Radware Ltd. (RDWR) Earnings

Management highlights

- Overall Financial Performance * Delivered record Q2 2026 total revenue of $82.3 million, marking the seventh consecutive quarter of double-digit year-over-year growth (11% YoY) * Non-GAAP gross profit reached $67.3 million (up 10% YoY) with a healthy gross margin of 81.8%; non-GAAP net income grew 22% YoY to $17.5 million, and non-GAAP diluted EPS grew 25% YoY to $0.40 when excluding unfavorable Israeli shekel appreciation impacts * Ended the quarter with $422.9 million in cash, cash equivalents, bank deposits and marketable securities, maintaining a strong balance sheet for strategic investment - Product Innovation & Go-To-Market Progress * Cloud security is the primary driver of recurring revenue growth, with newly launched API security gaining strong traction, including two major wins at leading Asia Pacific financial services firms that process a combined 250 million monthly API calls * Enhanced the on-prem Defense Pro X platform with cloud-augmented protection, combining cloud-native AI threat intelligence with the speed, privacy and control of on-prem deployment to better serve hybrid environments * Launched Exploit Shield, the first-to-market solution that automatically generates tailored application protection shields to block exploitation of newly discovered vulnerabilities, addressing the rapidly shrinking window between vulnerability disclosure and active exploitation accelerated by frontier AI attack tools * Ongoing investments in North America go-to-market operations are driving strong results, and early returns from APAC market investments are also encouraging - Strategic Priorities * Continue scaling the cloud security business, expand adoption of the full integrated Radware security platform, and strengthen the global partner ecosystem * Align ongoing innovation with evolving cybersecurity market trends, including rising application complexity, expanding API ecosystems, AI-accelerated cyberattacks, and growing demand for AI infrastructure protection to drive long-term growth

Guidance

- Total revenue for Q3 2026 is expected to fall in the range of $82.5 million to $83.5 million - Q3 2026 non-GAAP operating expenses are projected to be between $57 million and $58 million - Q3 2026 non-GAAP diluted earnings per share is guided to a range of $0.28 to $0.29 - The company's effective tax rate for Q3 2026 is expected to be between 14% and 15% - Management reaffirmed the target of growing cloud ARR contribution to 25% as an initial milestone, with further expansion expected beyond that

Segment performance

By product segment: Cloud security: Annual Recurring Revenue (ARR) reached $100 million, growing 22% year-over-year. Cloud ARR accounted for 40% of total company ARR (up from 36% in Q2 2025), and subscription revenue (led by cloud security) represented 55% of total Q2 revenue. On-prem security: Defense Pro X delivered strong results, anchored by ongoing infrastructure refresh cycles, with a notable seven-digit deal with a global business and financial information leader closed during the quarter. By geographic segment: Americas: Revenue of $37.2 million, up 24% year-over-year, representing 45% of total revenue. Trailing 12-month Americas revenue grew 21% year-over-year. IMEA: Revenue of $27.3 million, down 2% year-over-year, representing 33% of total revenue. Trailing 12-month IMEA revenue grew 3% year-over-year. APAC: Revenue of $17.8 million, up 9% year-over-year, representing 22% of total revenue.

Risks & headwinds

- Forward-looking results are subject to risks including adverse impacts from changing global economic conditions, industry shifts, changes in customer demand, and variability in the timing and size of customer orders - Foreign exchange headwinds from the strengthening of the Israeli shekel against the U.S. dollar created a $4.5 million unfavorable impact on Q2 2026 non-GAAP net income, and reduced reported operating income year-over-year - Persistent supply chain cost pressure and foreign exchange headwinds impacted Q2 2026 gross margin - Lower market interest rates and reduced cash balances from recent share repurchases are expected to modestly lower financial income in the second half of 2026 - Global supply chain delays for third-party infrastructure can lead to minor push-outs of on-prem security deployments tied to new data center buildouts, though this impact is not material to the business

Analyst Q&A

• Q: Are customers changing on-prem buying behavior due to global supply chain issues and memory price changes? /

  A: Minor push-outs do occur for deployments tied to new data center projects, as those projects are delayed by server and switch supply chain constraints. For upgrades or enhancements to existing on-prem infrastructure, which makes up most of Radware's on-prem business, supply chain issues have no material impact.

• Q: When will AI tailwinds meaningfully contribute to revenue, and how should we frame expectations? /

  A: Protecting customer-owned AI infrastructure is still early, as customers are only in the early stages of deploying mission-critical internal AI tools. AI-driven acceleration of cyberattacks, however, is already creating urgent customer demand for solutions like Exploit Shield, which addresses the rapidly shrinking window between vulnerability discovery and exploitation, and this demand is already contributing to revenue. Radware also uses AI internally to improve its own security algorithms, enabling new product capabilities that were not possible before.

• Q: Has the release of the Mythos AI model changed customer awareness, and is the trend of more on-prem AI workloads impacting Radware's business? /

  A: Mythos dramatically increased CISO and security team urgency around AI-accelerated vulnerability exploitation, driving strong early interest in Exploit Shield, which shields unpatched vulnerabilities that enterprises cannot quickly or safely fix. A trend of locating sensitive AI workloads on-prem does not materially change Radware's business, as most of its large enterprise customers already operate hybrid environments, and its cloud and on-prem solutions are complementary with no internal cannibalization.

• Q: Is there an opportunity to drive more aggressive refresh cycles for out-of-support Defense Pro hardware, and what is the status of go-to-market investment progress? /

  A: Most core Defense Pro installed base remains under support, as out-of-support devices lack critical real-time signature updates, so there is no large pool of out-of-support hardware to target for refresh. There is still significant long runway for the ongoing Defense Pro refresh cycle, and cloud security pipeline growth is outpacing current cloud ARR growth, with increasing demand for full-platform enterprise agreements that include new modules like API security and Exploit Shield. North America go-to-market investments (including the new hunter-farmer sales model) have already delivered strong double-digit growth, and early positive trends are emerging in APAC.