Radware Ltd (RDWR) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2013 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Roy Zisapel. Please go ahead.

Thank you. Good morning, everyone, and welcome to Radware's second-quarter 2013 earnings conference call.

Joining me today is Meir Moshe, our Chief Financial Officer. Meir will start the call by reviewing the financial results, and afterwards I'll discuss the business highlights of the second quarter. After my comments, we'll open the discussion for Q&A. Meir?

Thank you, Roy, and welcome, everyone, to our second-quarter conference call.

First, I would like to review the Safe Harbor language. During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are just predictions, and that 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 our products, the timing and demand for orders, and other risks detailed from time to time in Radware's filings. We refer you to documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's last Form 20-F filed in March 2013.

And now, ladies and gentlemen, for the financials. Revenues for the second quarter totaled to an amount of $46.8 million, compared to revenues of $45.1 million in the first quarter of 2013, representing 3.8% sequential growth.

Non-GAAP gross margin remains at 82%. The non-GAAP net income this quarter totaled to an amount of $7.1 million, or $0.15 per diluted share, compared to net income of $7 million, or $0.15 per diluted share, in the first quarter of 2013 and net income of $10 million, or $0.21 per share, in the second quarter of 2012.

Stock-based compensation expenses in the amount of $1.3 million, amortization of intangible assets in the amount of $800,000, exchange rate expenses in the amount of $63,000 bring GAAP net income this quarter to $4.9 million, or $0.11 per diluted share, compared to net income of $7.6 million, or $0.16 per share, in the second quarter of 2012.

Non-GAAP operating expenses reached $31.9 million this quarter.

The headcount for the end of this quarter was 809 employees. Following shares purchased in the amount of approximately $3 million, our overall cash position, including cash, short-term and long-term bank deposits, and marketable securities, amounted to $272 million, and we have no debt. Shareholders' equity amounted $282 million.

Guidance for the third quarter, we expect revenues to range between $47 million to $48 million. 82% gross margin. OpEx will range between $31.8 million to $32.1 million. Financial income at $1.2 million and non-GAAP EPS to range between $0.15 to $0.16.

To summarize, we continue to see a strong market need for our type of product and we believe that we can drive the Company back to growth, as well as increase our profitability in the next quarters.

And now, I would like to turn the call over to Roy.

Thank you, Meir.

Our second-quarter results reflect an overall sequential improvement in sales, yet we still have work ahead of us to improve our execution and growth, especially in our international markets.

On the positive side, during the quarter we continued to see strong performance from our North America region. Our US business delivered a record quarter with significant year-over-year growth. We see sizable opportunities in carriers, large enterprise, and Cloud providers, all of which are in need for better security, better response time for hosted and centralized Web applications, and better availability of their mission-critical applications.

However, our results in EMEA remained weak. In June, we made a change in the leadership of the region and appointed Yoav Gazelle to head our sales in EMEA and CALA. Before joining us, Yoav was president of the Americas and Europe for ECI Telecom, and he brings to Radware significant experience in large account sales, especially in the carrier markets.

We are very focused on improving our results, both in EMEA and Asia-Pacific, and believe the impact of such a recovery on our overall results will be significant.

On the OEM front, we saw improved contribution from our Check Point partnership that is now nearing the $1 million mark in the quarter, and also some sales through our Juniper relationship specific to a large Tier 1 provider in the US. We believe we can continue to grow the Check Point revenues over the coming quarters.

From a product perspective in the second quarter, overall product sales grew year over year, which allowed us in the first quarter and we believe also in the second quarter to slightly increase our market share.

Our services business is not growing in line with our competitors, which resulted in lower overall growth rates at the Company level, despite strong product growth rates. This is an area of focus for us, and we believe we will be able to increase our service bookings this year, and as a result also the growth rates in our recognized service revenues.

