Roy Zisapel - CEO and President Doron Abramovitch - CFO.

Joseph Wolf - Barclays Jeff Lubert - Wells Fargo Mark Kelleher - D.A. Davidson Rohit Chopra - Buckingham Research Michael Kim - Imperial Capital Catharine Trebnick - Dougherty & Company LLC Alex Henderson - Needham & Co. Ittai Kidron - Oppenheimer & Company.

Ladies and gentlemen, thank you for standing by. Welcome to the Q3 Preliminary Earnings Call. At this time all lines are in a listen-only mode. Later we will conduct the question-and-answer session. Instructions will be given to you at that time. [Operator Instructions]. And as a reminder, today's conference is being recorded.

I would now like to turn the conference over to Doron Abramovitch. Please go ahead..

Good morning, everyone and welcome to Radware’s conference call. With me today is Roy Zisapel, President and CEO. As you know we announced preliminary results for our third quarter of 2015. Following the prepared remarks we will open the call for Q&A, but first I would like to review the Safe Harbor language.

During the course of this conference call we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and we undertake no obligation to update these predictions.

Actual events or results may differ materially, including, but are not limited to general business conditions and our ability to address changes in our industry, changes in the demand for products, the timing and amount of orders and other risks, detailed from time-to-time in Radware’s filings.

We refer you to the documents the company files from time-to-time with the Securities and Exchange Commission, specifically the company's last Form 20-F filed on April 27, 2015.

And now for the preliminary results; as stated in our press release, revenues for the third quarter of 2015 are expected to be $48 million, below the company's guidance of $57 million to $59 million. Non-GAAP EPS is expected to $0.10 per share diluted, compared to guidance of $0.23 to $0.24 per diluted share.

In the third quarter, we repurchased approximately $25 million and we plan to continue executing our share buyback plan this quarter. More detailed information will be provided to you in our planned Q3 earnings conference call which will take place on Wednesday October 28. And now I would like to turn the call over to Roy..

Thanks Doron. We are obviously very disappointed about our performance in the third quarter. We would like to provide some color on the third quarter's performance. Overall, our book-to-bill ratio was strong with bookings coming in at $54 million.

However, the mix between support and subscription sales to product sales was weighted much heavier than usual towards subscription and service contracts. These sales are recognized over the life of the contract. This resulted in recognized revenues of only $48 million for the quarter. The weakness in the quarter came primarily from the U.S.

carrier and service provider market. Several large orders, specifically over $6 million plus deals, that we expected to be booked at the end of the quarter did not come through. Since the end of the third quarter we've already closed one of the deals and still expect to book many of these deals.

In the coming weeks we will be evaluating our service provider and carrier business to determine the adjustments we need to do. Our international business was relatively stable.

We did continue to face market weakness in China and very strong currency headwinds in Brazil and Russia, that impacted our revenues in the international markets, but overall performance was inline with our expectations. We are entering the fourth quarter, which is traditionally our strongest quarter.

Given the numbers of deals pushed out our current overall pipeline and weighted pipeline are promising. And we do believe we will be able to finish the year on a stronger note. We will provide specific guidance in our scheduled earning calls.

I would like to reiterate that we continue to see strong market validation of the strength of our technology and product offering, through independent tests, industry analysts and customer feedback. And we will work very hard to ensure translate this strength into significantly better financial results.

With that I would like to open the call for questions. .

Thank you. [Operator Instructions]. And our first question will come from the line of Joseph Wolf with Barclays. Your line is open. .

Thank you.

I guess a question on, just a detail that you gave about large orders that closed since the quarter ended, is that if you take the midpoint of about $10 million shortfall, does that mean if had closed one of them on-time that accounts for $6 million by itself, and there are couple of other smaller deals, or they were multiple $6 million deals that didn't to you [ph]?.

It's six orders, each one of them, as I said is above a $1 million. You should assume that -- and all of them were expected. Those are long processes which we thought we have very good visibility on. And also that we expected in this quarter and with them we will not have any shortfall. .

I see, okay. And then I just wanted to get a little bit more color on the support and subscription versus product.

