Anat Earon-Heilborn – Vice President-Investor Relations Doron Abramovitch – Chief Financial Officer Roy Zisapel – Co-Founder, Chief Executive Officer, President and Director.

Ittai Kidron – Oppenheimer Peter Zdebski – Barclays Zack Turcotte – Dougherty Michael Kim – Imperial Capital Alex Henderson – Needham.

Good morning, my name is Michele and I will be your conference operator today. At this time, I would like to welcome everyone to Radware Q1 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] I would now like to turn the call over to Anat Earon-Heilborn, VP of IR. Please go ahead..

Thank you, Michele. Good morning, everyone, and welcome to Radware’s first quarter 2018 earnings conference call. Joining me today are Roy Zisapel, President and Chief Executive Officer; and Doron Abramovitch, Chief Financial Officer.

A copy of today's press release and financial statements, as well as the investor kit for the first quarter, are available in the Investor Relations section of our website. During today's call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company.

We wish to caution you that these 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 demand for products, the timing in 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 from time to time with the SEC, specifically the company's last Form 20-F as filed on March 28, 2018.

We further refer you to the presentation and webcast replay of the investor meeting the company held in New York on February 20, 2018 which are available in the Investor Relations section of our website, where additional disclosures can be found.

Please note that in May management will participate in the Jefferies Technology Conference in Beverly Hills and in the Oppenheimer Israeli Conference in Tel Aviv. In June management will participate in the Jefferies Tech Trek in Tel Aviv and in the Baird’s Global Consumer Technology & Services Conference in New York.

With that, I will turn the call to Doron Abramovitch..

Thank you, Anat. Good morning everyone and thank you for joining us on the call today. We are pleased to report strong results for the first quarter with revenues and earnings at the high end of our expectations and continued growth in our total deferred revenues balance. Revenues for the first quarter were $54.5 million, up 11% from Q1 last year.

Revenues from the Americas were up 32% from last year and accounted for 44% of total revenues. Revenues from EMEA increased 4% from Q1 last year and represented 28% of total revenues and revenues from Asia Pacific were down 5% from last year and represented 28% of the total.

We delivered solid year-on-year growth in both product and service revenues and strong growth in subscription. As a result, recurring revenues, which includes subscription and support, represented over 60% of total Q1 2018 revenues.

This gradual increase in the proportion of recurring revenues reflects the growing quality of our revenues and the greater predictability of our business that enabled us to provide full year outlook which I will discuss at the end of my remarks. I will now discuss expenses and profit all in non-GAAP terms.

A detailed GAAP to non-GAAP reconciliation is presented in the financial tables accompanying our press release, as well as in the investor kit posted on our website. Non-GAAP gross margin continues to be stable at round 82%, a level at which we expected to remain.

Operating expenses were $43.4 million, compared with $40.7 million in Q1 2017 and in line with our guidance. The main factors driving the increase from last year are the stronger Israeli shekel, which had an impact of approximately $1.9 million and higher sales and marketing expenses.

Let me remind you that Radware adopted ASC 606 in the modified retrospective method, which means that we have not restated in 2017 but have accumulated the difference in the January 1st retained earnings opening balance.

As we disclosed in our Form 20-F, the magnitude of this cumulative impact was approximately $10 million which will be amortized as an expense over time. Although commissions are now recognized in parallel to revenues, this positive impact is partially offset by these expenses.

Therefore, the net positive impact is small and we expect this to be the case throughout 2018. Headcount at the end of March 2018 was 975 at the similar level in the past two years, which is expected to be consistent also through 2018. Tax expenses in the quarter were 13% of our non-GAAP pretax income.

For the remainder of the year, we continue to estimate our 2018 non-GAAP tax rate at approximately 14%. Non-GAAP net income in Q1 2018 was $2.6 million, or $0.06 per share diluted, compared with net income of $700,000 million, or $0.02 per share diluted in Q1 2017.

We ended the first quarter with approximately $358 million in cash and financial investments. Cash generated from operations during the quarter was $12.2 million, up $6.3 million in Q1 2017. Operating cash flow for the last 12 months was therefore $37.3 million.