In the application delivery market, we're seeing increased levels of activity in our Cisco ACE replacement program, with wins in both new and existing accounts that wish to consolidate their application delivery footprint with our Alteon ADC-VX platforms.

In the application security space, our attack mitigation solution continued to prove its unique capabilities in blocking major cyber attacks against our customers' data centers. We believe we are if not the only solution, then one of very few that can deal with the rapidly evolving threat landscape.

We have continued to win many new customers with this solution, with specific strength in carrier, Cloud, financial services, and online segments.

During the second quarter, we announced that our attack mitigation solution was selected by Data Foundry to protect its customers against denial-of-service attacks. Data Foundry is a Texas-based provider of wholesale data center outsourcing, co-location, managed network services, and disaster recovery. Data Foundry launched a denial-of-service security service for their customers that is based on customer-dedicated DefenseFlow attack mitigation systems. They've already deployed the solution to their customers and will add more DefenseFlow units for every additional customer that will take on this service.

If you visit their website, you can see they are actively promoting the service based on [other] DefenseFlow units.

Data Foundry joins a growing list of hosting and Cloud providers, such as FireHost, Brain [cell], Secure-24, ongoing operations, and others that are embedding various Radware solutions as part of their customer services and are reselling our application delivery and security solutions as a service to their customer base.

As we discussed in previous calls, we see in software defined networks a major growth opportunity. To that end, we introduced our first software defined network security application to the market, which we named DefenseFlow.

DefenseFlow program software defined enabled networks to become part of the DDoS protection service itself, enabling telco and data center operators to assign a denial-of-service protection service to a virtual network segment or per customer.

Using information collected from OpenFlow-enabled switches and server NIC cards, the DefenseFlow application determines whether an attack is taking place from one of the protected assets or customers in the service. Upon such detection, DefenseFlow uses OpenFlow to redirect suspected flows to our DefensePro mitigation devices that are positioned in the data center scrubbing center. The DefensePro devices then clean the traffic, block the attack, and forward legitimate traffic back to the network.

This architecture provides for complete network and application layer DDoS detection with very granular traffic diversion down to the flow level and all done in seconds, versus current legacy architectures that are much slower to detect and to mitigate attack traffic.

During the last Cisco Live event in Orlando, we conducted a live demo of the solution together with Cisco where DefenseFlow was working on top of the Cisco XNC SDN controller. It was the only application demonstrated in Cisco Live to run on top of the controller.

The joint solution relies on the following components. The Cisco XNC controller, Cisco switches and routers that are onePK and OpenFlow enabled, Radware DefenseFlow anti-DoS SDN application, and our DefensePro attack mitigation solution. The result is complete obstruction of the anti-DoS resource provisioning and alignment with network operations to provision, manage, monitor, and block denial-of-service attacks.

To date, DefenseFlow is the only attack mitigation application available for SDN architectures, and we have began engagements with leading carriers around the world as part of their SDN trials and next-generation data center designs.

Going forward, we believe that key announcement we made this quarter point very well to where we believe there will be significant growth in our markets. We're focusing more and more efforts on Cloud data centers, software-defined networks and software-defined data centers, and cyber security. We believe Radware is unique in its ability to provide a broad set of data center application services that include application delivery, attack mitigation, and Web acceleration, all in great need in Cloud data centers.

Before concluding, I would like also to thank our customers and partners for their continued support and trust, and the Radware team for all their efforts, commitment, and success in growing our business.

With that, I would like to open the discussion for Q&A.

(Operator Instructions). Mark Sue, RBC.

Roy, if I look at the trajectory of the revenues over the past several quarters and what you are guiding to now, it looks like there is zero percent revenue growth. And even if I look at sales execution improving potentially in December and you were to do $50 million and improve sequentially, that would still imply zero percent revenue growth.

So, I'm just trying to get a sense -- if the market is healthy, what do you think is causing this zero percent revenue growth? You're seeing activity in some of the partnerships, so parts of your business might be declining. Or what can you really do to get back to your levels of growth this year and next? Because there is a lot of promising things that we see on the horizon, but at the same time, the base of your business is contracting.