Is that a mix that was surprising to you, is that a mix we should be looking for and is there any correlation there between the mix of the security business versus the core ADC business?.

So in the third quarter traditionally we were expecting a one-to-one ratio from past years. This year we had a mix that was much higher on services and support.

Also due to the, I assume, due to the lower than expected hardware sales and we need to review further the – this market is comprised of maintenance renewals which are generally behaving inline with our expectations, although which are ready to sign-up for longer term contract than usual.

So we are seeing, which I think bodes well for customer satisfaction. But we are seeing longer term commitment from customers and the other component is our product and cloud subscriptions that continue to grow up and were also growing this quarter.

At this point we think we've -- the regular hardware booking that we should expect, we should see a much normal behavior patterns that we will need to evaluate it going forward.

I think what's important here is obviously that this level of booking, although it's not recognized immediately, it does impact the cash flow, as those were built for the most part immediately and for a minimum duration of four-five years. So there is a bit of a difference between the cash flow from operation and the P&L.

Having said that going forward at least at this point we do expect us to go back to a more normalized level, and especially in hardware revenues will go back to normal..

Fine. Thank you..

Thank you. Our next question comes from the line of Jeff Lubert with Wells Fargo. Your line is open..

Hey, guys. Two questions, first, this is the second quarter in a row where we are hearing deals are taking longer to close. I was hoping to understand what's causing some of these bigger carrier opportunities to extend, do you believe it's a market issue, a macro issue, is there something that you need to be doing better? So that's the first question.

And then the second question, based on the updated Q3 guidance, it seems like spending was actually up sequentially from an OpEx perspective.

So I was just hoping to understand how we should be thinking about the trajectory of investment going forward, since it looks like we are going to be moving forward off a lower revenue run rate, do you plan to make any changes or is the plan to spend at the same level, we have been thinking about previously in order to try and drive growth? Thanks..

Okay. So first regarding the service provider market, we do see longer cycles and less predictable in the past, on the large deals. Smaller deals are getting executed and continue to get executed.

But these $1 million plus deals in this segment we had issues in the previous quarter, around two deals and now it's up significantly and we will evaluate that. It's too short of a time to give a broad analysis.

I don't know if it relates to funding or budget allocations and CapEx allocation or is it just solely within our execution domain, which in any case we will need to improve. Regarding -- yes..

The delay is with the same carriers' that you saw last quarter or are they new carriers and is it more security or agency?.

I don't want to speak specifically on the mix. I'm not sure that was the -- it's important but it's broader. It's beyond the carriers that we had, one of the order from a Q [ph] before we closed.

And what we saw in Q3 is a broader, way broader impact on multiple carriers and service providers that are not linked by the carrier or service provider domain necessarily and while other deals even in the same size in other segments like online et cetera were closing well, based on our expectation.

So we will need to hopefully share more information on the coming earning call in several weeks.

Regarding the operational expenses, obviously there was an impact on the OpEx from the lower sales that we will share in the coming earning call, and it’s also obvious to us that we will need to balance the model because we can -- the company can and will be way more profitable than where we are today.

Currently we believe that, that will come from resuming the revenue line. We think our investments at this point are right, although in Q3 and to some extent in Q2 did not result in the expected revenues.

Having said that we think some items like the build out of our annuity services, subscription services continue to behave well and will give us more visibility and the necessary cash flow from operations to continue to fund the growth of the company.

So I would like to reserve more guidance, especially on specific lines like revenues and OpEx to our next call but we do feel that overall we are positioned well. We do feel that overall cash flow for the full year will continue to be strong and that we can recover the level of revenues from where it is today.

We are not looking on Q3 as a new baseline of revenues, that’s not our view..

Thank you. Our next question will come from the line of Mark Kelleher with DA Davidson. Your line is open..

Great, thanks for taking the questions. I want to go back to the comments you made on the weakness in hardware. You mentioned that subscription revenue would be a larger percentage.

Is that just the weakness in hardware sales or is it hardware sales that are becoming subscription sales, we’ve seen that a lot, that type of shift?.

