Radware Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Radware reported its fourth consecutive quarter of double-digit revenue growth, with revenue up 10% year-over-year to $74.2 M, Non-GAAP EPS rising 39% to $0.28, and $14.5 M generated in operating cash flow.
  • Positive Sentiment: Cloud ARR accelerated from 19% to 21% year-over-year growth, surpassing the company’s 20% target and driving record cloud bookings and active customer expansions.
  • Positive Sentiment: The company highlighted its Epic AI Framework and AI-powered SOC for real-time DDoS detection and API protection, earning leadership recognition in the GigaOM radar and securing major deals.
  • Positive Sentiment: Radware deepened its partner and channel ecosystem, winning seven-digit hybrid cloud DDoS contracts with one of Latin America’s largest data center providers and a European government agency.
  • Neutral Sentiment: For Q3 2025, Radware expects revenue of $74.5 M–$75.5 M and non-GAAP EPS of $0.26–$0.27, reflecting continued growth momentum.
AI Generated. May Contain Errors.
Earnings Conference Call
Radware Q2 2025
00:00 / 00:00

There are 8 speakers on the call.

Speaker 5

Welcome to the Radware conference discussing second quarter 2025 results, and thank you all for holding. At this time, all participants are in listen-only mode. A brief question and answer session will follow the normal presentation. If anyone requires any operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded, July 30, 2025. I would now like to turn this call over to Yisca Erez, Director of Investor Relations at Radware. Please go ahead.

Speaker 1

Thank you, Operator. Good morning, everyone, and welcome to Radware's second quarter 2025 earnings conference call. Joining me today are Roy Zisapel, President and Chief Executive Officer, and Guy Avidan, Chief Financial Officer. A copy of today's press release and the financial statements, as well as the investor kit for the second quarter, are available in the Investor Relations section of our website. During today's call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. These forward-looking statements are subject to various risks and uncertainties, and actual results could differ materially from Radware's current forecast and estimates.

Speaker 1

Factors that could cause or contribute to such differences include, but are not limited to, impact from the changing or severe global economic conditions, general business conditions, and our ability to address changes in our industry, changes in demand for products, the timing and the amount of orders, and other risks detailed from time to time in Radware's filings. We refer you to the documents the company files and furnishes from time to time with the SEC, specifically the company's last annual report on Form 20-F as filed on March 28, 2025. We undertake no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date such statement is made. I will now turn the call to Roy Zisapel.

Operator

Thank you, Yisca, and thank you all for joining us today. I'm pleased to report another strong quarter, marking our fourth consecutive quarter of double-digit revenue growth. In the second quarter, revenue increased 10% year over year to $74 million. Non-GAAP earnings per share rose 39% year over year to $0.28, highlighting the continued scalability and efficiency of our business model. We also generated $14.5 million in cash flow from operations, further underscoring the strength and resilience of our operations. These results reflect the successful and consistent execution of the strategy we've implemented over the past couple of years to become the best-of-breed provider in application and data center security. This strategy is driven by three pillars: gaining significant market share in cloud security, leading with algorithm and AI-driven innovation and automation, and expanding our go-to-market presence. Cloud security continues to be our primary growth engine.

Operator

In the second quarter, we accelerated cloud ARR growth from 19% to 21% year over year, reaching $85 million. With that, we surpassed our short-term target of 20% year over year growth rate. Total cloud booking and the number of cloud active customers also demonstrated impressive growth last quarter, further validating our strategy and execution. These achievements reflect our strengthened competitive position, higher win rates, and increased participation globally. One of the growth drivers for our cloud security business is the increased adoption of our cloud-based API protection solutions. The API security solution uses AI-driven capabilities to secure APIs and business logic in real time. What differentiates Radware from our competition is our ability to automatically and continuously map business logic, generate and optimize protection rules, and enforce them in real time. Ultimately, we're helping customers automate protection and respond faster to threats.

Operator

The market demand for securing API traffic is translating into meaningful wins, including deals with the European government, a major Asian bank, and a global sporting event. Our leadership in this space was recognized in the GigaHome Radar for application and API security. In the report, we were named a leader and fast mover for our AI-driven capabilities in vulnerability detection, account takeover protection, and bot management. With AI becoming deeply embedded in enterprise workflows, our leadership in agentic infrastructure security continues to position us as a trusted partner. Defending against AI-powered threats demands AI-powered defense, and that's exactly what we continue to build with our Epic AI framework. Our AI-powered SOC is a cornerstone of our AI defense strategy, purpose-built to detect and mitigate DDoS attacks in real time.