Yes, so I think the market, the underlying growth drivers, are very good, as you also mentioned. But I do believe, and it's evident from the numbers of the application delivery market, is that in the first half, the market was reduced in size, and you can see that by the product sales of our largest competitors that are down between 5% to 10% year over year per quarter.

So, I think the reason for that is actually not the market itself, but some new platform pricing by some of the competitors that simply brought down the average sale price. I don't think it's the underlying market conditions.

Now this results in less revenues, I think, on the overall market. Having said that, we are seeing growth in our product sales, and for Radware specifically, I think there are several specific execution issues around the service portion of our business that I've mentioned and EMEA that are hurting our overall performance.

So I think although we are not showing growth in our overall business, I think we can address that. I think we are demonstrating better traction in executing product sales, even with these weaknesses versus the overall market. And I do think the underlying market is strong. I think there's a temporary, I would say, decline in market size because of vendor pricing more than anything else.

Okay, so do you feel that, as the market slows and everyone wants to keep their market share, this aggressive vendor pricing will continue, hampen your ability to grow your revenues?

And then, secondly, Roy, as you fix Europe, how can you ensure investors that North America will outexecute Asia [then to meet] outexecute, so you get to the point where the overall [reg] organization is running along, as opposed to kind of fixing this region and then turning around and fixing the other region? Maybe sum up from an operational point of view to help us there. Thank you.

I think we have demonstrated very good traction and progress in the Americas for almost two years now consistently, and I think we are growing the organization and the traction that we have.

Obviously, I cannot guarantee future growth rates next year or two years in a specific region, but I do believe that the underlying business that we see in the Americas with the BD partners, and getting back EMEA and Asia-Pacific to levers that we were already executing within the Company is something that is very much in our power and capability to do.

So, obviously we're very focused on that, and I think the good part is that the product business, which is the -- I would say the more challenging part of the overall business is behaving well or above market, and we need to fix certain geographies and service business that I think -- I believe we know how to do it.

All right. Thank you and good luck.

Alex Henderson, Needham & Company.

Thanks. Can you just give us the split on the geographies, and also the split between enterprise and service provider?

Okay, on the geographies, this is the US, the North America is 40% of the revenues this quarter, while EMEA, 25%, and Asia-Pac, 35%.

The split between enterprise and carrier, enterprise was 71% and the carrier, 29%.

Okay, so if I were to look at that on a growth basis, it looks like from a segmentation perspective that the primary hit here -- or the US business continues to do pretty well. The primary hit's on the international markets.

You've addressed the issue in Europe with the sales change. How long will it take for that change in management to play through the operations? Can you talk a little bit about the lead book activity rates and the like? And then, similar kind of question around what are you going to do to fix the APAC results.

Okay. I think we need to give some time for the new leadership in EMEA to demonstrate results, but I'm confident that like in the Americas, once we do the right change, the EBIT can be quite visible in a short timeframe.

So we're just -- we're one month into this change. At the same time, I think we have a very senior team in the mid-level management that knows the market, that was able to for years to generate for us excellent results. So I think this combination is not something that we're starting from scratch and rebuilding and now going for a two-year cycle of let's see how we are building expertise in the region.

In Asia-Pacific, I think the issue is of smaller scale and more focused on specific countries, and we are addressing that as such.

So I think if I take all of that together, having the US continue to grow, and I think you can see some acceleration even in the US growth from the last quarter, coupled with improved execution internationally, and I think it's a very achievable way for us to get back into growth.

So the 29% growth in the US market seems to be demonstrating some of the validity of your product cycle strength. Can you talk about the split between virtual hypervisor-based type sales and conventional market conditions? Is there any change in the mix of how the customers are deploying the gear?