As of the end of March, we had total deferred revenues balance of approximately $148 million, up 15% from approximately $128 million as of the end of March 2017.

Let me remind you that the total deferred revenues balance doesn’t reflect full bookings, for example, deal that were booked late in the quarter and not yet invoiced are not part of this balance.

Total deferred revenues growth that is higher than revenues growth reflects our business model, which cause for a growing proportion of cloud and subscription sales. In the coming 12 months, we will recognize as revenues approximately $93 million out of the total balance of 63%. This compared with $78 million or 61% a year ago.

I will conclude with our outlook for the second quarter of 2018 and full year 2018. We expect Q2 revenues to be between $56 million and $57.5 million. Non-GAAP gross margin is expected to be approximately 82%. Non-GAAP operating expenses are expected to be between $43 million and $44 million in Q2.

Non-GAAP EPS for Q2 is expected to be between $0.07 and $0.08. Our total deferred revenues balance and enhanced visibility and predictability that is inherent in our business model enables us to provide full year outlook for 2018.

We are maintaining our full year guidance of 8% to 10% revenue growth, stable gross margin and a modest increase in non-GAAP operating expenses. We also expect total deferred revenues to grow at a faster pace than revenues. I will now turn the call over to Roy..

Thank you, Doron. Today, we report strong Q1 performance across all parameters with double-digit revenue growth, book-to-bill significantly higher than 1, a 15% growth in our total deferred revenues year-on-year and an increase in profitability and cash generation.

First quarter revenue grew at a double digit rates for the third consecutive quarter and our guidance for the second quarter suggests the fourth one is underway. Total deferred revenue reach continue to reflect faster growth than that of revenue.

This is in line with our business model and I’ll drive to continue growing our cloud and subscription business. Looking at all these metrics and that our robust pipeline, we clearly started 2018 on the right foot and are very excited about the opportunities that lie ahead of us. The market is ready for a strong 2018.

Our customers are committed and ready and our business model shows strong traction. Large customers are investing more in solutions such as ours and are thinking about Attack Mitigation much more strategically. This is reflected in the large number of seven digit deals we won in Q1 across multiple sectors.

Among our large customers in Q1, we’re two of the largest, software-as-a-service companies in Asian government entity which we announced last week, a European homeland security authority in Asian smart cities project, two leading e-commerce companies and others.

We believe we are growing our wallet share in the large customer segment integrating title into their operations and playing an increasingly critical role in the availability and security of their infrastructure. Acceptance of cloud and security solutions outside North America is rising.

EMEA trends are now similar to North America and we’re seeing a notable positive momentum in Asia Pacific. Our focus is on availability and security solutions for the data centers. Customers with critical operations view availability and security as integrated components to ensure operational continuity.

One example is the win we announced last week of $7 million deal with an Asian government organization. This is in fact the military branch setting up a next generation network and therefore requires a very high degree of guaranteed availability, quality of service, adaptability and security.

As a result, there are purchasing appliances and subscription services for both application availability and parameter security from Radware. This will help guarantee the connectivity of multiple basis and administration territories. We continue to invest in our cloud and security portfolio and in the first quarter we announced two new solutions.

The first is Active Attackers Feed, which is the new subscription service that identifies and blocks known attackers even before they attempted to attack.

Based on intelligence from our cloud security services and our deception network, a global network of honeypots, as well as the analysis of our Emergency Response Team and intelligence feed of bad actors is generated and then updated to our cloud and on-prem attack mitigation solutions.

The second new solution is Cloud Malware Protection, which can now detects malware infection attempts even before the malware becomes active and includes mitigation capabilities. This solution recently won a Fortress Cyber Security Award and is gaining strong customer traction.

We categorize those new solutions as part of the big data in machine learning claim which is one of our four playing solution strategy. We are consistently executing on our go to market strategy and are fully committed to increase our market reach and footprint.

In the first quarter, our relationship with Cisco continues to develop and contribution is growing from previous quarters. We are pleased with the pace of the ramp up and believe we will see sequential growth in the second quarter and throughout 2018 in Cisco bookings. In summary, we are very pleased with our results for the first quarter.

