacks. |
| o |
MSSP Portal. The Managed Security Service Provider (MSSP) Portal is a turnkey, multi-tenant
DDoS detection and mitigation service portal. The Portal collects and aggregates security attack measurement and events (including traffic
utilization, attack distribution and alerts) and displays them in real-time and historical reports. Our MSSP Portal enables service providers
to resell cyber security mitigation services to their customers as a managed service. |
| o |
Cloud DDoS Protection Service. Our Cloud DDoS Protection Services provide a full range of
enterprise-grade DDoS protection services in the cloud. Based on our DDoS protection technology, it aims to offer organizations wide security
coverage, accurate detection and short time to protect from today’s dynamic and evolving DDoS attacks. We offer a multi-vector DDoS
attack detection and mitigation service, handling network-layer attacks, server-based attacks and application-layer DDoS attacks.
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| ◾ |
Always-On Cloud DDoS Protection Service. This service provides always-on protection where
traffic is always routed through Radware's cloud security POPs (Points of Presence) with no on-premises device required for detection
and mitigation. This service is mostly suitable for organizations that have applications hosted in the cloud or those that are not able
to deploy an on-premise attack mitigation device in their data center. |
| ◾ |
Always-On Hybrid Cloud DDoS Protection Service. For companies that place a high premium on
the user experience and wish to avoid even the slightest possible downtime as a result of DDoS attacks, this solution enables them to
deploy an always-on cloud DDoS protection service together with an on-premise hardware appliance. This helps ensure that services are
protected against any type of attack, at all times. |
| ◾ |
On-Demand Cloud DDoS Protection Service. This service protects against Internet pipe saturation
and is activated when the attack threatens to saturate the organization’s Internet pipe. This service is mostly suitable for organizations
that are looking for the lowest cost solution and are less sensitive to real-time detection of DDoS attacks. |
| ◾ |
On-Demand Cloud Hybrid DDoS Protection Service. This DDoS mitigation solution is mostly
suitable for organizations who can deploy our on-premise attack mitigation device DefensePro in their data center. The On-premise DefensePro
device detects and mitigates all type on DDoS attacks in real-time. Volumetric DDoS attacks are mitigated in the cloud. |
| o |
Cloud WAF Service. Our Cloud WAF Service provides enterprise-grade, continuously adaptive
web application and API protection and is based on our ICSA Labs certified web application firewall. Cloud WAF includes full coverage
of OWASP Top-10 threats, advanced attacks and zero-day attack protection. It offers dynamic security policies with automatic false positive
correction, built-in DDoS protection, integrated bot mitigation and application analytics to simplify security event management by taking
massive amounts of alerts and consolidating them into a small, manageable set of user activities. |
| o |
Bot Manager. Our Bot Manager is designed to protect web applications, mobile applications
and APIs from emerging generations of automated threats (bots) targeting applications and systems, including account takeover, denial
of inventory, DDoS, card fraud, web scraping and other OWASP automated threats, and also helps organizations reduce expenses and increase
revenue. |
| o |
Cloud Native Protector (CNP) Service. Our CNP service provides an agentless cloud-native
security solution for applications, workloads and infrastructure hosted on AWS and Microsoft Azure. Our CNP service offers multi-layered
protection to reduce risk by continuously verifying compliance against multiple security standards, identifying publicly exposed assets,
keeping track of asset inventory with prioritized cross-cloud visibility, fortifying the cloud threat surface with context-aware smart
hardening, and providing advanced attack detection and remediation capabilities to stop data theft attempts. |
| o |
Certainty Support Program. We offer technical support for all our products through our Certainty
Support Program. Certainty support levels include: |
| o |
Basic. This level provides business day access including weekends from 9 a.m. to 5 p.m. (local
time) to technical support center services and technical documentation, either via the Web, e-mail or direct phone support during working
days. New software releases are available for units covered under the certainty support program. |
| o |
Standard. This level increases access to the technical support center 24/7/365 and adds next
business day replacement of failed hardware and waives customer shipping costs. |
| o |
Advanced. This level increases certainty support level standard to four hours' replacement
of failed hardware advanced replacement. |
| o |
Professional Services. Our professional services group is staffed by a global team of experts
possessing extensive knowledge and experience in security and application delivery both in data centers and the cloud. The group offers
a full range of services to design, implement, automate and optimize our customer solutions. We offer the following key professional services:
|
| o |
Design and Planning. This service plans and designs applications for future growth with Radware
engineers. The service starts with a review of business goals, network optimization assessment and overview of application architecture
and security requirements to help create a comprehensive deployment plan that is tailored to organizational IT requirements. |
| o |
Application and Security Optimization Services. This service analyzes and reviews the current
implementation and design and provide recommendations to help optimize the system and achieve business goals. |
| o |
Resident Engineer. Our Resident Engineer service is a proactive on-site engineer who performs
operations, design and automation activities. From initial deployment to ongoing management and day-to-day operation, our resident engineer
decreases the time demands on our customers’ staff, allowing them to focus on their core business. |
| o |
Technical Account Manager. Our technical account manager (TAM) is a proactive consultant
that implements best practices, provides guidance and optimizes networking and application resources. |
| o |
ERT Service. Our Emergency Response Team (ERT) is a group of security experts available
24x7 for proactive security support services for customers facing an array of application- and network-layer attacks. These services include:
|
| o |
ERT Managed Security Service. Our ERT offers a fully managed application- and network-security
service. The service covers a broad range of attack types from different forms of DoS to a variety of application attacks against our
customers’ servers or data centers. It includes immediate response, onboarding, consulting, remote management and reporting.
|
| o |
ERT Under Attack Service. Our ERT under-attack
service provides almost immediate response by our security expert. The ERT engineer will take the lead in fighting off attacks and provide
postmortem analysis of security events to the customer. The ERT under-attack service is designed to let organizations know there is someone
they can rely on in an emergency situation, guaranteeing support throughout the attack life cycle from the moment it begins. The ERT experts
assist large enterprises worldwide with complex multi-vector attacks against their networks, data centers and application services.
|
| • |
We added new capabilities into our DefensePro Attack Mitigator device, including the following: |
| o |
Keyless SSL Protection, which provides SSL attack detection, characterization, and mitigation without requiring SSL decryption. In
addition to Keyless SSL Protection, we began delivering during 2021 additional user options, including Selective Full SSL Protection,
which minimizes latency and interruptions to legitimate user sessions by applying decryption only when under attack and only to suspicious
sessions. These new capabilities are available on DefensePro and Cloud DDoS Protection services. |
| o |
Quantiles DoS Protection capability that enables service providers and carriers to surgically and automatically mitigate phantom
flood attacks and traffic anomalies that historically have gone undetected. The solution automatically divides incoming traffic into
segments or quantiles. With this new granular level of detection, service providers and carriers can intercept “lower volume”
DDoS flood attacks — also known as phantom floods — that would otherwise escape notice within dynamic high bandwidth networks.
For organizations, this automated capability is designed to eliminate the costly and often complex process of extensive manual configuration
and ongoing threshold tuning. |
| • |
In response to the ever-increasing volume of attacks and strong business demand, we have upgraded our Cloud DDoS Protection Service
capacity to absorb DDoS attacks of up to 8Tbps. We also announced the opening of an additional new cloud scrubbing center in Amsterdam,
expanding the number of our scrubbing centers to 14, deployed globally. |
| • |
We added new capabilities to our Cloud WAF service including: OpenAPI protections, API schema discovery and schema enforcement, help
GDPR compliance through source IP encryption, IPv6 based access control lists (ACLs) and rules and integrated a new content delivery network
(CDN) service that enables self-service onboarding, cache management and embeds dashboard widgets. We have also continued to expand our
Cloud WAF network adding new Cloud WAF PoPs in Amsterdam and Moskow and upgraded our Chennai and Hong Kong PoPs infrastructure.
|
| • |
We have continued to integrate additional application security features into our Alteon line of ADCs to provide protection in one
platform across all environments. Alteon’s new Integrated Application Protection includes a WAF to protect from web-based attacks,
Bot Manager to block malicious automated threats, API protection to secure APIs and provide full visibility on API targeted threats, and
ERT Active Attackers Feed – real-time data feed of known attackers, identified by Radware’s global network, to allow Alteon
to block potential attacks before they occur. |
| • |
We continued to add capabilities to our Alteon ADC including support for high availability (HA) in AWS cloud and Azure cloud, server
load balancing for HTTP/3 protocol. |
| • |
We continued our investment in the OEM agreement with Israeli-based Check Point Software Technologies Ltd. (Check Point) by opening
a demo lab for Check Point powered by Radware solutions: Cloud DDoS Protection and SSL Protection. Check Point sales engineers and Check
Point channel partners can demonstrate these solutions to prospects as part of the sales process. |
| • |
We partnered with Toronto-based Oncore Cloud Services, Inc., a professional service provider, to resell our cloud security portfolio,
with a focus on Radware's Cloud Native Protector. |
| • |
We partnered with Netsync Network Solutions, a Houston-based technology solutions and services provider, to help Netsync’s
enterprise and public sector customers safeguard their AWS workloads with our Cloud Native Protector service. This partnership joins an
earlier partnership in 2021 to resell our Cloud DDoS Protection service to State, Local and Education (SLED) agencies in the U.S. as part
of Netsync’s offerings. |
| • |
We partnered with Azion Technologies, Inc. a provider of edge computing in Brazil, to resell our Bot Manager solution into Azion
customer base. |
| • |
We partnered with Internap Holdings, LLC (INAP), a Virginia-based Radware premier partner and a provider of performance-driven, secure
hybrid infrastructure solutions to deploy our Cloud WAF and Cloud DDoS Protection Services to organizations worldwide. |
| • |
We extended our partnership with Acantho S.p.A, a telecommunications subsidiary of Italy-based Hera Spa (Hera Group), to provide
cloud web application security protection to enterprise customers in Italy. Acantho offers our Cloud WAF service, including Bot Manager,
to enterprise customers for enhanced quality of service and application security. |
| • |
Innovation, Proprietary Technologies and Thought Leadership. We are offering innovative solutions
in our domain. We were one of the first companies to offer hybrid attack mitigation solutions; behavioral DDoS attacks detection with
automated real-time signature creation for attack mitigation; device fingerprinting technology implementation for Bot-based attacks detection;
auto-policy generation for our WAF solution; protection against encrypted attacks without opening the sessions for DDOS protection; and
artificial intelligence (AI) to detect attacks targeting workloads in public clouds. We believe this has given us significant expertise,
know-how and leadership in the market for cyber-attack mitigation solutions and we take part in many technology communities, standard
organizations and open source projects. At the same time, we continue to invest in research and development of cyber security and application
delivery technologies in order to introduce new and innovative solutions, which are supported and protected by multiple patents and proprietary
rights. |
| • |
Automation. We are offering automated attack detection and mitigation solutions that reduce
the total cost of ownership of cyber security solutions, including behavioral analysis technology to detect zero-day DDoS attacks; automated
real-time signature creation for DDoS attacks mitigation; intent-based behavioral analysis and machine learning models to detect automated
bot attacks; and machine learning (positive security model) to detect zero-day web application attacks. |
| • |
Wide attacks coverage. Our solutions offer a wide coverage against attacks, including mitigation
of all four generations of Bot attacks; negative and positive security models to defend against known (OWASP top-10) and zero-day web
application attacks (standard solutions typically cover OWASP top-10 attacks only); advanced DDoS attacks protection such as DNS flood
attacks, burst floods, SSL flood attacks and IoT botnets. |
| • |
Industry Awards. We gained multiple industry awards during 2021, including the following:
|
| o |
Forrester research - The Forrester Wave™: DDoS Mitigation Solutions, Q1 2021 – Leader; |
| o |
Quadrant Knowledge Solutions - 2021 DoS Mitigation SPARK Matrix - Technology Leader, June 2021; |
| o |
Gartner Magic Quadrant for Web Application and API Protection (WAAP) - Visionary, September 2021; and |
| o |
Gartner Peer Insights: “Voice of the Customer”, Web Aplication Firewalls - Customers’ Choice, January 2021.
|
| • |
Focus on data center solutions. We focus on developing and selling holistic cyber security
and application delivery solutions for physical, cloud and hybrid data centers and cloud applications. |
| • |
Continue investing in cloud and cyber security. We aim to offer superior and innovative cyber security
solutions and cloud-based solutions and expand our portfolio in these two dimensions. We also invest in go-to-market efforts related to
cloud security services and public cloud solutions. |
| • |
Increase our market footprint. We believe that a significant market opportunity exists to
sell our solutions with the complementary products and services provided by other organizations with whom we wish to collaborate. To that
end, we have already established strategic relationships with various third parties, including leading global-class partners, such as
Cisco, Check Point and Nokia, that provide critical access to certain large customers allowing us to sell our solutions. We intend to
further increase our market footprint through collaboration with leading partners. |
| • |
Pursue acquisitions and investments. In order to achieve our business objectives, we may
evaluate and pursue the acquisition of, or significant investments in, other complementary companies, technologies, products and/or businesses
that enable us to enhance and increase our technological capabilities and expand our product and service offerings. |
| • |
DDoS Mitigation: Akamai Technologies, Inc., or Akamai, Imperva Inc., or Imperva, and Netscout Systems, Inc. |
| • |
Web Application Firewalls and Bot Management: Akamai, Imperva, Cloudflare, Inc., F5 Networks, Inc., or F5, and AWS |
| • |
Application Delivery: F5, A10 Networks, Inc. and Citrix Systems, Inc. |
| • |
Public Cloud Security: Palo Alto Networks, Inc., AWS, Microsoft Azure |
| • |
We have implemented key performance indicators (KPIs), which set quantitative reduction goals for the use of water, power and paper;
|
| • |
We work with our suppliers to maintain compliance with various environmental laws and guidelines, such as RoHS and WEEE in the EU,
and adopted our Conflict Minerals Policy available at www.radware.com/corporategovernance/conflictminerals (information contained on our
website is not incorporated herein by reference and shall not constitute part of this annual report) which outlines our practices
and procedures with respect to responsible sourcing of minerals from conflict-affected and high-risk areas; and |
| • |
Our corporate headquarters in Tel Aviv, Israel, as well as our Training rooms in Tel Aviv are designed in the “TED” style
to serve as multifunctional work spaces while the operations room utilizes NVX video technology in order to minimize the amount of copper
wiring required to function and travels. At our headquarters, we offer EV charging stations to our employees and visitors, and where applicable
according to local requirements, we offer recycling and we properly dispose of e-waste. |
| • |
We are an equal-opportunity employer and make employment decisions on the basis of a person’s qualifications and our business
needs. This is demonstrated by our Human Rights and Labor Standards Policy; |
| • |
Our corporate policy maintains zero tolerance for harassment, sexual harassment and discrimination, and it imposes significant consequences
for behavior deemed to create a hostile work environment. This is demonstrated by our Code of Conduct and Ethics as well as our Human
Rights and Labor Standards Policy; |
| • |
We offer an attractive mix of compensation and benefit plans to support our employees and their families’ physical, mental,
and financial well-being. This includes allowing the majority of our employees to have a direct ownership interest in Radware by participating
in our equity-based incentive plans; |
| • |
We are committed to maintaining a healthy, safe, and secure work environment that protects our employees and the public from harm.