In the ADC market, we are selling today -- all of our platforms are basically running virtual instances on top of them. So the only shift we might see is between a completely virtual appliance running on an x86 server and a hardware-based appliance that runs multi-instances.

Currently, we don't see a big shift between the two. We still see the virtual appliances being deployed either in Cloud, in public Cloud environments, or in environments that are more in the enterprise lab, testing, staging.

Just yesterday, for example, Alcatel-Lucent announced that their Cloud [bend], their Cloud platform, they're using Alteon on as the ADC. There's a virtual ADC running on their Cloud-based platform. So we continue to see traction with our virtual application delivery infrastructure, both in hardware and in the software service as a standalone.

So I hear what you just said, but I'm pretty sure that a large number of your customers are not turning the licensing on to use the virtual licenses. So can you look at your experience in terms of what customers are actually doing? I mean, obviously, every box you sell is capable of being virtualized, but that's not the experience in the field, I don't believe.

So I think the large enterprises --- the small enterprises are not utilizing, I would say, more than five instances today, but the large enterprises and definitely carriers are, and we are seeing more and more licenses being sold. I think the virtual instance license sale, meaning the pure software sales of virtual instances, have rosen significantly in the last several quarters.

We don't see yet full adoption of complete virtualized infrastructure with hundreds of instances, but we do see enterprises today running between 10 to 15 instances and we see carriers running between 100 and to our top carrier that runs today 3,000 instances. So we're definitely seeing a rise in the amount of instances that is mainly focused on the higher end of the market and the Cloud market. And we believe those trends will go and extend themselves over time to the overall market.

But I agree with you that the small/medium enterprises today don't run multiple instances, more than five.

But I think another point that is important on the small/medium enterprise is that we are the only vendor that offers these customers virtualized in isolated instances. So there's options in the low end, even if they need a very small amount of instances, let's say three. It's either to buy hardware for that or not to run in an isolated fashion.

So we do have -- even though there are in less need of huge amount of instances in density, we do have a strong architecture benefit also in the small and medium enterprises.

Okay. I'll cede the floor. Thanks.

Ittai Kidron, Oppenheimer.

Thanks. Roy, can you give us a little bit more color into Europe? What countries are working, not working? When was the change in leadership? How long do you think it will take before you would expect it to deliver to your standard?

So, the change was done in June, the beginning of June, and we're seeing overall weakness mainly in south Europe and the Mediterranean, but we're seeing weakness across the whole region.

In terms of when we believe it will go back to the levels that we've seen, I don't want to give today an exact date and time, but we are working with a lot of focus because we believe that's a relatively easy gain that we can get, and we're talking some meaningful quarterly revenues that we believe we can get back and, with that, fix a lot of the growth questions that are on this call.

So I believe that EMEA can provide us with another $4 million to $5 million of additional revenues per quarter, and that takes -- by itself and we're not counting on it alone. But only this fix can get us above 10% year-over-year growth.

So obviously, we are seeing the problem. We've done what we believe is the right change, and we are now looking and working with the region to go back as soon as possible to where we were.

On the call, you mentioned -- I think to Mark's question -- some kind of rising price competition. Can you give us a little bit more color on that? Are there either specific regions where you see that more versus less, or are there specific vendors you see that from, more or less?

I don't think there's increased price competition. I think what's happening in the market is that F5, with their new platforms, came in very low price points.

So if you're selling, let's say, the five gigabyte platform in the price that you used to sell your one gigabyte platform, it's basically bringing the revenues of the overall market down. What it caused is that all of the vendors are applying the same price points to these capacities, which means I don't think there's significant share of gains or losses across the vendors. But I think the overall revenue of all the vendors is under more pressure.

I think as a result, F5's product revenues are down 10% and 5%. Ours are slightly up. And the overall market size, if you looked on Q1 reports, went down.

Once in a deal, I don't think vendors are more or less aggressive than before. It's just the pricing level that was set.