Yeah, so I think this quarter it’s both, definitely hardware sales came below where we’re expecting them to be and we do have some shift.

I don’t think that’s the major reason here that some of our projects that used to be product only are now product plus cloud delivery and are becoming as a result, a subscription service over the life of the contract including the hardware.

And I think that secondary, and I think the big miss was here in the large orders of other project in the service provider and carrier, there was less of an issue versus booking simply because in service renewals and subscription were quite significantly above what we expected..

So we should see an increase in deferred revenue on the balance sheet?.

Yes, probably..

Okay, thanks..

Thank you. Our next question comes from the line of Mark Sue with RBC. Your line is open..

Hi good morning, Roy and everyone. This is Spencer [ph] for Mark Sue. Two quick questions here, just wanted to dig in a little bit further. You guys have done some reworking in Asia and it sounds like it’s going well.

Just wanted to get, if there is any additional commentary on kind of what’s driving results there? And then secondarily kind of looking at the ADC market just trying to get a feel for what you are seeing relative to traditional ADC versus virtual ADC and if there is any change going on in the mix there? Thank you very much..

Okay, so regarding Asia Pacific this quarter, as I said, the performance was in line with our expectations but we still have work to do there, to go back to the growth that we expect from the region but, and I think a somewhat better performance and we've started to execute on our plan.

Regarding the move between ADC to Virtual ADC, we continue to see this shift. In our case the VADCs are and are split between software only instances. And our VADCs that are multiple instances on other platforms we're definitely seeing the count of instances, multiple instances on our appliances growing.

And we're seeing customers coming back and requiring more instances. So we're definitely seeing a trend of this Virtualized ADC whether it's on our X86 server or on dedicated appliances increasing. I don't think there was a change in the past quarter in this dynamic. .

Okay. .

Thank you. Our next question will come from the line of Rohit Chopra with Buckingham. Your line is open. .

Thanks very much. Roy, I'm going to come back to this question about ADC or security. I actually think that's important to try to understand. Because I think everybody on this call understands that security is growing. And the ADC market is generally a single digit grower at best.

So if you provide a little bit more detail on security versus ADC, as its happening now, and what you saw, I think that's going to be critical. And the second question has to do with competition or the competitive landscape.

Why do you not believe that some of these deals are being disrupted by competitors, because this past quarter there was a bit of an uptick in the competitive landscape. And lastly I thought if you can update us on the OEMs and what's happening there, I think that will be helpful as well. .

Okay. So first regarding ADC and security; we agree with your view that ADC is a single digit, maybe mid-single digit and security is a stronger grower. And those are the trends that we've seen.

I don't want to speak specifically on the past quarter but in general, depends how we allocate the sales between ADC and security, because as you know there's overlap in several modules and capabilities between the two. But in overall that's how also we are looking on our business in the past, as I said earlier, and also going forward.

Regarding the competitive landscape, in these deals in service providers there are stages.

And the stages that you compete for the deal, technically, commercially there's a stage that you are giving the we no loss [ph] notification and then there was the negotiation on master purchase agreement if it's a new if it's a new customer and that the budget allocation and so on.

In all these deals we have passed -- and we were passed for several times this win loss competitive case. And I don't think to the best of our knowledge in any of these deals that was issue of a competition coming back to the deal dynamics. As I've mentioned one of them was already booked. We do expect to be able to book.

And the rest, hopefully we will do all of that within this quarter. As of at this point I cannot guarantee that. And -- but I don't think it's competitive pressure. And I'm not sure when you say uptick in competitive landscape and to what exactly you referred to. Regarding to the OEM business, we continue the Check Point relationships continue.

They provided us again with some meaningful accounts during this quarter. The Cisco activity is ramping up towards the launch. Obviously we will start recorded revenues only after they're launching the product, but there is a lot of activity going on together and we believe it will assist us in market visibility, markets footprint going forward.

So I think on the OEM front, we are progressing well. .

Right.

