Radware Ltd. — FY 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a quarterly report; the supplied filing text does not provide a clear standalone Q4 2019 income statement or cash-flow value. Financial statements are audited and prepared under U.S. GAAP.
Key financial results
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $252.1 million | $234.4 million | +8% |
| Gross profit / gross margin | $206.9 million / 82% | $192.7 million / 82% | Margin broadly steady |
| Operating income / margin | $16.9 million / 7% | $7.5 million / 3% | More than doubled |
| Net income | $22.6 million | $11.7 million | +92% |
| Diluted earnings per share | $0.47 | $0.25 | Increased |
| Net cash from operating activities | $52.9 million | $49.3 million | +7% |
| Cash, deposits and marketable securities | $427.7 million | $401.1 million | +$26.6 million |
| Working capital | $96.4 million | $241.0 million | Down $144.6 million |
| Total assets / shareholders’ equity | $595.2 million / $395.3 million | $532.7 million / $364.0 million | Both increased |
Radware reported no debt. Capital expenditures were $8.2 million, compared with $8.9 million in 2018. Cash used in investing activities was $50.8 million, while financing activities used $6.5 million, principally due to $24.5 million of share repurchases, partly offset by option-exercise proceeds.
Business context and material changes
Radware provides cybersecurity and application-delivery products and services for physical, cloud and software-defined data centers. FY 2019 revenue comprised $133.6 million of products and $118.5 million of services. Product revenue grew 13%, while services grew 2%; subscriptions and hardware-based products contributed to product growth. Subscription revenue was $54.9 million, compared with $41.7 million in 2018.
Revenue increased 25% in Asia-Pacific, 4% in the Americas and decreased 1% in EMEA. The United States generated 34% of revenue. Enterprise revenue was $172.6 million and carrier revenue was $79.5 million.
The company completed its acquisition of ShieldSquare, a bot-mitigation provider, in March 2019 for approximately $14.3 million, including $12.2 million paid at closing and deferred consideration. The acquisition added technology and goodwill. Radware launched Cloud Workload Protection and Kubernetes WAF, among other product developments.
Management commentary, outlook and risks
- Management said available cash resources were expected to fund operations and planned activities for at least the next 12 months. It anticipated 2020 capital spending mainly for R&D testing and lab equipment, ERP modules and cloud infrastructure. The filing provides no numerical revenue or earnings guidance.
- Management described continued migration to cloud, subscription purchasing, hybrid data-center architectures and increasingly complex cyber threats as market trends. It cautioned that subscription-based revenue recognition can delay reported growth and that renewal rates and execution remain important.
- COVID-19 had not caused material supply-chain interruptions, significant demand reductions or work stoppages by the filing date, but the company could not estimate the outbreak’s eventual effects. Travel restrictions, market volatility, customer spending and supply-chain disruption were identified as potential impacts.
- Key operating risks include intense competition, long sales cycles, reliance on distributors, cybersecurity incidents and service outages, and dependence on a small number of hardware manufacturers. A related-party provider, SecurityDam, was the sole provider of scrubbing-center services for cloud DDoS protection; 2019 costs were $7.1 million.
- Foreign exchange is a significant exposure: most sales are dollar-denominated or dollar-linked, while some costs—especially Israeli payroll—are in other currencies. Radware generally does not hedge currency or interest-rate exposure. Investment income and securities values are sensitive to rates and market conditions.
- Unrecognized tax benefits were $5.6 million at year-end, with accrued interest of $0.5 million. The filing also cites restrictions and potential tax costs related to Israeli investment incentives and IIA-funded technology.
Unusual items and contingencies
In May 2019, Radware and F5 reached a confidential mutual settlement of a patent dispute without admission of liability. A separate earlier Radware patent case resulted in a $6.9 million award, recognized as other income in 2017 and collected in 2018. Operating leases were recognized on the balance sheet in 2019 following adoption of ASC 842; 2018 comparative balance-sheet amounts were not restated. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting, and identified revenue recognition as a critical audit matter because of transaction volume and judgments in allocating prices among performance obligations.
Investor verification priorities
- Review quarterly filings for actual Q4 2019 results; this annual filing does not give a clear standalone quarter breakdown.
- Assess whether subscription growth, renewals and deferred revenue convert into sustained revenue and operating-margin improvement.
- Verify the composition, maturity, credit quality and accessibility of the $427.7 million investment and cash portfolio; deposits in Israel were uninsured.
- Monitor the working-capital decline, receivables and deferred revenue, alongside the reported cash-flow performance.
- Evaluate ShieldSquare integration and acquisition-related amortization, and the continuing dependence on SecurityDam and concentrated hardware suppliers.
- Track COVID-19 effects, tax exposures and related-party transactions, including leases and service arrangements.