So you think that that type of price behavior, though, is cannibalizing the market?

I think it's evident in the numbers of F5 and the overall market. And I think it impacts also us.

Again and rather specifically, I think without that I think our product growth would've been much higher. It would not have solved the specific issues I mentioned that we are intending to fix and focus on, like our service revenues and EMEA. But I think you would have seen overall, across all vendors, better growth.

I think to -- the wrong assumption is that the market is decelerating or the growth drivers are not there because of the overall revenues you're seeing from the vendors. I think that's not the right conclusion. In my opinion, the underlying reason is different.

Meir, a couple of questions for you. Can you give us roughly what is the contribution of security to your overall revenue?

Ittai, you know that we don't break down the markets overall. So I can't share it with you.

Okay, and on the OpEx side, it came in a little bit high. Why did it come in a little bit on the high side and what are the drivers there?

No, actually our guidance was $31.8 million against $31.9 million, this including about $300,000 as a result of the weakness of the Israeli shekel, so it conflated into higher US dollars. This is the reason for that. Everything is just in --- based on our plans.

Got you. Good luck, guys.

Joseph Wolf, Barclays Capital.

Thanks, I have two questions. The first one is you mentioned Check Point now running at, I think, $1 million a quarter. I'm wondering if the sale of the DDoS product is actually also happening from Radware itself and whether you're at the same level as Check Point with that product, and what the opportunities are, as you see that, in terms of how big that can get?

I think the market for DDoS and, more broadly, attack mitigation is today estimated at around $300 million a year, but obviously with the increased amount of cyber attacks and such security incidents, in the end of the day I believe every large enterprise and data center would need such a solution in the edge, in the perimeter of the data center.

So I think we are progressing well in that market, both through our own channels and sales force, as well as through the Check Point relationship. Obviously, you know, our participation in the market is greater than the revenue that we are seeing through Check Point, but it gives us, I would say, a larger coverage and better penetration into some key accounts, penetration that we plan to use to cross-sell also our other solutions.

So, so far I think it's progressing very well with Check Point, and we hope to see that continue.

But you won't say whether your own contribution is as high as Check Point's right now (multiple speakers)

Yes, we don't want to break exactly our --- we give you credit that you can add those numbers and get to the full security revenues.

And then, just you talked about services a couple of times. I'm wondering how you view that in terms of what kind of initiatives do you have or can you put in place that would boost that, and why is it lagging right now as you look out at the market?

I think we need to be more focused on that, so we're building a separate sales team for services that will be handled outside of the regular geography sales teams across the world. We think with better focus and organization processes that are specifically tailored to this business, we can get it at least to the product growth rates and probably much higher than that.

I'm sorry. I just went through --- on that point of hiring, if I look at the website, there aren't that many sales jobs available. I'm wondering if there are more than that in your plans or how many sales you plan to add over the coming two quarters?

Well, we continue to -- no, we continue to add sales teams across the world, based on where we are seeing growth and opportunity. And some of those positions are posted on the website, and some people that we know or that we are already working with and the hiring is not done over the websites. So I'm not sure the website is the right leading indicator for the amount of things we're planning to add.

Specifically in North America we continue to add, and as you can see, we are enjoying very good growth rates and we think there's more and more opportunity. So we are adding -- each and every quarter, we continue to add sales teams, and we're adding in addition to that across the world for specific markets that we see increased potential for.

Thanks, Roy.

Jess Lubert, Wells Fargo.

Thank you for taking my questions. A couple questions here. First, the deferred revenue declined sequentially in the quarter. Can you discuss what drove the downtick there, and maybe talk a little bit about how you're feeling about overall visibility going into the September quarter? And when you think about the close rates that are embedded in the guidance you presented, how they compare to what you've actually experienced this past quarter. Have you done anything differently in formulating your guidance, be a little bit more on the conservative side?