We delivered strong bookings and growth in revenues, profitability and total deferred revenues. From a product portfolio perspective, our competitive advantage is significant and multi-dimensional including unique behavioral-based detection, automatic mitigation, strong integration between security layers and very high performance.

In an ever evolving threat landscape, we continue to provide our customers with a comprehensive datacenter attack mitigation solutions and through expand our cloud and security solutions. At the same time, our market reach is our top priority and we’re committed to tight management of field execution.

We expect our clear vision and strategy to enable us to enjoy the cloud and data center security industry growth and deliver long-term growth and profitability. I will now open the call for Q&A..

[Operator Instructions] Your first question comes from Ittai Kidron from Oppenheimer. Your line is open..

Hi, guys. Good quarter. Roy, I wanted to get it into Asia a little bit. I mean the quarter itself was not good, but clearly you had a good big win there.

I am just trying to understand as you look at our region going forward, outside of that deal is your broad based improvement or the region by itself outside of this deal is deal not recovering and this is an area I would try to recover quite sometime now..

I think the region is improving. [Indiscernible] we went down in revenues, but if you see the results itself versus some of the previous quarters, it was actually one of the highest. And you must take into account that probably the large deal is not even in the revenue recognition side.

So, I think, we’re doing quite well and we’re seeing good signs of recovery. I mentioned in my notes, we’re seeing an uptick in cloud activity and cloud security activity, which plays very well to our strength, but we are optimistic about APAC execution for this year..

Got it. And then follow up for Doron on the revenue. Just trying to reconcile your revenue growth rate in your deferred especially your short-term deferred growth, which I think for the third quarter in a row is about 30% plus minus.

Can you help me kind of fill in the gap here like how bad is your ADC business? Is it – is that still declining, flatish? How do I think about that business? And is there any opportunity there or you at this point is just kind of being managed for cash? How do I think about it?.

Okay, so let me lead this answer. I would take some of the deferred revenues trends and then Roy will add some color on the business side and also on the ADC question.

So we had a 16% year-over-year total deferred revenues growth, which is higher than the 11% growth in revenues and therefore exactly inline with our model the calls for this type of relationship. This is what our future growth is based on.

As far the comparison to previous quarters, so first recall that total deferred revenues doesn’t reflect the full bookings, I mentioned that in my prepared remarks that as an example at the end of the quarter there are some deals that were not yet invoiced.

And therefore not part of this balance, the deal that Roy mentioned the Asian deal that is an example of each one of them. In addition, cloud and subscription deals that are built monthly or quarterly are not part of this balance, total deferred.

And as we said that this part of the business is growing then by nature there is a part that it’s not part of the deferred. And third the book to bill ratio as mentioned was significantly larger than one.

You can assume that if we are comparing to Q4 2017 and the total deferred revenue didn’t grow much, so all goes to the backlog which is growing in a way the highest level ever.

And last I still recommend to review the trend of our total deferred revenues compared to previous year, this is the right way to view the health of our business and third generation [ph] it was a very good quarter in the first quarter in terms of growth compared to last year, 15%, and as mentioned our total deferred revenues in 2018 will grow in faster pace than our revenues..

Okay, regarding ADC, so we don’t show you a view that the ADC market is in a bad shape at all. Actually, you know, we also outline that in the Analyst Day Meeting.

We pivoted the ADC business around security for applications like protection against encrypted attacks inspecting encrypted traffic to detect malware as well as for private and hybrid cloud environment. We’re seeing a very good traction in business and we are very satisfied with the performance of the ADC in Q1.

So definitely we’re seeing the opportunity. As I mentioned for example when I talked about the large deals customers see that as one integrated application infrastructure for availability and security allows us to take very large deals end to end..

Very good. Good luck guys..

Your next question comes from Joseph Wolf from Barclays. Your line is open..

Hi. This is Peter Zdebski on for Joseph Wolf. Thanks for taking my questions.

Could you give us a sense of how competitive the WAF, the Web application firewall, offering from AWS’s and compare that to the Radware offering?.

Yeah, I think the AWS offer is mainly based on an open source with some static rules. I think it’s very static in nature, doesn’t have all the advanced capabilities of the behavioral earnings of the algorithms and so on. So I think it’s a basic offering. We don’t see that at least today maybe they will improve in the future significantly.

But at least today it does not provide a similar level of security to what our customers, the customer segment we are approaching are looking for..

Great, thanks. That’s helpful. And then following-up on the revenue trend, how much of the incremental $6 million in the U.S.

sales in the first quarter of 2018 versus 2017 came from subscriptions that were already in the backlog, or the deferred?.

We don’t this close and the subscription yet. I mentioned that there was subscription revenue growth significantly this quarter, but it’s not something that we disclose.

You can take the number of the total deferred revenues and see that the trend has continued to be something like 60% to 65% of the total deferred which is the majority of the growth year-over-year comes from the subscription and you can assume that we continue to grow. But beside that we don’t break it for now..

That’s very helpful, thank you. And just finally, could you talk a little bit about subscription trends in Europe? And I know you don’t break that out on a quantitative level, but may be just qualitatively..

I think in subscription we have three main streams of subscription, the first is all our cloud subscription; the second is product but that’s subscriptions, meaning subscription we sell on the top of an appliance or a virtual appliance that is being installed at the customer premise, or datacenter wherever it is.

And the third is subscription to some of professional services offerings that are, for example, are fully managed dilution, and so on. We are seeing in EMEA very strong traction similar to what I mentioned previously on the U.S. going strong into security and cloud, starting last year you were seeing very strong trends in EMEA as well.

Definitely on cloud we are seeing major opportunities and major wins in the theatre as our bookings are growing significantly, we have also product subscriptions are going hand in hand and we were able in the past year and also in Q1 to increase the level of penetration of profile professional services subscription.

So across the Board, I think, EMEA is executing well and subscription is a core part that drives it..

Thank you.

Your next question comes from Zack Turcotte from Dougherty. Your line is open..

Hey guys Zack Turcotte on for Catharine Trebnick here.

First just on the sister relationship, I was wonder if you have any details on the attach rate of that and if it is included in the guidance, as well as any contribution in the quarter from your relationships with Nokia and Checkpoint?.

Okay, so we don't have the formation from Cisco on attach rate. However, we are seeing a significant growth in activity in the field. And as I’ve mentioned an increase in contribution and we forecast also increased contributions throughout the year. It’s definitely becoming a very, very large and significant opportunity and activity for us.

In terms of Nokia and Checkpoint, in Checkpoint we did not have a very strong quarter in Q1, we hope that it will be compensated in Q2. And Nokia continues in a very strong path of engagement in carrier projects throughout the world and this relationship has continued to be very, very positive..

Got it, and the other thing is the 73 DLT [ph] Asian government branch.

I was wondering if you can give any more detail on that as far as which country it was in, were they an existing customer and who you competed against?.

Yes, we cannot disclose the country, but it was a new customer for us. And given the size of the opportunity you can assume that all our competitors in the ADC market and in the security market were targeting the deal well. It’s obviously a large public tender that is going on for quite some time.

But I think based on our technology the integrated offering, the sales execution we were able to win..

Got it. Thank you..

Your next question comes from Michael Kim from Imperial Capital. Your line is open..

Hi guys.

Just following-up on our geographic differences and going back to EMEA with the growth in the cloud and subscription part of the business, what's the diversion with the Americas region? Is there more aggressive mix shift? Is there macro headwinds on demand or any commentary you can provide on difference between the growth you are seeing in EMEA versus Americas? Thanks..

I think I want to remind everyone that given our model we are booking but some of the – as Doron mentioned some of the constellation to revenue takes a bit time. I think I got similar questions a year ago on the enterprise declining and we kept on saying, no enterprise is doing well, just wait it will make itself into the P&L.

I'm telling you the same on EMEA, EMEA is doing well. It is doing better than what you were seeing in the in the revenues. But it’s deferred given the subscriptions strength, and so on, it will come into the P&L as Doron mentioned. For the most part during the next 12 months. So I will be – I’m bullish on EMEA.

I think it's a region where we're taking a lot of share and we're seeing some of the fruits of the early investment in cloud security there..

Got it. And then just jumping over to the enterprise carrier mix, I guess when we think about the growth in enterprise and that's had nice improvement over the last couple of quarters.

I was surprised to see carrier actually down slightly, is that also functional of mix? And what's the dynamics happening in the carrier market from your perspective?.

I think it's predominantly timing and some orders we've booked and didn’t make themselves into the revenues. The trends there are very strong, we continue to take a lot of share in cyber security in the carrier market. It’s been a trend over the – more than a year now.

And we believe that from as I’ve mentioned in the Analyst Day, or in one of the conferences from being a three out of the ten carriers maybe 2.5 years ago, three years ago, the top ten, now we’re ten out of the top ten and we continue to own share in those top accounts while lending additional accounts.

So we see carriers and service provider as a top opportunity. They need to protect their own datacenters, they need to protect their own network and they’re starting to play or they have – ambition to play growing role in providing security services to the larger enterprise.

Across all those three opportunity in security, I think, we are the best solution out there. I think it’s proven by our Nokia and other OEM relationships. And I think it’s also proven by our continued penetration and success there. Yes revenue for this quarter year-over-year went down. But again, we have very strong confidence in our execution there..

Okay very good. Thank you very much..

And you next question comes from Alex Henderson from Needham. Your line is open..

Hey guys. So I wanted to ask a question on the adjustment to the balance sheet deferred revenues. Clearly you brought down the unbilled or the billed but not on the balance sheet not paid piece quite sharply.

Does that have a reflection into your season on linearity during the quarter? Is that a function of any change in the way the demand came in during the quarter or is that a function of last quarter, last two quarters? How do I think about that decline in that line item?.

We tried to talk only about the total deferred revenue which is takes into the account also the uncollected amounts in order to let it some of the collections and timing issues. And this is why we are seeing in this quarter as an example to the one 148 compared to the 128 last year.

But basically the changes that you see in the balance in a way some time the EBIT mislead is estimate of timing of collection that take the number in the balance sheet up and down and this is why we try to avoid them.

I think the fixed quarter has grown we’ve started off to build the total deferred revenue in order to avoid such mixes between quarter that’s had for us. So again I would recommend to review mainly or internally we look only on the total deferred revenues rather than the deferred revenues that are part of the balance sheet..

Yes I understand and I totally agree with that line a lot. I just wanted to make sure that there wasn't a change in linearity during the quarter as a result – the showing up in that line item would that decline, which is a pretty big break from prior quarters..

No, no it’s not [indiscernible]..

It's just seasonality of the timing then?.

Timing and sometimes collection that is good or bad in this quarter. By the way this quarter was a very good one, so you see that uncollected amount is less than the previous quarter. But it’s no real evidence for something that again look at the for 148 it’s more than good enough..

Okay, good enough. Second question I had for you is talking to the gut boys over five, they've really shifted pretty aggressively to vADCs and pushing more into the cloud. That's been something where you’ve guys had a huge competitive lead against them on application, isolation, and the like.

Are you seeing any change in behavior there that's impacting your business at all or is that just simply not the focus anymore as a result of the shift to SaaS and to security which is so much more articulated in your model than theirs?.

Yes, I think it’s – as I said it’s two pronged. Number one, I think, our business in security is very, very significant today and very well dollar competition with five or less than. If we go to vADC you are right, we have a strong lead there. I think they’re trying to make inroads into vADC they’re up and all kinds of different models.

And we think it's actually positive for us because if they will start promoting these models to the customers, I think, more customers will be more open also for our solution. So we see that as a positive. However, as the market itself we did see it strong evidence for that push, I think, it's early.

And I give away the credit that we will start seeing it in the coming quarters. But I think we're very well positioned on that. And as I said Q1 was a very good quarter for our vADC business as well. .

Okay, I’ll cede the floor. Thank you..

I have no further questions. Thank you. I’ll turn the call back over to the presenters for closing remarks..

Okay, thank you very much everyone. And have a great day..

Thank you, everyone. This will conclude today’s conference call. You may now disconnect..