Operator

It continuously analyzes global traffic patterns using behavioral baselines, anomaly detection, and machine learning to identify with high accuracy attacks that escaped the security controls. Once detected, SOC-X automatically comes with the analysis and specific recommendations how to mitigate the attack in real time, dramatically reducing the mean time to resolve, thus providing significantly better business outcomes for our customers. This capability has earned us some major second quarter wins. For instance, we secured a seven-digit deal with a major global event organization. Based on our proven ability to address current and emerging threats, the organization selected Radware's full security stack, including our AI SOC expert, to protect their digital infrastructure and applications. Our AI SOC expert was also part of another major cloud deal last quarter. A leading U.S. financial technology company selected our solution as part of its data center consolidation and cloud migration strategy.

Operator

This deal reflects the customer's need to offload manual tasks from its network and security teams, allowing them to focus on driving efficiency and innovation across their broader technology stack. Our cloud platform's ability to deliver better protection for core applications while enhancing operational agility was a key differentiator in securing this win. In the second quarter, we continue to advance our go-to-market strategy by deepening and expanding our relationship across our partner and channel ecosystem. These efforts contributed to securing multiple major wins, including a seven-digit deal with one of Latin America's largest data center providers. To improve their security, resolve performance, and support issues, the customer replaced its existing solution with our hybrid cloud DDoS solution. Our technical edge and strong execution alignment were key to the win.

Operator

We also closed another seven-digit deal with the European government, a partnership win that will strengthen our presence in the public sector in that country. The hybrid deal spanned multiple solutions and 250 applications. Our cloud platform's unified management, visibility, and protection for both cloud and on-prem applications, and our strong partner alignment were key contributors to this competitive takeout. In closing, our second quarter results underscore the strength of our strategy and disciplined execution across the business. Cloud security remains our primary growth engines, marked by strong cloud ARR momentum and accelerating growth rates. Our AI-driven innovation continues to enhance our platform capabilities and to drive meaningful differentiation in the market. At the same time, deeper engagement with our partners and channel ecosystems is enabling us to scale more efficiently and win new customers.

Operator

With a growing pipeline and expanding partner network and rising global demand for AI security solutions, we believe our current momentum and strategic focus position us to pursue long-term growth opportunities and deliver long-term value. With that, I'll turn the call over to Guy.

Speaker 7

Thank you, Roy, and good day, everyone. I'll provide an overview of our financial results and business performance for the second quarter, as well as our outlook for the third quarter of 2025. Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. A full reconciliation of our results on a GAAP to non-GAAP basis is available in the earnings press release issued earlier today and in the investor section of our website. We delivered solid financial results in the second quarter of 2025, with revenue growing 10% year over year to $74.2 million, driven primarily by continued strength in our cloud security business. Total ARR increased by 8% year over year to $235 million, with cloud ARR growth accelerating from 19% to 21% year over year, reaching $85 million.

Speaker 7

This momentum reflects the growing demand for our cloud solution and the increase in shifting towards recurring revenue, which now represents 84% of total revenue, up from 82% in Q2 of last year. Looking at regional performance, the Americas revenue was stable year over year at $30.1 million, representing 41% of total revenue. On a trailing 12-month basis, the region grew 11%. We had delivered strong growth, with Q2 revenue up 22% year over year to $27.8 million, accounting for 37% of total revenue. Trailing 12 months' growth was 17%. APAC revenue increased 30% year over year to $16.3 million, contributing 22% of total revenue. On a trailing 12-month basis, APAC grew 5%. Turning to profitability, gross margin remained strong at 82.2%, consistent with the prior year. Operating income grew more than 50% year over year, reaching $9.5 million, up from $6.3 million in Q2 2024.

Speaker 7

As we noted last quarter, we are following our plan and increasing investment in sales, marketing, and R&D, particularly in cloud and AI innovation, to capitalize on the robust demand for our leading security offering and the long-term market opportunities. Our recurring business model continues to demonstrate strong leverage, enabling us to fund those growth initiatives. Radware adjusted EBITDA for the second quarter of 2025 increased by 37% to $11.4 million, compared to $8.3 million in the same period last year. Excluding the hawks business, adjusted EBITDA was $14.1 million, representing a 19% EBITDA margin, up from $11 million and 16.4% EBITDA margin in Q2 2024, reflecting improved operational efficiency and scaling our core business. Financial income for the quarter was $5.4 million, up from $4.1 million in the same period last year. Our effective tax rate for the quarter was 15.4%, in line with Q2 2024.