Just a quick follow up, and I know it's difficult to break it out, but are these service providers' wins, are they mostly related to ADC, or are they mostly related to security? And again the reason I ask, Roy, I mean, it is important, if you are able to grow the security business to offset some of the challenges in ADC, I would like to get a sense and I think investors would like to know that as well.

So I mean, you should know and I'm going to push back a little bit, but I think that $6 million, a mess like that, I think you should sort of be able to give investors an update as to what specifically that was.

I mean they are fairly large deals, [indiscernible] Roy, as you know and we know, right? And therefore you know what they are, right? So I just want to get a better sense, if you don't mind..

So first of course I know, what they are, there is no question about it. Second, I want to maybe -- I heard you speaking about the $6 million in these deals. The accumulative value of these deals is way over $6 million. And the smallest of the deals is $1 million in value. But the total value of these deals is way over $6 million.

And as I said, it would have covered for the delta in revenues and we obviously would still the booking for the full quarter about one-to-one ratio with the additional $6 million in annuity businesses that we've booked this quarter. So I just want to make sure that this point came across.

Now regarding the exact split in deals, as I've mentioned it's in our U.S. business and our U.S. business is more impacted also in its growth from security. So you can assume that, that also is represented in these deals..

Appreciate the clarification. All right, thank you again..

Thank you. [Operator Instructions]. We will go to the line of Michael Kim with Imperial Capital. Your line is open..

Hi, guys. So going back to security, can you talk about if you are seeing any change in the competitive landscape, especially with regard to some of your content delivery network partners? I think you've made some announcements there and then also if you can provide an update on the hybrid cloud WAF offering as well..

So we don't see a change in the competitive landscape. As a matter of fact I did recently a review with our security evangelists and security architects and they believe very strongly that we are in the best position we've ever been in terms of the competitive landscape in our security offering and the gap that we have from competition.

And I do believe that also those wins, although not yet translated into orders are another testimonial from that they include also a nice number of new customers that are -- that chose us and are ready to give significant commitments to our technology.

So from the wins that we had in the past quarter, in the past year, from the OEMs you should understand that both Check Point and Cisco, which are today the two largest network security providers, chose our attack mitigation solution to be OEM. You can be sure that they've tested everything that's out there.

It's another well-known fact that the three largest CDN providers, Akamai, Level3 and Limelight rely on our attack mitigation technology for their dealer [ph] offering. So also there, and you've asked about it. It's a good testimonial for the strengths and leadership of our solution.

So we feel sometimes when the revenues are not coming in immediately it raises questions on the competitiveness of the product. We are very confident in that and the level of wins, the accounts, what the industry is there, and the customers are telling us. I think these are very strong messages regarding our technology leaderships.

We do need to improve the execution in the segment that I mentioned. And regarding the CDNs I think they continue to work with us. Each one is a bit of a different model. Some buy from us the product, some buy from us the cloud services, some are buying both, and they continue to grow, I think their business with us.

Last but not least cloud WAF, which is our newest announced cloud service continues to perform well.

We have of course production customers already on, and I think it’s a good addition to our cloud services, and it contributes to our subscription and service annuity business, which as you can understand from my remarks is up nicely for the quarter and for the year..

Great, and then maybe just bigger picture concern in the last two quarters, is it -- do you see a shift towards maybe less linearity and larger deal flow that Radware maybe has becoming a little bit more reliant on to close towards the end of the quarter or any significant change in linearity from past quarters?.

For Q3 definitely maybe now linearity is okay on the lower revenue base, but if we were to hit those six deals the linearity would have been, not as we are used to. We are taking steps to rebalance it.

So while we will continue obviously to focus on those large deals and they were going very well for us in the business in the last three years, and I believe they will continue to contribute nicely, we will of course balance it with a more, I would say regular flow of lower size deals and we are taking steps to ensure that that’s the case and that linearity is back in line with historical levels..

Great, thank you very much..

Thank you. Our next question comes from the line of Catharine Trebnick with Dougherty. Your line is open..

Hi can you hear me?.

Yes, how are you Catharine?.

Good, good.

Okay, hate to beat this carrier business to a dead horse, but a quick question, is there within the carrier are you including in some of these deals missed, anything from the cable companies, Roy?.