Okay, so the deferred revenues, it's -- we mentioned several times this time on the call, Roy mentioned that the service revenues is lagging behind the order to growth. Typically in second quarter is not big quarter for service renewals, and therefore you're right. The overall deferred revenues declined by about $800,000 this quarter.

And any comments on visibility? Has that improved? Has it deteriorated?

I think we're giving the same --- our guidance is based on the same level of visibility that we have over time and same barometers that we estimate for close rates. I would not say it has improved or deteriorated. Quite the same.

And then, maybe just digging into the previous question a little bit more on the hiring and investment plans going forward. You know, I guess I'd just like to understand how you're thinking about hiring and the need to invest relative to what you're seeing from a business momentum perspective, to what degree you're willing to continue to ramp OpEx even though, let's just say, the topline were to remain challenged, as it does seem right now. A lot of your competitors are investing quite aggressively. So just would love to get an update on how you're thinking about current business momentum relative to plans to invest in sales, marketing, R&D, etc.

We will continue to make our investments like we've done in the past. I think the Company is very strong financially and I think we are -- from a technology and market point of view, we're positioned very well.

In areas that we need to fix our execution, we will not add more resources before we're getting things working well. But in areas like the Americas, where our growth is 30%, the competition is flat or 3%, 4% up, we're taking a little market share, we want to take advantage of what we're seeing in the market and obviously ramp up our investment.

So I think, you know -- I would not say we're going to be aggressively hiring. It depends on the region and the area, and we will be very considerate of the growth of the business. We want to do healthy decisions for the business, and so you will see us very -- we're hiring and adding resources specifically and with growth, enabling more and more growth through additional investments. But definitely, we're looking to grow revenues faster than operational expenses and we are very considerate with such barometers in our business decisions.

Roy, last one for me. Can you talk a little bit about what you're seeing in China, specifically? I know that was an area that was a little bit challenged last quarter, and help us understand how you're thinking about business fundamentals in China as we approach the September quarter. Are you seeing any sense of improvement there? Are things still fairly challenged in the region? How are you thinking about China?

It's still an area of relative weakness for us, although it has improved a bit since Q1. We had some major wins in key, I would say, in key tenders there in the market.

We think overall our execution has improved, but it's still an area of weakness relative to last year. So I would say in Asia-Pacific, we have some initial movements I hope in the right direction, and our key attention now is to accelerate that while focusing on EMEA in terms of geographic spread.

Roy, just as a follow-up on that, can you talk about anything you're doing different in China or the broader Asia-Pac region in order to get things moving back in the right direction? And when we think about Asia-Pac, is the business skewed more to the ADC or the security market?

No, across all regions, our main business is the ADC and that is the lion's share of revenues.

I would say compared to North America, Asia-Pacific is even more ADC-centric. In terms of the actions we're taking, obviously we are looking to increase our security business in Asia-Pacific and we are focusing our attention to the areas that we feel we are most strong -- virtual data centers, Cloud data centers, Web acceleration, etc. And we couple that with ongoing review of our teams and whether we need to do some specific changes in the team.

But again, in Asia-Pacific I don't see that area is anything out of the ordinary that is continuously going on in the Company.

Thanks, Roy.

Rohit Chopra, Wedbush Morgan.

Meir, I just wanted --- I may have missed this in the call, but I just want to get a sense of what the buyback was this quarter. You put on a one-year buyback. I just want to get a sense of that impacted results.

Yes, I mentioned in the call that actually we repurchased shares this quarter in the amount of $3 million. It was about 20,000 shares.

Sorry about that. And then, Roy, you mentioned on the competitive landscape different pricing schemes from F5. You didn't talk about A10 and Citrix. Citrix and Cisco now have, call it, quote unquote, some type of formal integrated product out there. I just want to see if those guys are causing any issues in the market.

And then, Roy, I think it's also important to try to understand if there are any --- is there any improvement with IBM or any other partnerships out there as you try to grow the top line? Maybe you could talk about partnerships.