This is demonstrated by the measures we implemented in order to overcome the challenges presented by the COVID-19 pandemic, whereby we
implemented a program of global engagement activities that consists of, among other things, improving virtual communication channels;
our “going virtual” activities, including new virtual onboarding, virtual learning ramp up, global hackathon, and virtual
branding; and wellbeing and employee care activities, in which we supported the wellbeing of each of our employees and their families
by providing quarantine packages, holiday deliveries, virtual activities, live shows, talent competitions, and family meal vouchers.
|
| • |
Corporate Governance and Board Practices: Our corporate governance policies and practices are designed to foster effective board
oversight in service of the long-term interests of our shareholders. Our Board of Directors consists of seven (7) members, of whom five
(5) qualify as “independent directors” under the Nasdaq rules and one (1) is a woman. The Audit and Compensation
Committees of our Board of Directors, which are charged with significant functions in our risk oversight and compensation philosophy,
respectively, currently consist of four (4) members, all of whom qualify as “independent directors” under the Nasdaq rules
and one (1) of whom is a woman. For further details on our corporate governance as well as our board of directors and its committees’
roles and practices, see Items 6.C (“Board Practices”) and 16.G (“Corporate Governance”). |
| • |
Ethical Business Conduct: All of our directors, officers, service providers and employees must conduct themselves in accordance with
our Code of Conduct and Ethics available at www.radware.com/corporategovernance/ (information
contained on our website is not incorporated herein by reference and shall not constitute part of this annual report). Our Code of Conduct
and Ethics is intended to promote various elements of ethical business conduct, including compliance with laws; avoiding conflict of interests
and personal exploitation of corporate opportunities; fair dealing; confidentiality of information; and other policies and guidelines
in connection with insider trading and anti-corruption laws and policies. |
|
Name of Subsidiary
|
Place of Incorporation
|
|
Radware Inc. |
New Jersey, United States |
|
Radware UK Limited |
United Kingdom |
|
Radware France |
France |
|
Radware Srl |
Italy |
|
Radware GmbH |
Germany |
|
Nihon Radware KK |
Japan |
|
Radware Australia Pty. Ltd. |
Australia |
|
Radware Singapore Pte. Ltd. |
Singapore |
|
Radware Korea Ltd. |
Korea |
|
Radware Canada Inc. |
Canada |
|
Radware India Pvt. Ltd. |
India |
|
Kaalbi Technologies Limited Ltd. |
India |
|
Radware (India) Cyber Security Solutions Private Limited |
India |
|
Radware China Ltd. 睿伟网络科技（上海）有限公司
|
China |
|
Radware (Hong Kong) Limited |
Hong Kong |
|
Radyoos Media Ltd.* |
Israel |
|
Radware Canada Holdings Inc. |
Canada |
|
Radware Iberia, S.L.U. |
Spain |
|
Edgehawk Security Ltd. |
Israel |
|
CNP Ltd. |
Israel |
|
CSR Cloud Security Ltd. |
Israel |
|
AB-NET Communications Ltd.
Binat Business Ltd.
BYNET Data
Communications Ltd.*
CloudRide Ltd.*
BYNET Electronics Ltd.*
BYNET SEMECH (outsourcing) Ltd.* Bynet Software Systems Ltd.
Bynet System Applications Ltd.*
|
Ceragon Networks Ltd.
Internet Binat Ltd.*
Nuance Hearing Ltd.
Packetlight Networks Ltd.
RAD-Bynet Properties and Services (1981) Ltd.*
Radbit Computers, Inc.
RADCOM Ltd.
RAD Data Communications Ltd.*
Radiflow Ltd.
|
RADWIN Ltd.
DC Security Ltd. (previously known as SecurityDAM Ltd.)
|
| ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
| • |
We recognize physical and software product revenues when control of the product is transferred to the customer (i.e., when our performance
obligation is satisfied), which typically occurs at shipment and we recognize revenues from product and cloud subscriptions, as part of
the product revenues, ratably over the subscription period. |
| • |
Revenues from post-contract customer support (PCS), which mainly represents help-desk support and unit repairs or replacements, professional
services and ERT services, are recognized ratably over the contract or subscription period, which is typically between one year and three
years. |
|
2021 |
2020 |
2019 |
||||||||||
|
(US $ in thousands) |
||||||||||||
|
Revenues: |
||||||||||||
|
Products |
$ |
170,438 |
$ |
132,934 |
$ |
133,605 |
||||||
|
Services |
116,058
|
117,093
|
118,467
|
|||||||||
|
|
286,496 |
250,027 |
252,072 |
|||||||||
|
Cost of revenues: |
||||||||||||
| Products |
42,191
|
34,645
|
35,056
|
|||||||||
|
Services |
10,255
|
10,439
|
10,118
|
|||||||||
|
|
52,446 |
45,084 |
45,174 |
|||||||||
|
Gross profit |
234,050 |
204,943 |
206,898 |
|||||||||
|
Operating expenses, net: |
||||||||||||
|
Research and development, net |
74,098 |
66,836 |
61,841 |
|||||||||
|
Sales and marketing |
119,842 |
113,015 |
109,556 |
|||||||||
|
General and administrative |
21,885 |
18,924 |
18,584 |
|||||||||
|
Total operating expenses |
215,825 |
198,775 |
189,981 |
|||||||||
|
Operating income |
18,225 |
6,168 |
16,917 |
|||||||||
|
Financial income, net |
4,407 |
7,796 |
8,792 |
|||||||||
|
Income before taxes on Income |
22,632 |
13,964 |
25,709 |
|||||||||
|
Taxes on income |
14,821 |
4,328 |
3,143 |
|||||||||
|
Net income |
7,811 |
9,636 |
22,566 |
|||||||||
|
2021 |
2020 |
2019 |
||||||||||
|
Revenues: |
||||||||||||
| Products |
59 |
% |
53 |
% |
53 |
% | ||||||
| Services |
41 |
47 |
47 |
|||||||||
| 100 | 100 |
100 |
||||||||||
|
Cost of Revenues: |
||||||||||||
|
Products |
15 |
14 |
14 |
|||||||||
| Services |
3 |
4 |
4 |
|||||||||
| 18 |
18 |
18 |
||||||||||
|
Gross profit |
82 |
82 |
82 |
|||||||||
|
Operating expenses, net: |
||||||||||||
|
Research and development, net |
26 |
27 |
25 |
|||||||||
|
Sales and marketing |
42 |
45 |
43 |
|||||||||
|
General and administrative |
7 |
8 |
7 |
|||||||||
|
Total operating expenses |
75 |
80 |
75 |
|||||||||
|
Operating income |
6 |
2 |
7 |
|||||||||
|
Financial income, net |
2 |
3 |
3 |
|||||||||
|
Income before taxes on Income |
8
|
6
|
10
|
|||||||||
|
Taxes on income |
(5 |
) |
(2 |
) |
(1 |
) | ||||||
|
Net income |
3 |
% |
4 |
% |
9 |
% | ||||||
|
(US$ in thousands) |
2021
|
2020 |
2019 |
% Change
2021 vs. 2020 |
% Change
2020 vs. 2019 |
|||||||||||||||||||||||||||
|
Products |
170,438 |
59 |
% |
132,934 |
53 |
% |
133,605 |
53 |
% |
28 |
% |
(1 |
)% | |||||||||||||||||||
|
Services |
116,058 |
41 |
% |
117,093 |
47 |
% |
118,467 |
47 |
% |
(1 |
)% |
(1 |
)% | |||||||||||||||||||
|
Total |
286,496 |
100 |
% |
250,027 |
100 |
% |
252,072 |
100 |
% |
15 |
% |
(1 |
)% | |||||||||||||||||||
|
(US$ in thousands) |
2021 |
2020 |
2019 |
% Change
2021 vs. 2020 |
% Change
2020 vs. 2019 |
|||||||||||||||||||||||||||
|
North, Central and South America (principally the United States)(*) |
128,770 |
45 |
% |
114,413 |
46 |
% |
106,429 |
42 |
% |
13 |
% |
8 |
% | |||||||||||||||||||
|
EMEA (Europe, the Middle East and Africa) |
98,388 |
34 |
% |
78,362 |
31 |
% |
75,275 |
30 |
% |
26 |
% |
4 |
% | |||||||||||||||||||
|
Asia-Pacific |
59,338 |
21 |
% |
57,252 |
23 |
% |
70,368 |
28 |
% |
4 |
% |
(19 |
)% | |||||||||||||||||||
|
Total |
286,496 |
100 |
% |
250,027 |
100 |
% |
252,072 |
100 |
% |
15 |
% |
(1 |
)% | |||||||||||||||||||
|
(US$ in thousands) |
2021 |
2020 |
2019
|
|||||||||||||||||||||
|
Cost of Products |
42,191 |
24.8 |
% |
34,645 |
26.1 |
% |
35,056 |
26.2 |
% | |||||||||||||||
|
Cost of Services |
10,255 |
8.8 |
% |
10,439 |
8.9 |
% |
10,118 |
8.5 |
% | |||||||||||||||
|
Total |
52,446 |
18.3 |
% |
45,084 |
18.0 |
% |
45,174 |
17.9 |
% | |||||||||||||||
|
(US$ in thousands) |
2021 |
2020 |
2019 |
% Change
2021 vs. 2020 |
% Change
2020 vs. 2019 |
|||||||||||||||
|
Research and development, net |
$ |
74,098 |
$ |
66,836 |
$ |
61,841 |
11 |
% |
8 |
% | ||||||||||
|
Selling and marketing |
119,842 |
113,015 |
109,556 |
6 |
% |
3 |
% | |||||||||||||
|
General and administrative |
21,885 |
18,924 |
18,584 |
16 |
% |
2 |
% | |||||||||||||
|
Total |
$ |
215,825 |
$ |
198,775 |
$ |
189,981 |
9 |
% |
5 |
% | ||||||||||
|
2021 |
2020 |
2019 |
||||||||||
|
Grants |
248,233 |
1,037,444 |
1,167,458 |
|||||||||
|
Weighted average grant-date fair value |
6.87 |
4.74 |
5.54 |
|||||||||
|
2021 |
2020 |
2019 |
||||||||||
|
Grants |
1,143,097 |
995,419 |
776,788 |
|||||||||
|
Weighted average grant-date fair value |
32.57 |
22.54 |
23.41 |
|||||||||
|
2021 |
2020 |
2019 |
||||||||||
|
Net cash provided by operating activities |
$ |
71,774 |
$ |
63,865 |
$ |
52,852 |
||||||
|
Net cash provided by (used in) investing activities |
7,849 |
(14,368 |
) |
(50,793 |
) | |||||||
|
Net cash used in financing activities |
(41,881 |
) |
(35,477 |
) |
(6,511 |
) | ||||||
|
Payments Due by Period (US $ in thousands) | |||||
|
Contractual obligations |
Total |
Less than 1 year* |
1-3 years |
3-5 years |
More than 5 years |
|
Operating leases (1) |
30,215 |
5,545 |
8,446 |
6,274 |
9,950 |
|
Total contractual cash obligations (2)(3) |
30,215 |
5,545 |
8,446 |
6,274 |
9,950 |
| • |
Applications are migrating to the public cloud. The migration to public cloud exposes
organizations to new threats that require consistent security across all cloud environments. Organizations also prefer to purchase security
services as a subscription, to match the subscription-based consumption of hosting services. |
| • |
Datacenter architecture is changing. Datacenter architecture is changing to include various
models such as a physical datacenter, a virtual datacenter, a software defined datacenter, and private or public cloud. New emerging edge
clouds coupled with the emerging 5G breakouts and SD-WAN will enable enterprises to leverage their IoT strategy effectively. Many organizations
use a mixed infrastructure that includes a combination of one or more of the above and therefore require broader overarching protection
that encompasses both the datacenter and cloud-based applications that can be built and delivered as “lift and shift” and
“born-in-the cloud” modes. In addition, this mixed environment often involves multiple vendors and creates challenges in IT
staffing and operational costs, which increase the needs for hybrid cloud services, managed services and modern automated data center
technologies. |
| • |
Application modernization requires new security tools. Application infrastructure is changing,
from monolithic applications to modern applications and web sites in which deployment workflows, front-end built-tools and API-centric
architectures are used. The rise of cloud-native ecosystems, increasingly adapting cloud-direct and micro-services architecture packaged
as containers, is providing a built-in ’on-demand’ elasticity and availability application infrastructure. This enables introducing
and running the new generation of cloud-native applications, in a fast, adaptive and more efficient way by interacting with DevOps CICD
tools and methods. As such, the AppSec blast radius is expanded and requires injection of security controls within the application lifecycle
generation at early stages, to avoid slowdown in development, to sanitize, for example, usage of opensource software used by developers
and might leak in malicious code (recent Log4J library). Various “shift-left” methods are used and specifically adapted for
various target deployment environments. |
| • |
The above-mentioned cloud-native application delivery opens the door for leakage through the open
cloud interface. A new family of attack surfaces manifested by the fact that the cloud APIs are publicly published, and DevOps
processes are done from the outside of the cloud “perimeter” (the insider becomes the outsider). “Cloud-native”
infiltrations are enabled by the usage of cloud-IAM (identify and access) misconfigurations or account take over techniques and by various
vulnerabilities of publicly exposed web and API interfaces. This creates a need for a new protection posture for compliance, permissions
hardening, vulnerabilities detection as well as cloud-native detection (infiltrations and exfiltration) and response tools under new industry
categories: CIEM (“Cloud Infrastructure Entitlement Management”), CSPM (“Cloud Security Posture Management”) and
CWPP (“Cloud Workload Protector Platform”) and CTDR (Cloud Threat Detection and Response). |
| • |
Organizations’ attack surfaces are increasing due to a changing economy. This was caused
by a combination of two forces. First, working from home due to COVID-19 required organizations to enable remote access to applications
and services that were previously not exposed. This eliminated the traditional network perimeter , and now every home computer or mobile
device has become the new perimeter. Second, an increase in the online consumption of goods has accelerated organizations’ digital
transformation and migration to the cloud. The result is more opportunities for attackers to leverage the increased attack surface.
|
| • |
Increasing complexity and intensity of security threats. The increasing complexity and intensity
of security threats landscape require expertise in identifying the attacks and state-of-the-art security to mitigate the attacks and safeguard
the assets. Attack delivery is aided by the growing presence of connected devices (IoT) which increases the threat surface against
any kind of infrastructure, as well as traffic encryption (dark data) assisting hiding attacks. Furthermore, attack tools are increasingly
available to all through the dark net and becoming more sophisticated as hackers use automation and weaponize artificial intelligence.
This leads to ever morphing and scalable attack vectors at all levels, from volumetric botnets through web and API-centric attacks, as
well as new attack surfaces that utilize Kubernetes-platforms (container orchestration platform of choice). The mass amount of uncontrolled
IoT devices and cloud hosting opens the door for a new generation of botnets and automated bots, hard to classify and block. Most organizations
are not able to keep up with these developments with their internal cyber security resources and seek managed security services.
|
| • |
Increasing expectations for applications availability and frictionless performance, due to the increasing
dependence on applications in today’s business world. Businesses are sensitive to the resilience and availability of their
applications, given their customers’ expectations of flawless experience and optimal performance. As such, exposed web and API based
applications are the target for attackers that utilize both the server side as well as the client/browser side platforms for spreading
their malicious code. New security controls utilize the power of artificial intelligence (AI) and machine learning (ML) to control the
delivery of AppSec services (false positives) as well as detection of zero-day. |
| • |
COVID-19. The potential effects of the COVID-19 pandemic (see below under “COVID-19
Update”). |
| • |
We have developed a broad portfolio of solutions to address the challenges and meet the requirements arising from these trends.
|
| • |
We continuously focus on innovation and believe that our solutions have, in many instances, a technological advantage over competing
solutions. |
| • |
We offer our solutions in a wide array of deployment models (on-premise solutions, managed services, cloud-based solutions, etc.),
in order to support various customers’ business models. We believe this flexibility addresses the complexity and diversity of the
current application and infrastructure ecosystem. |
| • |
We operate in a highly competitive environment, and some of our competitors have larger internal resources, and a larger installed
base. |
| • |
While we believe that the shift towards a subscription-based business model is a strategic transition towards higher growth and profitability
in the long term, we may not be successful in its execution, including an inability to maintain a high subscription renewal rate.
|
| • |
In addition, our customers’ purchasing decisions are related to the conditions in our industry and in the various regions and
geographical markets in which we operate and are tied to the overall IT spending climate. Uncertainty about current global economic conditions
continues to pose a risk as customers may postpone or reduce spending in response to such uncertainties. In particular, the recent COVID-19 pandemic
may negatively affect economic conditions regionally as well as globally, disrupt operations situated in countries particularly exposed
to the contagion, affect supply chains or otherwise negatively impact our business. |
| • |
The other risks and uncertainties we face, as described under Item 3.D “Risk Factors.” |
| • |
Manufacturing and Supplies: During 2021, we experienced some slowdowns in our supply chain.
Such slowdowns were mainly associated with the need to deliver appliances to customers’ locations around the world. We have undertaken
various measures in order to overcome these disruptions, primarily in order to mitigate the risk of failing to timely respond to our customers’
delivery requirements in the face of importation blocking in different countries. As a result, the overall impact of COVID-19 on our manufacturing
and supply chain was immaterial. |
| • |
Human Resources: At the outset of the COVID-19 pandemic, we shifted our operations to enable
work from home and, in compliance with constantly developing regulations enacted in Israel and abroad, we continue to allow our office
employees to work, partially or primarily, from their homes. |
| • |
Revenue recognition; |
| • |
Deferred contract costs; |
| • |
Investment in marketable securities; |
| • |
Goodwill; |
| • |
Stock-based compensation; and |
| • |
Income taxes. |
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
|
Name |
Age |
Position |
|
Yehuda Zisapel (1) |
80 |
Chairman of the Board of Directors |
|
Yair Tauman (1)(2)(3)(4) |
73 |
Director |
|
Stanley B. Stern (2)(4)(6) |
64 |
Director, Chairman of the Audit Committee |
|
Naama Zeldis (2)(3)(4)(5) |
58 |
Director |
|
Gabi Seligsohn (2)(3)(6) |
55 |
Director, Chairman of the Compensation Committee |
|
Yuval Cohen (1)(2)(3)(4) |
59 |
Director |
|
Roy Zisapel (5) |
51 |
President, Chief Executive Officer and Director |
|
Guy Avidan |
59 |
Chief Financial Officer |
|
Yoav Gazelle |
52 |
Chief Business Officer |
|
David Aviv |
66 |
Chief Technology Officer |
|
Gabi Malka |
46 |
Chief Operating Officer |
|
Sharon Trachtman |
53 |
Acting Chief Marketing Officer |
|
Salaries, fees, commissions and bonuses |
Pension, retirement and other similar benefits |
|||||||
|
2020 - All directors and officers as a group, consisting of 16 persons* |
$ |
3,710,200 |
$ |
542,300 |
||||
|
2021 - All directors and officers as a group, consisting of 13 persons** |
$ |
3,864,790 |
$ |
531,240 |
||||
|
Name and Principal
Position (1) |
Year |
Salary |
Bonus (including Sales
Commissions) (2) |
Equity-Based |
All Other |
Total |
|
Compensation (3) |
Compensation (4) | |||||
|
|
(US$ in thousands) | |||||
|
Roy Zisapel, President, Chief Executive Officer and Director* |
2021 |
462 (5) |
600 (6) |
-- |
143 |
1,205 |
|
Yoav Gazelle, VP International Sales |
2021 |
223 |
245 |
336 |
44 |
848 |
|
Raffi Kesten, Chief Business Officer |
2021 |
394 |
337 |
-- |
92 |
823 |
|
David Aviv, Chief Technology Officer* |
2021 |
312 |
66 |
285 |
76 |
739 |
|
Gabi Malka, Chief Operating Officer* |
2021 |
323 |
132 |
-- |
80 |
535 |
| (1) |
Unless otherwise indicated herein, all Covered Executives are (i) employed on a full-time (100%) basis; and (ii) subject to customary
confidentiality, intellectual property assignment and non-solicitation provisions as well as an undertaking not to compete with us or
in our field of business for at least 12 months following termination of employment. |
| (2) |
Amounts reported in this column represent annual bonuses, including sales commissions. Consistent with our Compensation Policy, such
bonuses are based upon (i) for non-sales executive officers - achievement of milestones and targets
and the measurable results of the Company, as compared to our budget and/or work plan for the relevant year, with a portion of the bonus
(up to 10% in the case of Roy Zisapel) being based on the achievement and performance of pre-determined individual key performance indicators
(KPIs), and, in any event, not to exceed the amount of one (100%) annual base salary of such executive; and (ii) for sales executive officers
- achievement of targets of revenues generated by the individual and/or his/her team or division and/or the Company, and in any event,
not to exceed the amount of four annual base salaries of such executive. |
| (3) |
Amounts reported in this column represent the grant date fair value in accordance with accounting guidance for stock-based compensation.
For a discussion of the assumptions used in reaching this valuation, see Note 2(s) to our consolidated financial statements included elsewhere
in this annual report. |
| (4) |
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites
may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers
Life Insurance Policy), education funds (”keren hishtalmut”), pension, severance, vacation, car or car allowance, medical
insurances and benefits, risk insurances (e.g., life, or work disability insurance), phone, convalescence or recreation pay, relocation,
payments for social security, tax gross-up payments and other benefits and perquisites consistent with Radware's guidelines. Unless otherwise
indicated herein, all Covered Executives (i) are entitled to a notice period of at least one month prior to termination (other than termination
for cause), during which they are generally entitled to all compensation and rights under their employment agreements; and (ii) are not
entitled to any special bonuses or benefits upon a change of control of our Company, other than a potential acceleration of the vesting
of their stock options pursuant to our equity incentive plan, as more fully described in Item 6.E below. |
| (5) |
Mr. Roy Zisapel is entitled to a gross base salary of $400,000 (or the equivalent in NIS) per annum, which includes payment for managing
our entire on-going North America activities. The additional $62,000 over the aggregated total $400,000 annual salary is attributed to
the change in the $/NIS exchange rate from the date of the Shareholders’ Annual General Meeting in 2012 where Mr. Zisapel’s
salary was approved to the average $/NIS exchange rate in 2021. |
| (6) |
Consistent with our Compensation Policy, and as approved by our shareholders in November 2020, Mr. Roy Zisapel is entitled to an
annual bonus of up to $600,000 (or the equivalent in NIS). |
|
Class |
Term expiring at the annual meeting for the year |
Directors | ||
|
Class II |
2022 |
Roy Zisapel and Naama Zeldis | ||
|
Class III |
2023 |
Gabi Seligsohn and Stanley Stern | ||
|
Class I |
2024 |
Yehuda Zisapel, Yair Tauman and Yuval Cohen |
|
Name of Body |
No. of Meetings
in 2021 |
Average Attendance Rate** |
||||||
|
Board of Directors |
23 |
98.55 |
% | |||||
|
Audit Committee |
11 |
100 |
% | |||||
|
Compensation Committee |
10 |
100 |
% | |||||
|
As of December 31, |
||||||||||||
|
2021 |
2020 |
2019 |
||||||||||
|
Approximate numbers of employees and subcontractors
by geographic location: |
||||||||||||
|
Israel |
488 | 494 |
482 |
|||||||||
|
North, Central and South America (principally
the United States) |
226 |
226 |
221 |
|||||||||
|
EMEA (Europe, the Middle East and Africa)
|
125 |
116 |
108 |
|||||||||
|
Asia-Pacific |
304( |
*) |
286( |
*) |
283( |
*) | ||||||
|
Total
workforce |
1,143 |
1,122 |
1,094 |
|||||||||
|
Approximate numbers of employees and subcontractors
by category of activity: |
||||||||||||
|
Research and development |
433( |
*) |
416( |
*) |
415( |
*) | ||||||
|
Sales, technical support, business development
and marketing |
578 | 574 | 539 | |||||||||
|
Management, operations and administration
|
132 | 132 | 140 | |||||||||
|
Total
workforce |
1,143 |
1,122 |
1,094 |
|||||||||
|
Name |
Number of
ordinary
shares |
Percentage of
outstanding
ordinary shares** |
||||||
|
Yehuda Zisapel (1) |
1,786,611 |
3.95 |
% | |||||
|
Roy Zisapel (2) |
1,452,284 |
3.21 |
% | |||||
|
Gabi Seligsohn (3) |
* |
* |
||||||
|
Stanley Stern (3) |
* |
* |
||||||
|
Naama Zeldis (3) |
* |
* |
||||||
|
Yair Tauman (3) |
* |
* |
||||||
|
Yuval Cohen |
* |
* |
||||||
|
Gabi Malka (3) |
* |
* |
||||||
|
David Aviv (3) |
* |
* |
||||||
|
Sharon Trachtman (3) |
* |
* |
||||||
|
Guy Avidan (3) |
* |
* |
||||||
|
Yoav Gazelle (3) |
* |
* |
||||||
|
All directors and executive officers as a group (12 persons) (4) |
3,527,245
|
7.74 |
% | |||||
| • |
the persons to whom options or RSUs are granted; |
| • |
the number of shares underlying each equity award; |
| • |
the time or times at which the award shall be made; |
| • |
the exercise price, vesting schedule and conditions pursuant to which the awards are exercisable, including cashless exercises; and
|
| • |
any other matter necessary or desirable for the administration of the plan. |
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
|
Name |
Number of ordinary shares* |
Percentage of outstanding ordinary shares** |
||||||
|
Artisan Partners Limited Partnership (1) |
4,097,761 |
9.06 |
% | |||||
|
Senvest Management, LLC (2) |
3,180,659 |
7.03 |
% | |||||
|
Nava Zisapel (3) |
3,060,176 |
6.76 |
% | |||||
|
Legal & General Investment Management (Holdings) Limited (4) |
2,398,808 |
5.30 |
% | |||||
| • |
Based on Amendment No. 17 to the Statement on Schedule 13G filed with the SEC by Senvest on February 9, 2022, Senvest beneficially
owned 3,180,659 of our outstanding ordinary shares. Based on previous amendments to the Schedule 13G filed with the SEC by Senvest,
Senvest beneficially owned (i) as of February 12, 2021, 3,221,414 of our outstanding ordinary shares and (ii) as of February 7, 2020,
5,401,595 of our outstanding ordinary shares. |
| • |
Based on Amendment No. 6 to the Statement on Schedule 13G filed with the SEC by Cadian Cadian Capital Management, LP, Cadian Capital
Management GP, LLC and Mr. Eric Bannasch (collectively, “Cadian”) on February 14, 2022, Cadian does not beneficially
own any of our outstanding ordinary shares. Based on previous amendments to the Schedule 13G filed with the SEC by Cadian, Cadian
beneficially owned (i) as of February 12, 2021, 4,380,953 of our outstanding ordinary shares and (ii) as of February 13, 2020, 4,232,009
of our outstanding ordinary shares. |
| • |
Based on Amendment No. 2 to the Statement on Schedule 13G filed with the SEC by Morgan Stanley and Morgan Stanley Capital Services
LLC (collectively, “Morgan Stanley”) on November 9, 2021, Morgan Stanley owned 315,853 of our outstanding ordinary shares.
Based on previous amendments to the Schedule 13G filed with the SEC by Morgan Stanley on February 11, 2021, Morgan Stanley beneficially
owned 2,661,708 of our outstanding ordinary shares. |
| • |
One lease is a five-story building in Tel Aviv, Israel, consisting of approximately 40,000 square feet, plus storage and parking
space. The lease expires in June 2030 with an option to terminate by us by way of prior notice in June 2025. The annual rent amounts to
approximately $705,000. |
| • |
Another, second lease, consists of five floors in the Or Tower in Tel Aviv, Israel with approximately 68,000 square feet, plus parking
spaces. The lease expires in June 2030. The annual rent amounts to approximately $2,000,000. In this annual report, we sometime refer
to this lease as well as the lease described above as the “Lease Agreements for the Company’s Headquarters.” |
| • |
We also lease approximately 3,600 square feet of space in Jerusalem, Israel, for development facilities from an affiliated company
owned by Yehuda and Nava Zisapel. This lease expires in July 2025. The annual rent amounts to approximately $97,000. |
| • |
In addition, we lease approximately 15,000 square feet of space in Jerusalem, Israel, for manufacturing facilities from an affiliated
company owned by Yehuda, Nava and Zohar Zisapel. This lease expires in July 2025. The annual rent amounts to approximately $287,000.
|
| • |
We lease approximately 16,900 square feet in Mahwah, New Jersey, consisting of approximately 12,700 square feet of office space and
4,200 square feet of warehouse space, from an affiliated company owned by Yehuda, Nava and Zohar Zisapel. The annual rent amounts to approximately
$188,000. The lease expires in December 2025. |
|
Entity |
Products/Services |
|
Bynet Data Communications Ltd. |
Network management, IT and communication equipment, testing and repair, mutual marketing activities
|
|
Internet Binat Ltd. |
IT and communication services |
|
Bynet System Applications Ltd. |
Communication equipment and services |
|
Rad Data Communications Ltd. |
Operating services and manpower |
|
Cloudride Ltd. |
Cloud hosting services, mutual marketing activities |
|
Bynet Electronics Ltd. |
Testing equipment and related services |
| ITEM 8. |
FINANCIAL INFORMATION |
| ITEM 9. |
THE OFFER AND LISTING |
| ITEM 10. |
ADDITIONAL INFORMATION |
| • |
A reduced corporate tax rate for industrial enterprises, provided that more than 25% of their annual income is derived from export,
which will apply to the enterprise’s entire preferred income. As of the tax year 2017 and onwards, the reduced tax rate is 7.5%
for development zone A and 16% for the rest of Israel. |
| • |
The reduced tax rates will no longer be contingent upon making a minimum qualifying investment in productive assets. |
| • |
A definition of “preferred income” was introduced into the Investments Law to include certain types of income that are
generated by the Israeli production activity of a preferred enterprise. |
| • |
Dividends paid out of preferred income attributed to a Preferred Enterprise during 2014 and thereafter are generally subject to withholding
tax at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid
certificate from the Israel Tax Authority allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company,
no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding
tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply). |
| • |
Deduction of purchases of know-how and patents over an eight-year period for tax purposes; |
| • |
Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies;
and |
| • |
Deductions over a three-year period of expenses involved with the issuance and listing of shares on a recognized stock market.
|
| • |
An individual citizen or resident of the United States for U.S. federal income tax purposes; |
| • |
A corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States or any political subdivision thereof or the District of Columbia; |
| • |
An estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| • |
A trust (i) if, in general a court within the United States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under
applicable U.S. Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes. |
| • |
Broker-dealers or insurance companies; |
| • |
Dealers or traders in securities, commodities or currencies; |
| • |
Traders that have elected the mark-to-market accounting method; |
| • |
Tax-exempt entities, accounts, organizations or retirement plans; |
| • |
Grantor trusts; |
| • |
Partnerships or other pass-through entities or arrangements; |
| • |
Partners or other equity owners in partnerships or other pass-through entities or arrangements that hold our ordinary shares through
such an entity or arrangement; |
| • |
U.S. Holders selling our ordinary shares short, |
| • |
U.S. Holders deemed to have sold our ordinary shares in a “constructive sale,” |
| • |
S corporations; |
| • |
Banks, financial institutions or “financial services entities”; |
| • |
Persons that hold their ordinary shares as part of a straddle, “hedge,” “integrated” or “conversion
transaction” with other investments; |
| • |
Certain former citizens or long-term residents of the United States; |
| • |
Persons that acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation; |
| • |
Real estate investment trusts or regulated investment companies; |
| • |
Pension funds; |
| • |
Persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares being
taken into account in an applicable financial statement; |
| • |
Persons that own directly, indirectly or by attribution at least 10% of our ordinary shares by vote or value; or |
| • |
Persons that have a functional currency that is not the U.S. dollar. |
| • |
such item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United States, such item is attributable to a permanent establishment or,
in the case of an individual, a fixed place of business, in the United States; or |
| • |
the Non-U.S. Holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition and certain other requirements are met. |
| ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
U.S. dollar against: |
||||||||
|
Year ended December 31, |
NIS
|
Euro
|
||||||
|
2017 |
(9.8 |
)% |
(12.2 |
)% | ||||
|
2018 |
8.1 |
% |
4.6 |
% | ||||
|
2019 |
(7.8 |
)% |
2.0 |
% | ||||
|
2020 |
(7.0 |
)% |
(8.5 |
)% | ||||
|
2021 |
(3.3 |
)% |
8.4 |
% | ||||
| ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
| ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
| ITEM 15. |
CONTROLS AND PROCEDURES |
| • |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; |
| • |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and |
| • |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements. |
|
Year Ended December 31, |
||||||||||||||||
|
2020 |
2021 |
|||||||||||||||
|
(US$ in thousands) |
||||||||||||||||
|
Audit and Audit Related Fees (1) |
330 |
59 |
% |
639 |
67 |
% | ||||||||||
|
Tax Fees (2) |
188 |
34 |
% |
190 |
20 |
% | ||||||||||
|
All Other Fees (3) |
40 |
7 |
% |
127 |
13 |
% | ||||||||||
|
Total |
558 |
100 |
% |
956 |
100 |
% | ||||||||||
|
Period |
Total Number of Shares Purchased |
Average Price Paid per Share (in US$) |
Total Number of Shares Purchased as Part of Publicly Announced Plans
|
Approximate Dollar Value of Shares that May Yet To Be Purchased
Under the Plans (1)(2)(3) |
||||||||||||
|
January 1 through 31 |
- |
N/A |
- |
$ |
30,188,545 |
|||||||||||
|
February 1 through 29 |
321,036 |
26.53 |
321,036 |
$ |
71,483,840 |
|||||||||||
|
March 1 through 31 |
809,636 |
26.70 |
809,636 |
$ |
49,863,095 |
|||||||||||
|
April 1 through 30 |
- |
N/A |
- |
$ |
49,863,095 |
|||||||||||
|
May 1 through 31 |
91,293 |
27.67 |
91,293 |
$ |
47,336,786 |
|||||||||||
|
June 1 through 30 |
71,603 |
29.38 |
71,603 |
$ |
45,232,746 |
|||||||||||
|
July 1 through 31 |
6,500 |
29.97 |
6,500 |
$ |
45,037,919 |
|||||||||||
|
August 1 through 31 |
- |
N/A |
- |
$ |
45,037,919 |
|||||||||||
|
September 1 through 30 |
- |
N/A |
- |
$ |
45,037,919 |
|||||||||||
|
October 1 through 31 |
- |
N/A |
- |
$ |
45,037,919 |
|||||||||||
|
November 1 through 30 |
237,907 |
31.44 |
237,907 |
$ |
35,306,844 |
|||||||||||
|
December 1 through 31 |
333,144 |
29.83 |
333,144 |
$ |
27,618,726 |
|||||||||||
| • |
The Nasdaq rules require that an issuer have a quorum requirement for shareholders meetings of at least one-third of the outstanding
shares of the issuer’s common voting stock. Our Articles of Association provide that the quorum for any meeting of shareholders
is 35% or more of the voting rights in the Company, consistent with the Nasdaq rules, however, we have chosen to follow home country practice
with respect to the quorum requirements of an adjourned shareholders meeting. Our Articles of Association, as permitted under the Israeli
Companies Law and Israeli practice, provide that a meeting adjourned for lack of a quorum of at least 35% of the voting power, if convened
upon requisition under the provisions of the Companies Law, shall be dissolved, but in any other case it shall be adjourned and, at such
reconvened meeting, the required quorum consists of any two members present in person or by proxy. |
| • |
The Nasdaq rules require shareholder approval of stock option plans and other equity compensation arrangements available to officers,
directors or employees and any material amendments thereto. We have decided to follow home country practice in lieu of obtaining shareholder
approval for our current or future equity incentive plans. However, subject to exceptions permitted under the Companies Law, we
are required to seek shareholder approval of any grants of options and other equity-based awards to directors and controlling shareholders
or plans that require shareholder approval for other reasons. |
| • |
Additionally, we have chosen to follow our home country practice in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating
to an issuer’s furnishing of its annual report to shareholders. Specifically, we file annual reports on Form 20-F, which contain
financial statements audited by an independent accounting firm, electronically with the SEC and post a copy on our website. |
| ITEM 17. |
FINANCIAL STATEMENTS |
| ITEM 18. |
FINANCIAL STATEMENTS |
| ITEM 19. |
EXHIBITS |
|
Exhibit No. |
Exhibit |
|
101.INS* |
XBRL Instance Document |
|
101.SCH* |
XBRL Taxonomy Extension Schema Document |
|
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF* |
XBRL Taxonomy Definition Linkbase Document |
|
101.LAB* |
XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document |
| RADWARE LTD. | |||
|
By: |
/s/ Roy Zisapel | ||
| Roy Zisapel | |||
|
President and Chief Executive Officer |
|||
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
U.S. DOLLARS IN THOUSANDS
INDEX
|
Page | |
|
F-2 - F-4 |
(PCAOB ID:
|
F-5 - F-6 | |
|
F-7 | |
|
F-8 | |
|
F-9 | |
|
F-10 - F-11 | |
|
F-12 - F-48 |
|
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Radware Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Radware Ltd. and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 11, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F - 2
|
|
|
Revenue Recognition – establishment of standalone selling prices | |
|
| |
|
Description of the Matter |
As described in Note 2 to the consolidated financial statements, some of the Company’s contracts with customers consist of several goods and services such as products, services and subscriptions, which are accounted for as separate performance obligations when they are distinct. In such cases, the transaction price is then allocated to the distinct performance obligations on a relative standalone selling price basis and recognizes associated revenue as control is transferred to the customer.
Auditing the estimate of standalone selling price for performance obligation not sold separately involved subjective auditor judgment due to the absence of directly observable data which requires the Company to make subjective assumptions used to estimate the standalone selling price for each performance obligation. Standalone selling price for goods and services can evolve over time due to changes in the Company’s pricing practices that are influenced by intense competition, changes in demand for products and services, and economic factors, among others. Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer contracts was extensive and required subjective auditor judgment.
|
|
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls relating to the revenue recognition process, including the estimate of standalone selling prices for each distinct performance obligation and review of assumptions used.
|
|
Our audit procedures included testing management's estimate of standalone selling price for each distinct performance obligation included, among others, evaluating the appropriateness of the methodology applied and the reasonableness of management’s judgment and assumptions by comparing these assumptions with prior years and with entity and industry’s general and specific trends. We also inspected the source of historical data, pricing and other observable inputs such as customer grouping, tested the mathematical accuracy of the underlying data and evaluated the accounting policies and practices related to the estimate of standalone selling prices by management. In addition, we have tested the accuracy of management’s allocation of the transaction price to the performance obligations contained within sampled contracts and purchase orders with customers and evaluated whether revenue was recognized in the appropriate amounts and period. We also evaluated and tested the Company’s disclosures included in Note 2 to the consolidated financial statements. |
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company's auditor since 2002.
Tel-Aviv, Israel
April 11, 2022
F - 3
|
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Radware Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Radware Ltd. and its subsidiaries' internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Radware Ltd. and its subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated April 11, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
A Member of Ernst & Young Global
April 11, 2022
F - 4
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
ASSETS | ||||||||
|
| ||||||||
|
CURRENT ASSETS: | ||||||||
|
| ||||||||
|
Cash and cash equivalents |
$ |
|
$ |
| ||||
|
Marketable securities |
|
| ||||||
|
Short-term bank deposits |
|
| ||||||
|
Trade receivables, net of allowance for credit losses of $ |
|
| ||||||
|
Other current assets and prepaid expenses |
|
| ||||||
|
Inventories |
|
| ||||||
|
| ||||||||
|
Total current assets |
|
| ||||||
|
| ||||||||
|
LONG-TERM INVESTMENTS: | ||||||||
|
| ||||||||
|
Marketable securities |
|
| ||||||
|
Long-term bank deposits |
|
| ||||||
|
Other assets |
|
| ||||||
|
| ||||||||
|
Total long-term investments |
|
| ||||||
|
| ||||||||
|
Property and equipment, net |
|
| ||||||
|
Operating lease right-of-use assets |
|
| ||||||
|
Intangible assets, net |
|
| ||||||
|
Goodwill |
|
| ||||||
|
Other long-term assets |
|
| ||||||
|
| ||||||||
|
Total assets |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
|
December 31, | ||||||||
|
2021 |
|
|
2020 | |||||
|
| ||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
|
| ||||||||
|
CURRENT LIABILITIES: | ||||||||
|
| ||||||||
|
Trade payables |
$ |
|
$ |
| ||||
|
Deferred revenues |
|
| ||||||
|
Operating lease liabilities |
|
| ||||||
|
Employees and payroll accruals |
|
| ||||||
|
Other payables and accrued expenses |
|
| ||||||
|
| ||||||||
|
Total current liabilities |
|
| ||||||
|
| ||||||||
|
LONG-TERM LIABILITIES: | ||||||||
|
| ||||||||
|
Deferred revenues |
|
| ||||||
|
Operating lease liabilities |
|
| ||||||
|
Other long-term liabilities |
|
| ||||||
|
| ||||||||
|
Total long-term liabilities |
|
| ||||||
|
| ||||||||
|
COMMITMENTS AND CONTINGENT LIABILITIES | ||||||||
|
| ||||||||
|
SHAREHOLDERS' EQUITY: | ||||||||
|
| ||||||||
|
Share capital - | ||||||||
|
Ordinary shares of NIS |
|
| ||||||
|
Additional paid-in capital |
|
| ||||||
|
Treasury stock |
( |
) |
( |
) | ||||
|
Accumulated other comprehensive income (loss) |
( |
) |
| |||||
|
Retained earnings |
|
| ||||||
|
| ||||||||
|
Total shareholders' equity |
|
| ||||||
|
| ||||||||
|
Total liabilities and shareholders' equity |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands, except share data
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Revenues: | ||||||||||||
|
Products |
$ |
|
$ |
|
$ |
| ||||||
|
Services |
|
|
| |||||||||
|
| ||||||||||||
|
Total revenues |
|
|
| |||||||||
|
| ||||||||||||
|
Cost of revenues: | ||||||||||||
|
Products |
|
|
| |||||||||
|
Services |
|
|
| |||||||||
|
| ||||||||||||
|
Total cost of revenues |
|
|
| |||||||||
|
| ||||||||||||
|
Gross profit |
|
|
| |||||||||
|
| ||||||||||||
|
Operating expenses, net: | ||||||||||||
|
| ||||||||||||
|
Research and development, net |
|
|
| |||||||||
|
Sales and marketing |
|
|
| |||||||||
|
General and administrative |
|
|
| |||||||||
|
| ||||||||||||
|
Total operating expenses, net |
|
|
| |||||||||
|
| ||||||||||||
|
Operating income |
|
|
| |||||||||
|
Financial income, net |
|
|
| |||||||||
|
| ||||||||||||
|
Income before taxes on income |
|
|
| |||||||||
|
Taxes on income |
|
|
| |||||||||
|
| ||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Basic net earnings per share |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Diluted net earnings per share |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Weighted average shares used to compute net income per share: | ||||||||||||
|
| ||||||||||||
|
Basic |
|
|
| |||||||||
|
| ||||||||||||
|
Diluted |
|
|
| |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Other comprehensive income (loss) before tax: | ||||||||||||
|
Unrealized gains (losses) on marketable securities: | ||||||||||||
|
Changes in unrealized gains (losses) |
( |
) |
|
| ||||||||
|
Less: reclassification adjustments for gains included in net income |
( |
) |
( |
) |
| |||||||
|
| ||||||||||||
|
Other comprehensive income (loss) before tax |
( |
) |
|
| ||||||||
|
Income tax benefits (income tax expenses) related to components of other comprehensive income (loss) |
|
( |
) |
( |
) | |||||||
|
| ||||||||||||
|
Other comprehensive income (loss), net of tax |
( |
) |
|
| ||||||||
|
| ||||||||||||
|
Comprehensive income |
$ |
|
$ |
|
$ |
| ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
RADWARE LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share and per share data
|
Number of outstanding ordinary shares |
|
|
Share Capital |
|
|
Additional paid-in capital |
|
|
Treasury stock, at cost |
|
|
Accumulated other comprehensive income (loss) |
|
|
Retained earnings |
|
|
Total |
| |||||||||
|
|
| |||||||||||||||||||||||||||
|
Balance as of January 1, 2019 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
| ||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Repurchase of ordinary shares |
( |
) |
- |
- |
( |
) |
- |
- |
( |
) | ||||||||||||||||||
|
Issuance of shares upon exercise of share options and vesting of restricted shares units |
|
|
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Share based compensation |
- |
- |
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Other comprehensive income, net of tax |
- |
- |
- |
- |
|
- |
|
| ||||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
|
|
| ||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Balance as of December 31, 2019 |
|
|
|
( |
) |
|
|
|
| |||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Repurchase of ordinary shares |
( |
) |
- |
- |
( |
) |
- |
- |
( |
) | ||||||||||||||||||
|
Issuance of shares upon exercise of share options and vesting of restricted shares units |
|
|
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Share based compensation |
- |
- |
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Other comprehensive income, net of tax |
- |
- |
- |
- |
|
- |
|
| ||||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
|
|
| ||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Balance as of December 31, 2020 |
|
|
|
( |
) |
|
|
|
| |||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Repurchase of ordinary shares |
( |
) |
- |
- |
( |
) |
- |
- |
( |
) | ||||||||||||||||||
|
Issuance of shares upon exercise of share options and vesting of restricted shares units |
|
|
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Share based compensation |
- |
- |
|
- |
- |
- |
|
| ||||||||||||||||||||
|
Other comprehensive loss, net of tax |
- |
- |
- |
- |
( |
) |
- |
( |
) | |||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
|
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balance as of December 31, 2021 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
| ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, |
| |||||||||||
|
2021 |
|
|
2020 |
|
|
2019 |
| |||||
|
|
| |||||||||||
|
Cash flows from operating activities: |
| |||||||||||
|
|
| |||||||||||
|
Net income |
$ |
|
|
$ |
|
$ |
| |||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
| |||||||||||
|
Depreciation and amortization |
|
|
|
| ||||||||
|
Stock based compensation |
|
|
|
| ||||||||
|
Gain on sale of marketable securities |
( |
) |
( |
) |
( |
) | ||||||
|
Amortization of premiums, accretion of discounts and accrued interest on marketable securities, net |
|
|
|
| ||||||||
|
Accrued interest on bank deposits |
|
( |
) |
| ||||||||
|
Increase in accrued severance pay, net |
|
|
|
| ||||||||
|
Decrease (increase) in trade receivables, net |
|
|
( |
) | ||||||||
|
Changes in deferred income taxes, net |
( |
) |
|
( |
) | |||||||
|
Increase in other current assets and prepaid expenses |
( |
) |
( |
) |
( |
) | ||||||
|
Decrease in inventories |
|
|
|
| ||||||||
|
Increase (decrease) in trade payables |
|
( |
) |
| ||||||||
|
Increase in deferred revenues |
|
|
|
| ||||||||
|
Increase in other payables and accrued expenses |
|
|
|
| ||||||||
|
Operating lease right-of-use assets |
|
|
|
| ||||||||
|
Operating lease liabilities |
( |
) |
( |
) |
( |
) | ||||||
|
|
| |||||||||||
|
Net cash provided by operating activities |
|
|
|
| ||||||||
|
|
| |||||||||||
|
Cash flows from investing activities: |
| |||||||||||
|
|
| |||||||||||
|
Purchase of property and equipment |
( |
) |
( |
) |
( |
) | ||||||
|
Proceeds from (investing in) other long-term assets |
|
|
( |
) |
| |||||||
|
Proceeds from (investing in) bank deposits |
|
( |
) |
| ||||||||
|
Purchase of marketable securities |
( |
) |
( |
) |
( |
) | ||||||
|
Proceeds from maturity of marketable securities |
|
|
|
| ||||||||
|
Proceeds from sale of marketable securities |
|
|
|
| ||||||||
|
Payment for the acquisition of subsidiary, net of cash acquired |
|
|
|
( |
) | |||||||
|
|
| |||||||||||
|
Net cash provided by (used in) investing activities |
|
( |
) |
( |
) | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
RADWARE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, |
| |||||||||||
|
2021 |
|
|
2020 |
|
|
2019 |
| |||||
|
|
| |||||||||||
|
Cash flows from financing activities: |
| |||||||||||
|
|
| |||||||||||
|
Proceeds from exercise of share options |
|
|
|
| ||||||||
|
Payment of deferred consideration related to acquisition |
|
( |
) |
| ||||||||
|
Repurchase of ordinary shares |
( |
) |
( |
) |
( |
) | ||||||
|
|
| |||||||||||
|
Net cash used in financing activities |
( |
) |
( |
) |
( |
) | ||||||
|
|
| |||||||||||
|
Increase (decrease) in cash and cash equivalents |
|
|
( |
) | ||||||||
|
Cash and cash equivalents at the beginning of the year |
|
|
|
| ||||||||
|
|
| |||||||||||
|
Cash and cash equivalents at the end of the year |
$ |
|
|
$ |
|
$ |
| |||||
|
|
| |||||||||||
|
Supplemental disclosure of cash flow information: |
| |||||||||||
|
|
| |||||||||||
|
Cash paid during the year for taxes on income |
$ |
|
|
$ |
|
$ |
| |||||
|
|
| |||||||||||
|
Non-cash investing activities: |
| |||||||||||
|
|
| |||||||||||
|
Right-of-use assets recognized with corresponding lease liabilities |
$ |
|
|
$ |
|
$ |
| |||||
|
|
| |||||||||||
|
Deferred consideration related to acquisition |
$ |
|
|
$ |
|
$ |
| |||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 11
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- GENERAL
a.Radware Ltd. (the "Company"), an Israeli company commenced operations in April 1997. The Company and its subsidiaries (the "Group") are engaged in the development, manufacture and sale of cyber security and application delivery solutions for cloud, physical, and Software Defined Data Centers (“SDDC”). The Group’s solutions secure the digital experience by providing infrastructure, application, and corporate IT protection and availability services to enterprises globally. The Group’s solutions are deployed by, among others, enterprises, carriers and cloud service providers worldwide.
b.The Company has established wholly-owned subsidiaries in various countries worldwide. The Company's subsidiaries are engaged primarily in sales, marketing and support activities of its core products.
c.The Group primarily relies on two original design manufacturers to supply certain hardware platforms and components for the production of its products. If one of these suppliers fails to deliver or delays the delivery of the necessary components, the Group will be required to seek alternative sources of supply. A change in suppliers could result in manufacturing delays, which could cause a possible loss of sales and, consequently, could adversely affect the Company's operation and financial performance.
The Group depended on a sole single-managed security service provider, which is a related party, to provide services as part of its protection services. If the managed security service provider were to fail to provide or delay the delivery of the services, the Group would be required to seek alternative sources of the services. A change in its managed security service provider could result in a possible loss of sales and, consequently, could adversely affect the Group’s operation and financial performance (see Note 17). However, on February 17, 2022, the Company acquired all of the technology and other intangible assets from the managed security service provider (see Note 18).
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
a.Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The coronavirus (“COVID-19”) pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions, and the extent of its impact on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and the impact on the Company’s customers and its sales cycles. The Company considered the impact of COVID-19 on the estimates and assumptions and determined that there were no material adverse impacts on the consolidated financial statements for the year ended December 31, 2021. As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods.
b.Financial statements in United States dollars:
A majority of the Group’s revenues are denominated in United States dollars (“dollar” or “U.S. dollars”). In addition, a substantial portion of the Company’s and certain of its subsidiaries’ costs are denominated in dollar. The Company’s management believes that the dollar is the primary currency of the economic environment in which the Group operates. Thus, the functional and reporting currency of the Group is the dollar. Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with Accounting Standards Codification (“ASC”) No. 830 “Foreign Currency Matters”. All transaction gains and losses from the re-measured monetary balance sheet items are reflected in the consolidated statements of income as financial income or expenses, as appropriate.
c.Principles of consolidation:
The consolidated financial statements include the accounts of the Group. All intercompany transactions and balances have been eliminated upon consolidation.
d.Cash equivalents:
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at acquisition.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
e.Bank deposits:
Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximate market values.
Bank deposits with maturities of more than one year are included in long-term bank deposits. Long-term bank deposits are stated at cost which approximates market values.
f.Investment in marketable securities:
The Company accounts for investments in marketable securities in accordance with ASC No. 320, “Investments - Debt and Equity Securities”. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determinations at each balance sheet date.
The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date and the entity’s expectations of sales and redemptions in the following year.
The Company classified all of its securities as available-for-sale marketable securities. Debt securities are carried at fair value, with the unrealized gains and losses reported in “Accumulated other comprehensive income (loss)” in shareholders’ equity. Realized gains and losses on sales of investments are included in financial income, net and are derived using the specific identification method for determining the cost of securities.
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization together with interest on securities are included in financial income, net in the Company’s consolidated statements of income.
In 2020 the Company adopted Accounting Standard Update (“ASU”) 2016-13, Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” which modified the other than temporary impairment model for available-for-sale debt securities. Available-for-sale securities are periodically evaluated for unrealized losses. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations and records an allowance and recognizes a corresponding loss in financial income, net when the impairment is incurred. Unrealized non-credit related losses and unrealized gains, net of tax, are reported as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets until realized.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization together with interest on securities is included in financial income, net. Credit loss impairments for the years ended December 31, 2021, and 2020 were immaterial.
Prior to January 1, 2020, the Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. The factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. For securities that are deemed other-than-temporarily impaired, the amount of impairment recognized in the consolidated statements of income is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. During 2019, the Company did
g.Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-off is provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories and discontinued products. Inventory write-offs totaled $
Cost is determined as follows:
Raw materials and components - using the “first-in, first-out” method.
Work-in-progress and finished products - raw materials as above with the addition of subcontracting costs - calculated on the basis of direct subcontractors costs and with direct overhead costs.
The Company assesses the carrying value of its inventory for each reporting period to ensure inventory is reported at the lower of cost or net realizable value in accordance with ASC No. 330-10-35, “Inventory”. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow-moving inventory items. These assessments consider various factors, including historical usage rate, technological obsolescence, estimated current and future market values and new product introduction. In cases when there is evidence that the anticipated utility of goods, in their disposal in the ordinary course of business, will be less than the historical cost of the inventory, the Company recognizes the difference as a current period charge to earnings and carries the inventory at the reduced cost basis until it is sold or disposed of.
F - 15
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h.Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:
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% | ||
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Computers, peripheral equipment and software |
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Office furniture and equipment |
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Leasehold improvements |
the lease or the useful life of the asset |
i.Impairment of long-lived assets and intangible assets subject to amortization:
Property and equipment, right-of-use asset for leases and intangible assets subject to depreciation and amortization are reviewed for impairment in accordance with ASC No. 360, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Intangible assets acquired in a business combination are recorded at fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives, which range from
j.Goodwill:
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC No. 350 “Intangibles – Goodwill and Other” (“ASC 350”), goodwill is not amortized, but rather is subject to an annual impairment test. ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ASC 350 allows a company to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If the Company elects not to use this option, or if the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether the carrying value of a reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit exceeds its estimated fair value, the Company recognizes an impairment of goodwill for the amount of this excess.
The Company operates in one operating segment, and this segment comprises its single reporting unit. The Company conducts its annual test of impairment for goodwill on December 31st of each year, or more frequently if impairment indicators are present. No impairment was recorded during 2021, 2020 and 2019.
k.Leases:
The Company accounts for its leases according to ASC 842 - Leases (“ASC 842”). The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability and a right-of-use (“ROU”) asset for leases with a term of twelve months or less.
ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The lease liability is initially measured based on the discounted present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The implicit rate within the operating leases is generally not determinable, therefore the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased asset is located.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate the lease is considered unless it is reasonably certain that the Company will not exercise the option.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
l.Contingencies
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss (see Note 11).
m.Revenue recognition:
The Group’s revenues are derived from sales of its products, services and subscriptions:
•
Revenues from physical products and software-based products are recognized when control of the promised goods is transferred to the customer, either upon shipment or when the product is delivered, depending on the commercial terms of each transaction. Revenues from product subscriptions and cloud subscriptions, included as product revenues, are recognized ratably, on a straight-line basis, over the subscription period.
•
Revenues from post-contract customer support (“PCS”), which represent mainly, help-desk support and unit repairs or replacements, professional services, and emergency response team (“ERT”) services are recognized ratably, on a straight-line basis, over the term of the related contract, which is typically between
The Company’s solutions are sold primarily through distributors and resellers, all of which are considered end-users.
The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers”. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.
The Company’s arrangements typically contain various combinations of its products, subscriptions and PCS, which are distinct and are accounted for as separate performance obligations. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price (“SSP”). If the SSP is not observable, the Company estimates the SSP taking into account available information such as geographic specific factors, customer grouping and internally approved historical pricing guidelines related to the performance obligation. For PCS, the Company determines the standalone selling price based on observable renewals prices. For subscriptions, the Company determines the standalone selling price based on standalone new subscription transactions and renewals.
F - 18
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
For products, the SSP is not observable, and therefore, the Company estimates the product SSP taking into account available information such as geographic specific factors, customer grouping and internally approved historical pricing guidelines.
Deferred revenues represent mainly the unrecognized revenue collected for subscriptions and for PCS. Such revenues are recognized ratably over the term of the related agreement. Out of the deferred revenues balance at the beginning of the year that ended December 31, 2021, approximately
As of December 31, 2021, the aggregate amount of remaining performance obligations from contracts with customers was $
Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance obligations have not been satisfied.
The following table provides information about disaggregated revenues by major product line:
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Year ended December 31, | ||||||||
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2021 |
2020 | |||||||
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Products |
$ |
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$ |
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Services |
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Subscriptions |
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$ |
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$ |
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For information regarding disaggregated revenues by geographical market, please see Note 15.
The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the remaining performance obligations at the end of reporting period. In general, the Company expects to recognize the long-term portion of deferred revenue mainly over the remaining service period of up to three years.
F - 19
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company records a provision for estimated sale returns, credits and stock rotation granted to customers on products in the same period the related revenues are recorded. These estimates are based on historical sales returns, stock rotations and other known factors. Such provisions amounted to $
In instances of contracts where revenue recognition differs from the timing of invoicing, the Company generally determined that those contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive or provide financing. The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less.
Costs to obtain contracts:
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Commission costs related to long-term service contracts and performance obligations satisfied over time are deferred and recognized on a systematic basis that is consistent with the transfer of the products or services to which the asset relates. Sales commissions paid for new contracts, which are not commensurate with sales commissions paid for renewal contracts, are capitalized and amortized over an expected period of benefit and are included in sales and marketing expenses in the accompanying consolidated statements of income. The Company applies judgment in estimating the amortization period, by taking into consideration its product life term, history of renewals, expected length of customer relationship, as well as the useful life of the underlying technology and products. As of December 31, 2021, the Company has determined the expected period of benefit to be approximately
As of December 31, 2021 and 2020, the amount of deferred commission was $
During the year ended December 31, 2021 and 2020, the Company recorded amortization expenses in connection with deferred commissions in the amount of $
n.Shipping and handling fees and costs:
Shipping and handling fees charged to the Company’s customers are recognized as product revenue in the period shipped and the related costs for providing these services are recorded as a product cost of revenues in the consolidated statements of income.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o.Cost of revenues:
Cost of products is comprised of cost of software and hardware production, manuals, packaging, license fees paid to third parties, fees paid to managed security service provider (related parties), inventory write-offs and amortization of acquired technology.
Cost of services is comprised of cost of post-sale customer support and hosting services.
p.Warranty costs:
The Company generally provides a
q.Research and development expenses, net:
Research and development costs are charged to the consolidated statements of income as incurred. ASC No. 985-20, “Software - Costs of Software to Be Sold, Leased, or Marketed”, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release, have been insignificant. Therefore, all research and development costs are expensed as incurred.
r.Government grants:
During 2019-2021, the Company received non-royalty-bearing grants from the Israel Innovation Authority (“IIA”) for approved research and development projects. These grants are recognized at the time the Company is entitled to such grants on the basis of the costs incurred as provided by the relevant agreement and included as a deduction from research and development expenses, net.
Research and development grants deducted from research and development expenses, net amounted to $
In addition, during 2021, an Israeli subsidiary of the Company received royalty-bearing grants from the IIA for approved research and development projects. These grants are recognized at the time the Israeli subsidiary is entitled to such grants on the basis of the costs incurred as provided by the relevant agreement and included as a deduction from research and development expenses, net.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.Accounting for share-based compensation:
The Company accounts for share-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC 718“). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of income.
The Company recognizes compensation expenses for the value of its awards based on the accelerated attribution method over the requisite service period of each of the awards, net of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
The Company selected the Black-Scholes-Merton option pricing model to account for the fair value of its share-options awards with only service conditions and whereas the fair value of the restricted share units awards (“RSUs”) is based on the market value of the underlying shares at the date of grant.
Compensation expense related to the market-condition based RSUs granted to the Chief Executive Officer of the Company is computed using the fair value of the awards at the date of grant. Potential shares to be issued for market-condition share awards granted in 2020 and 2019 are subject to a market condition based on the price of the Company’s ordinary share. The fair value of these awards was determined using a Monte Carlo simulation methodology.
The fair value of each market-condition based RSUs is estimated on the date of grant using the Monte Carlo model that uses the assumptions noted in the following table:
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Year ended December 31, | |||||||||||
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2021 |
2020 |
2019 | |||||||||
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Risk free interest rate |
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Dividend yields |
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Expected volatility |
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The option-pricing models require a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical share price movements over an historical period equivalent to the option’s expected term.
F - 22
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The expected option term represents the period of time that options are expected to be outstanding based on historical experience. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
The fair value of the Company’s share options granted to employees and directors for the years ended December 31, 2021, 2020 and 2019 was estimated using the following weighted average assumptions:
Employees’ share option plan:
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Year ended December 31, | ||||||
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2021 |
2020 |
2019 | ||||
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Risk free interest rate |
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Dividend yields |
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Expected volatility |
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Weighted average expected term from grant date (in years) |
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t.Income taxes:
The Company accounts for income taxes in accordance with ASC No. 740, “Income Taxes” (“ASC 740”). This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all of the deferred tax assets will not be realized.
ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.
The second step is only addressed if the first step has been satisfied (i.e. the position is more likely than not to be sustained) otherwise a full liability in respect of a tax position not meeting the more likely than not criteria is recognized.
The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalty, if any related to unrecognized tax benefits in its taxes on income in the consolidated statements of income.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u.Concentrations of credit risks:
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities and trade receivables.
The majority of the Group’s cash, cash equivalents and bank deposits are invested in major banks in Israel and the U.S. The Israeli bank deposits are not insured, while the deposits made in the United States are in excess of insured limits and are not otherwise insured. Generally, these cash equivalents may be redeemed upon demand and, therefore management believes that it bears a lower risk. The short-term and long-term bank deposits are held in financial institutions which management believes are institutions with high credit standing, and accordingly, minimal credit risk from geographic or credit concentration exists with respect to these bank deposits. As of December 31, 2021,
As of December 31, 2021, the maximal contractual duration of any of the Company’s bank deposits was
The Company’s marketable securities included investment in foreign banks, government debentures and corporate debentures. The financial institutions that hold the Company’s marketable securities are major U.S. financial institutions, located in the United States. The Company’s management believes that the Company’s marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company’s investment policy limits the amount the Company’s may invest in each issuer, and accordingly, management believes that minimal credit risk exists from geographic or credit concentration with respect to these securities.
From geographic prospective,
The trade receivables of the Group are mainly derived from sales to customers located primarily in the United States, Europe, the Middle East, Africa and Asia Pacific. The Company makes estimates of expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions and other factors that may affect its ability to collect from customers.
The estimated credit loss allowance is recorded as general and administrative expenses on the Company’s consolidated statements of income. In certain circumstances, the Company may require from its customers letters of credit, other collateral or additional guarantees.
For the year ended December 2021, 2020 and 2019 bad debt expenses were $
F - 24
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
v.Employee related benefits:
Severance pay:
Effective April 1, 2007, the Company’s agreements with employees in Israel, are under Section 14 of the Israeli Severance Pay Law, 1963. The Company’s contributions for severance pay have extinguished its severance obligation. Upon contribution of the full amount based on the employee’s monthly salary for each year of service, no additional obligation exists regarding the matter of severance pay and no additional payments is made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the balance sheets, as the Company is legally released from the obligation to pay severance amounts to employees once the required deposit amounts have been fully paid.
For the Company’s employees in Israel who are not subject to Section 14, the Company calculated the liability for severance pay pursuant to the Severance Pay Law based on the most recent salary of these employees multiplied by the number of years of employment as of the balance sheet date. The Company’s liability for these employees is fully provided for via monthly deposits with severance pay funds, insurance policies and accruals. The value of these deposits recorded as an asset on the Company’s balance sheet under other assets. The amount of accrued severance payable recorded as a liability on the Company’s balance sheet under other long-term liabilities as of December 31, 2021 and 2020 is $
Severance pay expenses for the years ended December 31, 2021, 2020 and 2019 amounted to approximately $
w.Fair value of financial instruments:
The Company measures its cash equivalents, bank deposits and marketable securities at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1 -Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 -Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 -Unobservable inputs which are supported by little or no market activity.
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RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The carrying amounts of cash equivalents, trade receivables, trade payables, short-term bank deposits, other current assets and prepaid expenses and other payables and accrued expenses, approximate at fair value because of their generally short maturities.
x.Comprehensive income (loss):
The Company accounts for comprehensive income (loss) in accordance with ASC No. 220, “Comprehensive Income.” This statement establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of general purpose financial statements. Comprehensive income (loss) generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its only item of other comprehensive income (loss) relates to available-for-sale debt marketable securities adjustment.
y.Treasury stock:
The Company repurchases its ordinary shares from time to time on the open market and holds such shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity. The voting rights attached to treasury stock are revoked.
z.Basic and diluted net income per share:
Basic net income per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income per share is computed based on the weighted average number of ordinary shares outstanding during each period, plus potential dilutive ordinary shares considered outstanding during the period, if any, in accordance with ASC No. 260, “Earnings Per Share”. The total number of ordinary shares related to outstanding stock options excluded from the calculation of diluted income per share as they would have been anti-dilutive was
aa.Business combinations:
The Company accounted for business combination in accordance with ASC No. 805, “Business Combinations” (“ASC 805”).
ASC No. 805 requires recognition of assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date, measured at their fair values as of that date.
The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
F - 26
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Under ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business (“2017-01”), the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the single asset or group of assets, as applicable, is not a business.
NOTE 3:-ACQUISITIONS
On March 12, 2019 (the “Closing Date”), the Company completed the acquisition of all of the outstanding shares of Kaalbi Technologies Private Ltd. (“ShieldSquare”), a company engaged in Bot mitigation and Bot management solutions for a total consideration of $
The acquisition was accounted for as a business combination and the purchase consideration was allocated to assets acquired and liabilities assumed based on their estimated fair values, as presented in the following table:
|
Consideration: | ||||
|
Cash consideration paid on closing date, including working capital adjustments |
$ |
| ||
|
Deferred consideration |
| |||
|
| ||||
|
Total purchase price |
$ |
| ||
|
| ||||
|
Identifiable assets acquired, and liabilities assumed: | ||||
|
Technology |
$ |
| ||
|
Goodwill |
| |||
|
Other current assets |
| |||
|
Deferred tax liability |
( |
) | ||
|
| ||||
|
$ |
| |||
The estimated useful life of the technology is approximately
The derived goodwill from this acquisition is attributable to additional capabilities of the Company to expand its products portfolio. Goodwill generated from this business combination is primarily attributable to synergies between the Company’s and Shieldsquare’s respective products and services. Pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated statements of income.
F - 27
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4:-MARKETABLE SECURITIES
Debt securities with contractual maturities of less than one year are as follows:
|
December 31, |
| |||||||||||||||||||||||||||||||
|
2021 |
2020 |
| ||||||||||||||||||||||||||||||
|
Amortized |
Gross unrealized |
Gross unrealized |
Market |
Amortized |
Gross unrealized |
Gross unrealized |
Market |
| ||||||||||||||||||||||||
|
cost |
losses |
gains |
value |
cost |
losses |
gains |
value |
| ||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||
|
Foreign banks and government debentures |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||||||||||
|
Corporate debentures |
|
( |
) |
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||
|
Total marketable securities |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
| ||||||||||||||
Debt securities with contractual maturities from one to three years are as follows:
|
December 31, |
| |||||||||||||||||||||||||||||||
|
2021 |
2020 |
| ||||||||||||||||||||||||||||||
|
Amortized |
Gross unrealized |
Gross unrealized |
Market |
Amortized |
Gross unrealized |
Gross unrealized |
Market |
| ||||||||||||||||||||||||
|
cost |
losses |
gains |
value |
cost |
losses |
gains |
value |
| ||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||
|
Foreign banks and government debentures |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
| |||||||||||||
|
Corporate debentures |
|
( |
) |
|
|
|
( |
) |
|
|
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||
|
Total marketable securities |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
| |||||||||||||
The Company does not have any debt securities with contractual maturities of more than three years as of December 31, 2021 and 2020.
Debt securities with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values as of December 31, 2021 are as follows:
|
December 31, 2021 |
| ||||||||||||||||||||||||
|
Investments with continuous unrealized losses for less than 12 months |
Investments with continuous unrealized losses for 12 months or greater |
Total investments with continuous unrealized losses |
| ||||||||||||||||||||||
|
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
| |||||||||||||||||||
|
Value |
losses |
value |
losses |
value |
losses |
| |||||||||||||||||||
|
|
| ||||||||||||||||||||||||
|
Foreign banks and government debentures |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
| |||||||||
|
Corporate debentures |
|
( |
) |
|
( |
) |
|
( |
) |
| |||||||||||||||
|
|
| ||||||||||||||||||||||||
|
Total available-for-sale marketable securities |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
| |||||||||
Debt securities with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values as of December 31, 2020 were immaterial.
As of December 31, 2021, and 2020, interest receivable amounted to $
F - 28
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-FAIR VALUE MEASUREMENTS
In accordance with ASC No. 820, “Fair Value Measurements and Disclosures”, the Company measures its cash equivalents, marketable securities and deferred consideration at fair value on recurring basis. Cash equivalents and marketable securities are classified within Level 1 or Level 2 since these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company’s financial assets and liabilities measured at fair value on a recurring basis, including interest receivable components consisted of the following types of instruments as of December 31, 2021, and 2020:
|
December 31, 2021 | ||||||||||||||||
|
Fair value measurements using input type | ||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
|
Assets | ||||||||||||||||
|
| ||||||||||||||||
|
Cash equivalents: | ||||||||||||||||
|
| ||||||||||||||||
|
Money market funds |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Marketable securities: | ||||||||||||||||
|
| ||||||||||||||||
|
Foreign banks and government debentures |
|
|
|
| ||||||||||||
|
Corporate debentures |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Total financial assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
December 31, 2020 | ||||||||||||||||
|
Fair value measurements using input type | ||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
|
Assets | ||||||||||||||||
|
| ||||||||||||||||
|
Cash equivalents: | ||||||||||||||||
|
| ||||||||||||||||
|
Money market funds |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Marketable securities: | ||||||||||||||||
|
| ||||||||||||||||
|
Foreign banks and government debentures |
|
|
|
| ||||||||||||
|
Corporate debentures |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Total financial assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
F - 29
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:-INVENTORIES
Inventories are comprised of the following:
|
|
|
December 31, |
| |||||
|
|
|
2021 |
|
|
2020 |
| ||
|
|
|
|
|
|
|
| ||
|
Raw materials and components |
|
$ |
|
|
|
$ |
|
|
|
Work-in-progress |
|
|
|
|
|
|
|
|
|
Finished products |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
$ |
|
|
|
$ |
|
| |
NOTE 7:-PROPERTY AND EQUIPMENT, NET
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
Cost: | ||||||||
|
| ||||||||
|
Computer, peripheral equipment and software |
$ |
|
$ |
| ||||
|
Office furniture and equipment |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
Accumulated depreciation: | ||||||||
|
| ||||||||
|
Computer, peripheral equipment and software |
|
| ||||||
|
Office furniture and equipment |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
| ||||||||
|
Property and equipment, net |
$ |
|
$ |
| ||||
Depreciation expenses for the years ended December 31, 2021, 2020 and 2019 were $
F - 30
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 8:-INTANGIBLE ASSETS, NET
Intangible assets:
|
Weighted | ||||||||||||||||
|
average | ||||||||||||||||
|
amortization |
December 31, | |||||||||||||||
|
period |
2021 |
2020 | ||||||||||||||
|
(years) | ||||||||||||||||
|
Cost: | ||||||||||||||||
|
Acquired technology |
|
$ |
|
$ |
| |||||||||||
|
Customers relationships and brand name |
|
|
| |||||||||||||
|
| ||||||||||||||||
|
|
| |||||||||||||||
|
Accumulated amortization: | ||||||||||||||||
|
Acquired technology |
|
| ||||||||||||||
|
Customers relationships and brand name |
|
| ||||||||||||||
|
| ||||||||||||||||
|
|
| |||||||||||||||
|
| ||||||||||||||||
|
Intangible assets, net |
$ |
|
$ |
| ||||||||||||
Amortization expenses for the years ended December 31, 2021, 2020 and 2019 were $
Future estimated amortization expenses for the years ending:
|
December 31, | ||||
|
| ||||
|
2022 |
$ |
| ||
|
2023 |
| |||
|
2024 |
| |||
|
2025 |
| |||
|
2026 |
| |||
|
2027 and thereafter |
| |||
|
| ||||
|
Total |
$ |
| ||
NOTE 9:-LEASES
The Company has various operating leases for office space, vehicles and warehouse space that expire on different dates through . Its lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. The Company provided several security deposits mainly to secure various operating lease agreements in connection with its office space.
F - 31
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9:-LEASES (Cont.)
Aggregate lease payments for the right of use assets over the remaining lease period as of December 31, 2021 are as follows:
|
2022 |
$ |
| ||
|
2023 |
| |||
|
2024 |
| |||
|
2025 |
| |||
|
2026 |
| |||
|
2027 and thereafter |
| |||
|
| ||||
|
Total undiscounted lease payments |
$ |
| ||
|
| ||||
|
Less: adjustment to discounted lease payments |
( |
) | ||
|
| ||||
|
Total discounted lease payments |
$ |
|
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2021:
|
Weighted average remaining lease term (years): |
| |||
|
| ||||
|
Weighted average discount rate: |
|
% |
Total rent expenses for the years ended December 31, 2021, 2020 and 2019 were $
NOTE 10:-OTHER PAYABLES AND ACCRUED EXPENSES
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
Accrued expenses and other |
$ |
|
$ |
| ||||
|
Subcontractors accrual |
|
| ||||||
|
Accrued taxes |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
F - 32
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:-COMMITMENTS AND CONTINGENT LIABILITIES
Litigation:
From time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the normal course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows and believes that it had provided an adequate accrual to cover the costs to resolve such legal proceedings, demands and claims.
NOTE 12:-SHAREHOLDERS' EQUITY
The Company's shares are listed for trade on the NASDAQ Global Select Market under the symbol “RDWR”.
a.Rights of shares:
Ordinary Shares:
The ordinary shares confer upon the holders the right to receive notice to participate and vote in shareholders meetings of the Company and to receive dividend, if declared.
b.Treasury stock:
In March 2020, the Company's board of directors authorized a new plan for the repurchase of up to an aggregate of $
In May 2020, the Company’s board of directors authorized a new plan for the repurchase of up to an aggregate of $
In February 2022, the Company’s board of directors authorized a new plan for the repurchase of the Company’s ordinary shares in the open market (see Note 18).
c.Dividends:
Dividends, if any, will be paid in NIS. Dividends paid to shareholders outside Israel may be converted to U.S. dollars on the basis of the exchange rate prevailing at the date of the conversion. The Company does not intend to pay cash dividends in the foreseeable future.
F - 33
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
d.Share Option Plans:
The Company has two stock option plans, the Company's Key Employee Share Incentive Plan (1997) as amended and restated (the “1997 Plan”) and the Directors and Consultants Option Plan (the “DC Plan” and together with the 1997 Plan, Stock Option Plans“). Under the Share Option Plans, options may be granted to officers, directors, employees and consultants of the Group. The exercise price per share under the Share Option Plans was generally not less than the market price of an ordinary share at the date of grant. The options vest primarily over
Pursuant to the Share Option Plans, the Company reserved for issuance
RSUs:
In addition to granting share options, since 2013, the Company started to routinely grant RSUs under the 1997 Plan. RSUs vest primarily over a
The number of “Reserved and Authorized Shares” under the Equity Plans shall equal the sum of (i) the number of ordinary shares reserved and authorized under the Equity Incentive, and other awards granted under the Equity Incentive Plans as of such date, and (ii) the number of ordinary shares reserved.
As of December 31, 2021, the number of Reserved and Authorized Shares under the Equity Incentive Plans is as detailed below:
|
2021 | ||||
|
|
| |||
|
Share options exercised and outstanding |
| |||
|
RSUs vested and outstanding |
| |||
|
Ordinary shares available for issuance under the Equity Incentive Plans |
| |||
|
| ||||
|
Total reserved and authorized shares as of December 31, 2021 |
|
| ||
F - 34
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
A summary of employees and directors options activity under the Company's Stock Option Plans as of December 31, 2021 is as follows:
|
|
Number of options |
Weighted-average exercise price |
Weighted- average remaining contractual term (in years) |
Aggregate intrinsic value |
| ||||||||||||
|
|
| ||||||||||||||||
|
Outstanding at January 1, 2021 |
|
$ |
|
|
$ |
|
| ||||||||||
|
Granted |
|
|
| ||||||||||||||
|
Exercised |
( |
) |
|
| |||||||||||||
|
Expired |
( |
) |
|
| |||||||||||||
|
Forfeited |
|
( |
) |
|
| ||||||||||||
|
|
| ||||||||||||||||
|
Outstanding at December 31, 2021 |
|
|
$ |
|
|
|
$ |
|
| ||||||||
|
|
| ||||||||||||||||
|
Exercisable at December 31, 2021 |
|
|
$ |
|
|
|
$ |
|
| ||||||||
|
|
| ||||||||||||||||
|
Vested and expected to vest at December 31, 2021 |
|
|
$ |
|
|
|
$ |
|
| ||||||||
The weighted-average grant-date fair value of options granted during the years ended December 31, 2021, 2020 and 2019 was $
As of December 31, 2021, there was approximately $
The total intrinsic value of options exercised during the years 2021, 2020 and 2019 was $
The aggregate intrinsic value of the outstanding stock options at December 31, 2021 and 2020, represents the intrinsic value of
F - 35
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
The options outstanding under the Company's Stock Option Plans as of December 31, 2021, have been separated into ranges of exercise price as follows:
|
December 31, 2021 | ||||||||||||||||||||||
|
Outstanding |
Exercisable | |||||||||||||||||||||
|
Ranges of exercise price |
Number of options |
Weighted average remaining contractual life (years) |
Weighted average exercise price |
Number of options |
Weighted Average Exercise price | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
$ |
|
|
|
$ |
|
|
$ |
| ||||||||||||||
|
$ |
|
|
|
$ |
|
|
$ |
| ||||||||||||||
|
$ |
|
|
|
|
$ |
|
|
|
$ |
| ||||||||||||
|
$ |
|
|
|
$ |
|
|
$ |
| ||||||||||||||
|
| ||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||
The following table summarizes information relating to RSUs, as well as changes to such awards during 2021:
|
Year ended December 31, 2021 | ||||
|
| ||||
|
Outstanding at January 1, 2021 |
| |||
|
Granted |
| |||
|
Vested |
( |
) | ||
|
Forfeited |
|
( |
) | |
|
| ||||
|
Outstanding as of December 31, 2021 |
| |||
As of December 31, 2021, there was approximately $
The weighted-average grant date fair value of RSUs granted during the year ended December 31, 2021, 2020 and 2019 were $
The weighted-average grant date fair value of RSUs vested during the year ended December 31, 2021, 2020 and 2019 were $
The weighted-average grant date fair value of RSUs forfeited during the year ended December 31, 2021, 2020 and 2019 were $
F - 36
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
Share-based compensation was recorded in the following items within the consolidated statements of income:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Cost of revenues |
$ |
|
$ |
|
$ |
| ||||||
|
Research and development, net |
|
|
| |||||||||
|
Sales and marketing |
|
|
| |||||||||
|
General and administrative |
|
|
|
|
|
| ||||||
|
| ||||||||||||
|
Total expenses |
$ |
|
$ |
|
$ |
| ||||||
NOTE 13:-EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings per share:
|
Year ended December 31, | ||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 | ||||||
|
|
|
|
|
|
| |||||||
|
Numerator for basic and diluted net earnings per share: | ||||||||||||
|
| ||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Weighted average shares outstanding, net of treasury stock: | ||||||||||||
|
| ||||||||||||
|
Denominator for basic net earnings per share |
|
|
| |||||||||
|
Effect of dilutive securities: | ||||||||||||
|
Employee share options and RSUs |
|
|
|
|
|
| ||||||
|
| ||||||||||||
|
Denominator for diluted net earnings per share |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic net earnings per share |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Diluted net earnings per share |
$ |
|
$ |
|
$ |
| ||||||
F - 37
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME
a.General:
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
2021 |
|
|
2020 | |||
|
| ||||||||
|
Beginning balance |
$ |
|
$ |
| ||||
|
Decrease related to settlement with tax authorities |
( |
) |
| |||||
|
Additions for prior year tax positions |
|
| ||||||
|
Decrease for prior year tax positions |
( |
) |
| |||||
|
Additions for current year tax positions |
|
| ||||||
|
| ||||||||
|
Ending balance |
$ |
|
$ |
| ||||
As of December 31, 2021, the entire amount of the unrecognized tax benefits could affect the Company’s income tax provision and the effective tax rate.
The Company adjusts the unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires or when new information is available.
During the years ended December 31, 2021, 2020 and 2019 a net amounts of $
Exchange rate differences are recorded within financial income, net, while interest is recorded within taxes on income in the consolidated statements of income.
During November 2021, the Company reached a settlement with the Israeli Tax Authority (“ITA”) regarding the Company’s corporate tax returns for the years 2015-2018. As a result, the Company’s Israeli tax returns have been examined for all years including and prior to fiscal 2018, and the Company is no longer subject to audit for these periods. The settlement amounted to a total payment of $
The Company’s U.S subsidiary files income tax return in the U.S federal jurisdiction. As of December 31, 2021, the
F - 38
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
The Company believes that it has adequately provided for any reasonably foreseeable outcome related to tax audits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made.
b.Israeli taxation:
1.Foreign Exchange Regulations:
Commencing taxable year 2003, the Company has elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations. Under the Foreign Exchange Regulations the Israeli company is calculating its tax liability in U.S. Dollars according to certain orders. The tax liability, as calculated in U.S. Dollars is translated into NIS according to the exchange rate as of December 31st of each year.
2.Tax rates:
The Israeli corporate tax rate in 2021, 2020 and 2019 was
3.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (“the Law“):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments (“Amendment 73“) was published. According to Amendment 73, a preferred enterprise located in development area A will be subject to a tax rate of
Amendment 73 also prescribes special tax tracks for technological enterprises, the new tax tracks under the amendment are as follows:
Technological preferred enterprise - an enterprise whose total consolidated revenues (parent company and all subsidiaries) is less than NIS 10 billion. Technological Preferred Enterprise, as defined in the law, which is located in the center of Israel (where our Israeli subsidiary is currently located) is subject to tax at a rate of
F - 39
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
The Company believes it meets the Technological preferred enterprise conditions.
Income not eligible for Preferred Technological Enterprise benefits is taxed at a regular rate,
Prior to 2014, most of the Company’s income was exempt from tax or subject to reduced tax rates under the Approved Enterprise program or the Beneficiary Enterprise in the Investment Law. Upon distribution of exempt income, the distributing company will be subject to corporate reduced tax rates ordinarily applicable to such income under the Investment Law.
Reduced income under the Investment Law including the Preferred Enterprise Regime and Preferred Technological Enterprise Regime will be freely distributable as dividends, subject to a
On November 2, 2021, the Israeli Parliament approved a final bill regarding repatriations of trapped earnings out of Approved/Privileged Enterprises. The temporary provisions have come into effect as of November 15, 2021. The Israeli government agreed to grant relief on the amount of tax which should have been paid on distributable earnings in order to encourage companies to pay the reduced taxes during the next 12 months (the “temporary order”). The temporary order provides partial relief from previous Approved/Privileged Enterprise tax rates as defined in the Law for companies which opt to enjoy the privilege. The new temporary order does not require the actual distribution of the retained earnings, nor does it provides any relief from the
The partial relief from previous Approved/Privileged Enterprise tax rates is available to companies that elect to implement the temporary reduced tax relief by November 14, 2022, in respect of exempt retained earnings accrued up until December 31, 2021.
As part of the temporary order, the Company opted to implement the provisions included in the temporary order and completed the taxes on its trapped tax-exempt earnings. As a result, the Company has a tax payable amount as of December 31, 2021 of $
Through December 31, 2021, the Company has net operating carryforward losses of approximately $
F - 40
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
c. Taxes on income are comprised as follows:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Current taxes |
|
$ |
|
|
$ |
|
|
|
$ |
| ||
|
Deferred taxes |
( |
) |
|
( |
) | |||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
|
| ||||||||||||
|
Domestic |
$ |
|
$ |
|
$ |
| ||||||
|
Foreign |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Domestic taxes: |
|
|
|
| ||||||||
|
| ||||||||||||
|
Current taxes |
$ |
|
$ |
|
$ |
| ||||||
|
Deferred taxes |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
|
|
| ||||||||||
|
Foreign taxes: | ||||||||||||
|
| ||||||||||||
|
Current taxes |
|
|
| |||||||||
|
Deferred taxes |
( |
) |
|
| ||||||||
|
| ||||||||||||
|
|
|
| ||||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
F - 41
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
d.Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s and its subsidiaries’ deferred tax liabilities and assets are as follows:
|
December 31, | ||||||||
|
|
2021 |
|
|
2020 |
| |||
|
| ||||||||
|
Carryforward losses and tax credit |
$ |
|
$ |
| ||||
|
Deferred revenues |
|
| ||||||
|
Unrealized gains on marketable securities |
|
| ||||||
|
Temporary differences |
|
| ||||||
|
| ||||||||
|
Deferred tax assets before valuation allowance |
|
| ||||||
|
Valuation allowance |
( |
) |
( |
) | ||||
|
| ||||||||
|
Net deferred tax assets |
|
| ||||||
|
| ||||||||
|
Intangible assets, including goodwill |
( |
) |
( |
) | ||||
|
Depreciable assets |
( |
) |
( |
) | ||||
|
Unrealized gains on marketable securities |
|
( |
) | |||||
|
| ||||||||
|
Deferred tax liability |
( |
) |
( |
) | ||||
|
| ||||||||
|
Net deferred tax assets |
$ |
|
$ |
| ||||
e.Foreign:
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which among other provisions, reduced the U.S. corporate tax rate from
Through December 31, 2021, the U.S. subsidiary had a U.S. federal loss carryforward of $
Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
F - 42
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
On March 27, 2020, President Donald J. Trump signed the Coronavirus Aid Relief, and Economic Security Act (the “CARES Act”) into law. The Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses and allow businesses and individuals to carry back Net Operating Losses (“NOLs”) arising in 2018, 2019, and 2020 to the five prior tax years. Consequently, management intend is to carry back NOLs generated in 2019 and 2020 to tax years 2014 and 2015. The applicable tax rate during these years was
The Company continues to monitor tax implications resulting from new legislation passed in response to the COVID-19 pandemic in the federal, state and foreign jurisdictions where it has an income tax expense.
f.Income taxes of non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.
The Company does not provide deferred tax liabilities when it intends to reinvest earnings of foreign subsidiaries indefinitely.
F - 43
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
g.A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the consolidated statements of income is as follows:
|
Year ended December 31, | |||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 | |||||||
|
| |||||||||||||
|
Income before taxes, as reported in the consolidated statements of income |
$ |
|
$ |
|
$ |
| |||||||
|
| |||||||||||||
|
Statutory tax rate |
|
% |
|
% |
|
% | |||||||
|
Theoretical tax expense (benefit) on the above amount at the Israeli statutory tax rate |
$ |
|
$ |
|
$ |
| |||||||
|
Tax adjustment in respect of different tax rate of foreign subsidiary |
|
( |
) |
| |||||||||
|
Non-deductible expenses and other permanent differences |
|
|
| ||||||||||
|
Deferred taxes on losses for which valuation allowance was provided, net |
|
|
| ||||||||||
|
Utilization of tax losses and deferred taxes for which valuation allowance was provided, net |
( |
) |
( |
) |
( |
) | |||||||
|
Foreign withholding taxes |
|
| |||||||||||
|
Stock compensation relating to stock options per ASC No. 718 |
( |
) |
|
| |||||||||
|
Income taxes in respect of prior years |
|
|
| ||||||||||
|
Change of tax rate |
|
( |
) |
| |||||||||
|
Approved, Privileged and Preferred enterprise loss (benefits) (*) |
|
( |
) |
( |
) | ||||||||
|
Other |
|
|
( |
) |
| ||||||||
|
| |||||||||||||
|
Actual tax expense |
$ |
|
$ |
|
$ |
| |||||||
|
| |||||||||||||
|
(*) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Diluted earnings per share amounts of the benefit resulting from the “Approved, Privileged and Preferred Enterprise” status |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
| |
F - 44
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 14:-TAXES ON INCOME (Cont.)
h.Income before taxes on income is comprised as follows:
|
Year ended December 31, | ||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 | ||||||
|
| ||||||||||||
|
Domestic |
$ |
|
$ |
|
$ |
| ||||||
|
Foreign |
|
|
| |||||||||
|
| ||||||||||||
|
Income before taxes on income |
$ |
|
|
$ |
|
|
$ |
| ||||
NOTE 15:-GEOGRAPHIC INFORMATION
Summary information about geographic areas:
The Company operates in one reportable segment (see Note 1 for a brief description of the Company's business). The total revenues are attributed to geographic areas based on the location of the end-users.
The following table presents total revenues for the years ended December 31, 2021, 2020 and 2019 from a geographical perspective:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Revenues from sales to customers located at: | ||||||||||||
|
| ||||||||||||
|
The United States |
$ |
|
$ |
|
$ |
| ||||||
|
America - other |
|
|
| |||||||||
|
EMEA*) |
|
|
| |||||||||
|
Asia Pacific |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
*)
F - 45
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 15:- GEOGRAPHIC INFORMATION (Cont.)
The following table presents long-lived assets as of December 31, 2021 and 2020 from a geographical perspective:
|
December 31, | ||||||||
|
|
2021 |
|
2020 |
| ||||
|
| ||||||||
|
Long-lived assets, by geographic region: |
|
| ||||||
|
| ||||||||
|
America (principally the United States) |
$ |
|
|
$ |
|
| ||
|
Israel |
|
| ||||||
|
EMEA - other |
|
|
|
| ||||
|
Asia Pacific |
|
| ||||||
|
|
|
| ||||||
|
$ |
|
$ |
| |||||
NOTE 16:-SELECTED CONSOLIDATED STATEMENTS OF INCOME DATA
Financial income, net:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Financial income, net: | ||||||||||||
|
| ||||||||||||
|
Interest on bank deposits and other |
$ |
|
$ |
|
$ |
| ||||||
|
Amortization of premiums, accretion of discounts and interest on debt marketable securities, net |
|
|
| |||||||||
|
Gain on sale of marketable securities |
|
|
| |||||||||
|
Bank charges |
( |
) |
( |
) |
( |
) | ||||||
|
Foreign currency differences, net |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
F - 46
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 17:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Represents transactions and balances with other entities in which certain members of the Company’s board of directors, management or shareholders have interest:
a.The following related party balances are included in the consolidated balance sheets:
|
|
|
December 31, |
| |||||
|
|
|
2021 |
|
|
2020 |
| ||
|
|
|
|
|
|
|
| ||
|
Trade receivables and prepaid expenses |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued expenses |
|
$ |
|
|
|
$ |
|
|
b.The following related party transactions are included in the consolidated statements of income:
|
Year ended December 31, | ||||||||||||
|
|
2021 |
2020 |
2019 |
| ||||||||
|
| ||||||||||||
|
Revenues (1) |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Cost of revenues (2) |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Operating expenses, net - primarily lease, subcontractors and communications (3) |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Purchase of property and equipment |
$ |
|
$ |
|
$ |
| ||||||
(1)
(2)
(3)
F - 47
RADWARE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 18:- SUBSEQUENT EVENTS
a.On February 17, 2022, the Company acquired all of the technology and other intangible assets from SecurityDam Ltd., which is a related company and the sole single-managed security service provider discussed in Note 1c and 17b(2) for a total consideration of (1) $
b.In February 2022, the Company’s board of directors authorized a new plan for the repurchase of up to an aggregate of $
|
- - - - - - - - - - |
F - 48