Radware Ltd. — FY 2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an audited annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP. Amounts below are in U.S. dollars unless noted.
Business context and financial performance
Radware provides cybersecurity and application delivery products and services for cloud, on-premises, and software-defined data centers. From January 1, 2023, it reported two segments: Radware Core and Hawks. Its sales are primarily through distributors and resellers.
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $261.3 million | $293.4 million |
| Gross profit / margin | $209.6 million / 80.2% | $239.5 million / 81.6% |
| Operating income (loss) / margin | $(31.7) million / (12.1%) | $(3.3) million / (1.1%) |
| Net income (loss) / diluted EPS | $(21.6) million / $(0.50) | $(0.2) million / $(0.00) |
| Net financial income | $13.9 million | $8.1 million |
| Cash from operating activities | $(3.5) million | $32.1 million |
| Cash, deposits and marketable securities | $363.7 million | $432.0 million |
Revenue comprised $145.5 million of products and $115.8 million of services. Product subscriptions and services subscriptions were $114.8 million of revenue in aggregate under the filing’s disaggregated revenue presentation. Gross margin fell about 1.4 percentage points; operating expenses were nearly flat at $241.3 million. The company reported no debt. Current assets were $375.9 million versus current liabilities of $155.0 million; operating lease liabilities totaled $20.7 million, of which $4.7 million was current.
Material changes versus the prior year
- Revenue declined 11%, primarily because delayed large deals and customer budget constraints reduced on-premises and hardware sales, especially in the Americas. Cloud and subscription demand partly offset the decrease.
- Product revenue fell 15% and service revenue fell 5%. Revenue from both the enterprise and carrier markets declined; carrier revenue fell 20%.
- Operating loss widened to $31.7 million from $3.3 million. Radware Core shifted from $8.4 million operating income to a $16.8 million operating loss; Hawks’ operating loss increased to $14.9 million from $11.8 million.
- Operating cash flow turned negative, with the company citing lower earnings and a decrease in deferred revenue among the drivers.
- Share-based compensation increased to approximately $34.0 million from $27.4 million. Radware repurchased $62.4 million of shares under publicly announced plans; the cash flow statement reports $63.2 million of repurchases.
- Cash, deposits and marketable securities decreased by $68.3 million. The company attributed the year’s investing cash inflow primarily to proceeds from deposits and securities and the absence of the prior-year $30.0 million SecurityDAM acquisition payment.
Outlook, risks and unusual items
- Outlook: The filing gives no numerical revenue or earnings guidance. Management expects 2024 capital expenditures to be directed mainly toward cloud infrastructure, R&D testing and lab equipment, and ERP investment. It believes available cash will fund operations and planned activities for at least the next 12 months.
- Contracted revenue: Remaining performance obligations were $309.6 million at year-end; approximately 52% was expected to be recognized over the next 12 months, with the balance over as long as five years. This is not a guarantee of future revenue.
- Israel conflict: The company reported that approximately 5% of its workforce had been called to immediate military service following the October 2023 outbreak of war. It said it had not experienced a major business interruption or material adverse impact to date, while warning that escalation, employee absences and regional instability could affect operations. Commercial insurance does not cover losses associated with the regional security situation.
- Other risks: Management highlights customer spending uncertainty and long sales cycles, competitive pressure, dependence on distributors and a small number of hardware suppliers, cybersecurity and cloud-service availability risks, foreign-exchange and investment-market exposure, and evolving privacy and other regulation. Russia represented 3% of 2023 revenue, down from 7% in 2022, and sanctions or export controls may affect business.
- Taxes and related parties: Radware recorded $3.8 million of income tax expense despite a pretax loss, including effects of valuation allowances, withholding taxes and tax positions. It also has ongoing related-party leases and purchases, and a $6.3 million contingent-consideration liability related to the 2022 SecurityDAM acquisition; $2.1 million was paid in 2023.
- Legal and audit matters: The company said routine legal proceedings were not expected to have a material effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition, particularly estimates of standalone selling prices in bundled contracts, was identified as a critical audit matter.
Most important facts for investors to verify
- Whether subscription and cloud growth can offset continued weakness in hardware and large-deal sales, and whether revenue stabilizes after the 11% annual decline.
- Whether operating expenses and share-based compensation can be brought into line with revenue, given the substantially wider operating loss.
- Whether operating cash flow recovers, particularly as deferred revenue declined and the company continues share repurchases and cloud investment.
- The quality, maturity profile and market sensitivity of the $363.7 million cash and investment portfolio, including the effect of interest rates and credit conditions.
- Progress on Hawks’ commercialization and losses, and the expected timing of any contribution to consolidated results.
- Any material operational, workforce, customer-demand or funding effects from the Israel conflict, sanctions, or related geopolitical developments.
- The treatment of the $62.4 million share-repurchase disclosure versus $63.2 million in the cash flow statement, and the extent of future repurchases under the authorization expiring August 31, 2024.