Don’t want to speak on that. I think we gave a lot of information about the geography, about the segments, those deals are still in play and I don’t want any interruptions there or giving too much information..

All right, that’s fair. And have you guys -- interestingly enough challenged tech wise, we’ve been hearing a lot on A10.

Have you guys been seeing there more on a competitive nature within the carriers or not?.

No..

All right and the other question is, we didn’t touch on the enterprise I know that’s not a large piece of your business domestically, but what was the performance like in Europe?.

Also domestically enterprise is a large share, but enterprise overall performs okay across the whole company..

All right, well we’ll leave it at that.

The other questions I just want to clarify there was $6 million loss and that was over six deals, correct?.

So it’s six deals, each one over a million. It’s way over the $6 million total, Catharine..

Okay. I just wanted to make sure I clarified that I appreciate it Roy. Thanks for the color today and we’ll talk to you on the post call..

Okay..

Thank you. Our next question comes from the line Tahir Najan [ph] with Cowen Group. Your line is open..

Good morning. Thank you for taking my call. My question being on the carriers in the U.S.

do you think any recent M&A activity in that space might have contributed to the delay in orders?.

Again I don’t want to relate specifically to that because it will exactly point us to where those deals might be. So I think carrier and service providers in the U.S. is a pretty tight segment..

Thank you..

Thank you. Our next question comes from the line of Alex Henderson with Needham. Your line is open..

Yes, hey Roy..

Hi Alex..

So the reason Catharine was asking that question about cable is there has been some disruption in the cable market having to do with M&A, which was not anything to do with product sales or projects or anything of that sort.

Just to clarify that's not a factor in this issue for the quarter?.

As I said, Alex I don't want to point more specific than the definition I provided in those six deals. So you can assume they're not all coming from exactly the same sub-segment of the market. .

Okay. If I were to look at the enterprise business in general, you had a pretty strong quarter last quarter in third quarter and given the challenges in APAC, I think the Street was looking for about 5% growth rate in the enterprise.

Is it reasonable to say that since all of the pressure was in the service provider that the enterprise in fact was up and they were about 5% for the quarter or is it when you say it did okay is that more flattish?.

I don't have the exact figures in front of me, but we will share them on the call in a couple of weeks. .

Right.

Is there any pricing element to the mix of concern here?.

I don't think so. .

Right. Thank you. .

Thank you. Next we'll go to the line of Ittai Kidron with Oppenheimer. Your line is open. .

Thanks, Roy I would like to take a little different direction on that question, most of them, not all of them have been focused on the market and competitive pressures and changes in the industry. I want you to be a little bit more inward looking at the company and looking at your North America team.

If you don't think this is a competitive issue or a change in the market dynamics or pricing then that's clearly that someone fell asleep at the wheel somewhat internally.

So my question is, is there one team that's been responsible for these six deals or these are different teams and different deals? Is there -- and from a mix execution standpoint is there several individuals that are mostly accountable for this? And is there a change in leadership in North America or in service provider, North America specifically? I mean again I understand the company's missed quarters from time-to-time but considering the magnitude of this, one has to think that well someone is to be held accountable internally for this.

I'm just trying to get a sense of how do you think about North America team here, do you think you've got issues there, and how you're going to solve them?.

So first I would say that although we are reporting quarterly and sometimes our view internally is a bit broader in that scope. I believe we have an excellent team, excellent team in North America.

And I would like to remind everyone that this team over the past three years created for us growth that is way, way above the market with significant market share gain, and we did it in a very, very consistent manner.

It's the same team and we have high confidence in this team's ability to execute, it carried us a very long way and we'll continue to do so. Yes, this past quarter we failed to deliver in North America the results we expected, but make no mistake, I think our team is on top of the industry.

We've done excellent and I've high confidence that we will also fix this issue and move onward. .

Good luck. .

Thank you. And at this time I'm showing no further questions. Please continue. .

Okay. Thanks everyone for participating and we look forward to provide more updates on our earnings call. .

Thank you. And ladies and gentlemen that does conclude your conference call for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect..