Radware Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 report; the supplied filing text does not provide clear Q4-only results. Financial statements are audited and prepared under U.S. GAAP. Amounts below are U.S. dollars.
Business context
Radware provides cybersecurity and application-delivery products and services for physical, cloud and software-defined data centers. It sells mainly through distributors and resellers and operates in one reportable segment. Revenue is generated from products, subscriptions and services.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $286.5 million | $250.0 million | +15% |
| Product revenue | $170.4 million | $132.9 million | +28% |
| Service revenue | $116.1 million | $117.1 million | -1% |
| Gross profit / margin | $234.1 million / 81.7% | $204.9 million / 82.0% | Margin down about 0.3 points |
| Operating income / margin | $18.2 million / 6.4% | $6.2 million / 2.5% | Operating income increased |
| Net income / margin | $7.8 million / 2.7% | $9.6 million / 3.9% | Net income decreased |
| Operating cash flow | $71.8 million | $63.9 million | Increased |
| Capital expenditures | $5.6 million | $8.7 million | Decreased |
Net income fell despite higher operating income, primarily in the context of a sharply higher tax provision. The effective tax rate was 65% versus 31% in 2020, principally reflecting the Israeli tax settlement and release of trapped earnings. Net financial income declined to $4.4 million from $7.8 million.
Cash, cash equivalents, bank deposits and marketable securities totaled $465.8 million at year-end, versus $448.8 million a year earlier. The company reported no debt. Current assets were $320.7 million and current liabilities were $165.9 million. Deferred revenue totaled $167.0 million, including current and long-term balances. Total assets were $635.4 million and shareholders’ equity was $370.0 million.
Cash from operations was $71.8 million; investing activities provided $7.8 million, mainly reflecting investment maturities and proceeds; financing activities used $41.9 million, primarily for share repurchases. Radware repurchased $52.5 million of shares during 2021. The company reported equity as 58% of total assets, compared with 62% in 2020.
Material changes versus prior year
- Revenue rose 15%, led by product revenue growth, including cloud services, product subscriptions and appliance products. Service revenue edged down as lower maintenance revenue was partly offset by service subscriptions.
- Enterprise revenue increased 18% to $208.2 million; carrier revenue increased 7% to $78.3 million. EMEA revenue grew 26%, Americas 13%, and Asia-Pacific 4%.
- Operating expenses rose 9% to $215.8 million, driven by personnel-related costs, currency effects and subcontractors/consultants. Operating income increased from $6.2 million to $18.2 million.
- Net income declined 19% to $7.8 million. The tax provision increased to $14.8 million from $4.3 million.
- Deferred revenue increased to $167.0 million from $146.9 million. Remaining performance obligations were $281.6 million; the company expected to recognize approximately 60% over the next 12 months.
- Cash and investment balances increased by $17.0 million. Share repurchases totaled $52.5 million, compared with $45.3 million in 2020.
Outlook, commentary and risks
- No formal revenue or earnings guidance is provided in the supplied filing text. Management said available cash should fund operations and planned activities for at least the next 12 months; it anticipated 2022 capital spending mainly for cloud infrastructure, R&D labs and ERP investments.
- Management described cloud migration, subscription purchasing, changing data-center architectures and increasingly complex cyber threats as industry opportunities, while cautioning that a shift to subscriptions may defer revenue recognition and requires strong renewal rates.
- COVID-19’s overall effect on 2021 operations was described as immaterial, but the company noted continuing uncertainty and supply-chain and delivery disruptions. Component shortages, extended supplier lead times and freight issues remain risks; two ODMs accounted for approximately 79% of 2021 direct product costs.
- Radware reported that 5% of 2021 revenue came from Russia, versus 3% in 2020, and warned that sanctions and export controls related to the Russia-Ukraine conflict could affect contracts, sales or collections.
- Other material risks include intense competition, reliance on distributors, cybersecurity incidents or service outages, talent shortages, foreign-exchange exposure, tax uncertainty, and political or security risks in Israel. The company generally does not hedge currency exposures.
- In November 2021, Radware settled Israeli tax matters for 2015–2018 for $9.3 million and elected to release trapped earnings under a temporary tax measure. A further $8.2 million tax payable was recorded at year-end. The company also disclosed $5.3 million of unrecognized tax benefits and $5.3 million of contractual tax-position payments whose timing could not be estimated.
- After year-end, on February 17, 2022, Radware acquired SecurityDAM’s technology and operations, a related-party provider of cloud DDoS scrubbing services, for $30.0 million plus up to $12.5 million in contingent consideration. In March 2022, the board authorized an additional $80 million share-repurchase plan.
Important facts for investors to verify
- Review the tax-settlement accounting and the $8.2 million payable, including its effect on the 2021 effective tax rate and future cash taxes.
- Assess the acquired SecurityDAM assets, related-party governance, contingent-payment terms and post-acquisition integration and operating costs.
- Track subscription growth, renewal rates, deferred revenue and conversion of remaining performance obligations into recognized revenue.
- Monitor ODM and component concentration, inventory levels and gross margin effects from supply constraints and expedited sourcing.
- Reconcile the reported $465.8 million of cash and investments with portfolio credit, interest-rate and bank-deposit risks; the filing notes some deposits are uninsured.
- Confirm subsequent repurchases, share count changes and the use of the new authorization, and consider that Radware does not plan to pay cash dividends in the foreseeable future.