Speaker 7

We expect the effective tax rate to remain approximately at this level in the coming quarter. Net income rose 43% year over year to $12.6 million, compared to $8.8 million in Q2 2024. Diluted earnings per share increased by 39% to $0.28, up from $0.20 in the same period last year. Turning to the cash flow and balance sheet, cash flow from operation in Q2 2025 was $14.5 million, compared to $23 million in the same quarter last year. We ended the quarter with a strong balance sheet, holding approximately $459 million in cash, cash equivalent, bank deposit, and marketable securities, providing us with the flexibility to continue to invest according to our plans in cloud security and AI innovation. Looking ahead, we remain focused on growing our cloud ARR and gradually accelerating it beyond the current 21% year over year growth.

Speaker 7

This goal is supported by continued investment in cloud security innovation, the integration of AI-driven capabilities in our solution, and the expansion of our go-to-market strategy. These initiatives are designed to unlock new growth opportunities and support a longer-term trajectory in cloud ARR performance. Now to the guidance. We expect total revenue for the third quarter of 2025 to be in the range of $74.5 to $75.5 million. We expect Q3 2025 non-GAAP operating expenses to be between $51.5 to $52.5 million. We expect Q3 2025 non-GAAP diluted net earnings per share to be between $0.26 and $0.27. I'll now turn the call over to the operator for questions. Operator, please.

Speaker 5

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from George Charles Notter with Wolf Research. Please go ahead.

Speaker 2

Hi, guys. Thanks very much. I guess I was curious about sort of what you're seeing in terms of early returns from the sales and marketing investments. I think you added 30 people in the North American selling organization. I'm just wondering if you're seeing signs of progress. Are you seeing improved pipeline? How are you feeling about your investment in sales another three months along? Thanks.

Operator

OK. Hi, George. Welcome back. I think the investment we've done last year in North America is paying off for us. We're definitely seeing good traction in the market. We're starting to see a stronger pipeline, better engagement with existing and new customers. Nice wins starting to shape up. Our forecast for the coming quarters is becoming better. Overall, I think the first wave of investments that we've done and the alignment has shaped up pretty well. As we noted last quarter, we are increasing investments across the business and specifically in North America. We increased our executive bench there, and we are planning to further increase. We started it last quarter, and I think also some of what Guy mentioned in the OpEx is a result of that. We are going to further increase our investments in that market. We think it's a great opportunity for us.

Speaker 2

Got it. OK. I know there was also a bifurcation of the selling organization. I think you moved folks from a kind of overall model to a hunters and gatherers sales model. Are you seeing benefits there? What does that look like? Any insights would be great.

Operator

Yeah. When I said the alignment, I was actually referring to that. That splits to more acquisition-oriented teams and more account management and farming teams. I think it played pretty well. I actually already see much better coverage of the existing customers. I think we're seeing that in more upgrades and cross-selling activity in the existing customers and very successful hunting motion in new accounts. I'm actually excited about the pipeline we've built. The early wins we already saw in Q2, the first wins. I think there's much better news ahead of us, and I'm looking forward to that. I'm very excited of that organization.

Speaker 2

Great. That's terrific. I also want to just ask about the DefensePro X progress. Just curious if you can give us a sense for how much of your sales mix on hardware is now DefensePro X. I know that business pulls along more subscription revenue. I'm kind of wondering what that looks like as well. That's my last question. Thank you.

Operator

Right. I think on the end on-premise DDoS mitigation, everything now 100% in Q3 will be DefensePro X. As a matter of fact, we just announced end of sale for the last DefensePro 8 platform last quarter, which, by the way, brings us a whole additional layer of install base to refresh in the coming 24 months. All our new sales are now DefensePro X. We believe it's by far the strongest DDoS mitigator. We put all our latest and greatest algorithms there. Customer feedback is very good. I think also this quarter, I was just told we won a large new SaaS provider, competitive displacement with DefensePro X, and based on the specific new attack mitigations it can mitigate. I think here we have a strong refresh cycle. We're still early there, but both for existing customers and new customers, I think we have a very, very strong platform.

Speaker 2

Very good. Thank you very much.

Speaker 5

Thank you. Our next question comes from Chris Reimer with Barclays. Please go ahead.

Speaker 6

Hi. Thanks for taking my question and congratulations on the strong results. I was wondering if you could comment maybe on the dynamics in the carrier segment, which showed an uptick this quarter. Can you give any pull around the dynamics just in general in the U.S., not related to your investment or expansion? I was thinking more around customer behavior in any kind of increased spending environment. Could you characterize any behavior that's changed versus last year?

Operator

OK. Thanks, Chris. First, on the carrier segment, we're seeing several major applications we're selling to. One is selling them equipment that they can use to protect their own network. Second is them using our solutions, sometimes cloud, sometimes appliances, to build an MSSP business. Third is the more traditional ADC business. I think in general, I'm not seeing carriers as increasing their investment significantly. However, I think we're seeing more and more opportunities. I think that's actually a good opportunity for the future to partner with carriers on their MSSP business and actually leveraging our cloud solutions to protect their customers better. We will track it in the coming quarters, our progress in that area. That's a place that globally, I think we're seeing good opportunities.

Operator

As it relates to North America specifically, I think on the enterprise market, we are still seeing, especially on the large enterprise, long sales cycles, more budget concerns, long cycles, more attention to spend, etc. I think we were able to, or we are able now, and hopefully in the coming quarters, even to do better than that, to accommodate that simply by increasing our pipelines and increasing our customer engagements and the investments that we've done, together with the critical nature of our cloud security platform. I don't think the market is in an excellent situation, but not in a bad either. Somewhere in the middle, not a lot of change versus last quarter, budget constraints, but still investments in critical security, in AI security continues.

Speaker 6

Got it. Thanks. That's great color. That's it for me.

Speaker 5

Thank you. Our next question comes from Ryan Boyer Koontz with Needham & Company. Please go ahead.

Speaker 4

Great. Thanks for the question. Question on, you talk about AI as a tool for attackers, but I wondered if the implementation of agentic AI by your enterprise customers is changing their attack surface much on the APIs yet, or is it still too early to see that?

Operator

It's a great question. I think it changes dramatically. The attack surface and the enablement of applications, I think we're starting to see early signs of that. I don't think it's yet centered to the enterprise applications, but we're definitely very focused on that. I think it's another possible wave of growth for our cloud security. We're highly investing in these directions, both for AI applications, for APIs, and so on. It's early, but it's going to be very critical because the nature of attacks, the sophistication of attacks is very different.

Speaker 4

That's great. Really appreciate that. On your comment around MSSPs, sounds like some increased activity there. Are you seeing any changes in MSSP business models in terms of their product portfolios and offerings, or is that a pretty static environment today?

Operator

I think it starts to change because there's a strong demand from customers. I think the customer expectations from their providers are increasing, even from the basic need of compliance. We're seeing more and more compliance requirements that those customers must adhere to, and they are turning to their providers to fulfill them. I think the more applications they put online, whether it's in private cloud or public cloud, the more AI tools they're using, the more APIs they're using, the more compliance and regulation is being developed by governments around the world. The evolution of the MSSP portfolio must keep pace with that. For example, cloud application security that in the past was not part in large of an MSSP portfolio, they were more focused on SIEM, managed SIEM, managed SOC, managed EDR, managed firewall.

Operator

I would say the more fundamental network and end-user-centric security, with the rise of the criticality of the applications, I think there's a shift that starts. We are definitely seeing that again as an opportunity to leverage our cloud platform. It's very easy to partner with us in that regard and follow that trend.

Speaker 4

Super interesting. Maybe one last one, if I could squeeze it in, just any commentary around the competitive environment globally?

Operator

I don't have a lot to say about that. I don't see any big changes in the vendors. I can tell you that we are seeing an increase in our win ratio in our cloud platform. I think the innovation we're bringing, and I continue to report almost every call on another analyst firm that positioned us as a leader. This quarter, I mentioned API security. A week ago, we published another analyst that positioned us as a leader in DDoS. The continuous innovation on one end, coupled with more channel activity and more partner activity and OEM activity by Cisco and Check Point, I think all of that together is actually increasing our win probabilities. We feel comfortable with the current competitive climate, and we plan to continue to push forward our differentiation.

Speaker 4

You're not seeing many new entrants on the competitive landscape?

Operator

New entrants? Can you repeat, please? I didn't hear you well.

Speaker 4

Sorry about that. Are you not seeing many new entrants in your DDoS and your various product areas?

Operator

No, we don't. I think as the market will devolve to AI applications, for example, I'm sure there will be a host of new startups there. I think our position with a comprehensive platform that really covers your web applications, your mobile applications, your APIs, and your AI-based applications, and in each one of them, not only delivering an integrated solution, but really in each domain, providing best-of-breed, yet everything integrated and backed by AI, fully managed service, I think this market position is a very strong one. I think we can compete very effectively. I'm sure that on the AI front, there would be some new entrants dedicated to that segment.

Speaker 4

Makes sense. Thanks so much for the insights. Appreciate it.

Operator

Thank you.

Speaker 5

Thank you. Our next question comes from Joseph Gallo with Jefferies. Please go ahead.

Speaker 3

Hi. This is Anjali Papadopoulos on for Joseph Gallo at Jefferies. Thanks for taking the time, and congrats on the strong results. It's really good to see your cloud ARR progressing along nicely. I guess speaking on that, how should we think about cloud ARR growth and its profile going forward?

Operator

Very good question. First, you know our short-term result was 20%, and we plan to continue to stay above that. In our long-term model, we were targeting 25%. I think that would be the next goal we will put to ourselves. I'm not sure we'll hit it immediately, but we're definitely seeing the potential to continue not only to grow ARR, but accelerate ARR. We're very focused on this opportunity, and that's what we are planning to achieve.

Speaker 3

Sounds good. Thanks for that. Circling back to a prior question on your strength in win rates and competition, with your new API security solution, what existing competitors, if any, did you come across in the marketplace? Who currently competes in the space? Can you talk more about what you see those vendors are lacking and how Radware continues to win that space? Thanks.

Operator

Yeah. I think in our prepared remarks this quarter and last quarter, I mentioned some areas that we're using AI as part of our complete solution, what we call the Epic AI framework. We're infusing AI to each and every layer of our solution. Already from the protection engines themselves, meaning the algorithms we use to detect and mitigate, I was talking about how we are detecting and mitigating business logic attacks. We're leveraging there AI. Our competition over here is very manual. You need to define a lot of rules, your business logic. It changes as applications change. While we really built in real time an LLM dedicated to your application, dedicated to your traffic, it provides significantly different results in configuration, in onboarding, in detection, in mitigation. That's one example of how do we use AI in that protection engine to differentiate.

Operator

I mentioned in today's comments another layer, which is the SOC-X AI. We've built on top of our platforms AI agents. As far as I know, the competition does not have it today, especially not in GA. Those AI agents are sitting on top of the platform and watching your traffic. If they detect a suspicion that an attack has passed the controls, we would automatically, the AI agent would do an analysis of your traffic, would come to a conclusion whether it's really the case that the attack is leaked or maybe a flash crowd coming to your website. If it's an attack, we'll automatically come with your recommendations, what to change in order to mitigate the attack. In our competition, all these, and also until, I think, six months ago for Radware, all these activities were done by soft people, by humans.

Operator

Only collecting the information, analyzing that, getting into recommendations, testing them, this is a long cycle. It can take from, I don't know, half an hour to two days. We are shrinking that time frame to seconds and minutes, delivering significantly better meantime to resolve for our customers, which means less downtime, less risks, less exposure, significantly better business outcomes. This is, again, a big differentiator for us. As I've mentioned, it won us several customers, both displacements and you. Last but not least, there is the whole area of protecting AI applications, which we started to discuss in this call, which is another area that's early. I cannot talk yet about competitive advantages. Let's see in the coming months who comes with what solution.

Operator

We feel very strong, based on our heritage in algorithms, based on our experience in AI security for years, that we will be very strong there as well. That's in a nutshell how we use AI to differentiate in the market of application security and DDoS.

Speaker 3

Thank you. That was very helpful.

Speaker 5

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Roy Zisapel, the CEO, for the closing comments.

Operator

Thank you, everyone, and have a great day.

Speaker 5

Ladies and gentlemen, the conference of Radware has now concluded. Thank you for your participation. You may now disconnect your lines.

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