Okay, so I think in terms of the pricing comment that I have, I think what we're seeing is limited to the impact is driven by this F5 cycle.

I don't see differences in terms of the other vendors. Everyone, I think, is responding exactly the same to that cycle, and that is adjusting the price points accordingly. So, I don't see difference still in anything else than that.

I don't see today Cisco involved a lot in ADC tenders. They do have this alliance with Citrix, but for the most part, we see the tenders about ACE replacements and Cisco not being part or not playing an active part in the RFP answer.

Regarding partnerships, I don't want to provide specific updates before we can announce something publicly, but as you know well, we are working on increasing partnerships and alliances. I mentioned the Alcatel-Lucent around the Cloud data centers on the call that they just launched yesterday. So we continue to be active there, and we continue to see that as a very good growth driver for us, an ability to utilize our technology to reach more customers. But at this point, I've no specific updates on the names you've mentioned or others.

(Operator Instructions). Rajesh Ghai, Craig-Hallum Capital Group.

Yes, thanks, Rajesh Ghai with Craig-Hallum. I just wanted to get some color on your success in North America. Over the last couple of quarters, I guess by my math, I think you've grown 19% [or nine percent] in North America for the last couple of quarters. What seems to be working there? Is there a specific vertical where you're seeing some success? Is it on the security side versus the ADC side? And anything specific you can tell us in terms of what's been working over there?

I think in the Americas, we are able to take share exactly where our core strengths are, which is in the ADC on the virtual and Cloud data centers. So we have major wins both in large enterprises, as well as Cloud data centers and carriers for our ADC.

In addition, obviously the security product line is doing very well in the Americas, given the large amount of attacks on financial services, carrier infrastructure, and online retailers. So I think in the Americas, we increased our participation in the market and we've added people to increase our coverage, and we're still far from covering well the overall markets.

So from our point of view, our growth opportunities in the Americas are almost limitless. We're not covering huge markets still in the US with a lot of business potential that we should, and as a result, the most success we're seeing, the more we're adding more capabilities, coverage, people, channels to our US organization.

And so far, so good. We're seeing -- we're participating in larger deals, in bigger and bigger brandings, and not only our total revenues are growing, but we are also finishing with record results of new customer revenues, which is also a very important indicator for us.

So it's not only the amount of business we're getting from existing customers, but our ability to grow and the new customer contribution as well.

And there have been some press reports recently about the US federal government awarding some pretty large type of security contracts over the next few quarters. Can you tell us how you're positioned against that opportunity and how you are going to address the go to market for those contracts?

So in the US federal market, we are working through system integrators and resellers. And they are representing us.

I think as it relates to attack mitigation, the denial-of-service attack mitigation at the edge, we have a very strong solution, and our partners recognize that, and I believe some of them will use it as part of their replies to those major opportunities.

We are not covering it directly; we think those are very large hundreds of millions of dollars of deals that require a very broad set of tools and system integration capabilities and relationships, and as a result we are working with some of the large system integrators.

I don't want to specifically name programs or parties we are working with, but we are obviously seeing that as an upside. There's a big upside opportunity. We believe we can continue to grow the US market without strong participation in the federal market.

What is the timing of those opportunities? Is it going to be this year or could it be next year (multiple speakers)

I don't have specific information. I think those are complex spenders, even when they are announced. There was a recent tendering cloud in the US government; there can be all kinds of legal proceedings afterwards. I think timing is unclear.

And if you could tell us what the contribution from Strangeloop was in Q2 and what's implied in the guidance, thank you.

As we forecasted when we acquired it, it's still a small -- relatively very small contribution to revenues, and we believe that by the end of the year when we are integrating it into our Alteon ADC, that contribution will go up.

(Operator Instructions). And there are no more questions. Please continue.

Okay, thank you, everyone, for joining us and have a great day.

That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.