Radware Ltd (RDWR) 2015 Q3 法說會逐字稿

Good morning and welcome to Radware's Third Quarter 2015 Results Conference Call. I'd like to introduce Radware's Chief Finance Officer, Mr. Doron Abramovitch. Please go ahead, sir.

Thank you, operator; and good morning, everyone. Joining me today, Roy Zisapel, Radware's President and CEO. A copy of today's press release is available on our website.

During today's call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to cautious you that such statements are just predictions and we undertake no obligations to update these predictions. 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 products, the timing and amount of orders and other risks detailed from time-to-time in Radware's filings. We refer you to the documents the Company files from time-to-time with the SEC, specifically the Company's last Form 20-F filed on April 27, 2015.

And now, I will turn the call over to Rory Zisapel.

Thanks, Doron. We are obviously disappointed with our performance in the third quarter. Over the last several weeks, we've carefully analyzed our results and the trends going forward. As we previously shared with you, the weakness in the quarter came primarily from the US carrier and service provider market. Several large deals, specifically six deals, each one over $1 million, that we expected to be booked at the end of the quarter did not come through. Since then, we've already booked two of these deals and we still expect to close some of those remaining deals this quarter.

Despite slipping deals, we continue to see strong business potential in new account wins in the carrier and service provider segment. For example, in the third quarter, we announced that Online Tech, a leading enterprise cloud and collaboration hosting service company, has selected Radware's Attack Mitigation System to help protect the data centers from network security threats, while still maintaining business continuity.

Overall, our book-to-bill ratio was strong, with booking coming in at $54 million. The mix between support and subscription sales to product sales was weighted much heavier than we were used to, towards subscription and service contracts. These sales are obviously recognized over the life of the contract and contribute to growth in our deferred revenues. We believe that this trend will continue and the bigger portion of our orders will come from cloud and product subscriptions and services. We are offering today a broad set of cloud services, including our DDoS Hybrid Cloud Mitigation Service, our Always-on Web Application Firewall Security Service and our FastView Cloud Acceleration Service.

Our DefensePipe DDoS Mitigation Cloud Service is comprised of our DefensePro device installed on the customers' premise and our global footprint of cloud scrubbing centers. The on-premise device detects attacks and mitigates them in real-time. If and when the attack becomes a volumetric attack that supersedes the data center Internet pipe, the customer traffic is automatically diverted to our cloud scrubbing data center where the attack is cleaned and the legitimate traffic is forwarded back to the customers' data center. This solution offers the broadest and most advanced attack detection coupled with real-time mitigation in the data center and in the cloud in a fully automated manner.

Our Web Application Firewall Cloud Service provides always-on web application firewall, data center IPS and DDoS prevention service and target customers that are either completely operating from cloud data center or ones that are interested in complete security as a service offering.

In addition, we offer customers our Emergency Response Team premium managed service. With the shortage of security resources on our customers' end and the lack of expertise in protecting against cyber attacks, the ERT premium service provides our customers with a fully managed attack mitigation service for their on-premise and in the cloud Radware solution. It provides for the complete outsourcing of monitoring, management and mitigation of cyber attacks on customers' data centers.

Overall, we see more transactions where customers are consuming our products and solutions either completely as a service, or where cloud subscriptions and managed services are a bigger portion of the deal. While in the short term, it has a negative impact on revenues versus a straight product purchase, we see the strong growth in cloud and product subscriptions as a strong positive for the business. It provides for larger deal sizes, more strategic positioning within our customers' IT organization and strong potential for renewable revenue streams and enhancements.

I would like Doron to elaborate more on the financials.

Thank you, Roy. Let me start with the financial results for the third quarter. Revenues for the third quarter were $48.1 million below our expectations and representing a [15%] year-over-year decline. Service revenues and recently growing cloud subscriptions are an important part of our business model. In our next call, we will share with you detailed trends.

Looking at the breakdown per geography. Americas accounted for 40% of total revenue this quarter, EMEA 27% of total revenues and APAC 33% of total revenues this quarter. Enterprise revenues contributed 76% of total revenues and carrier 24%.

In our press release and in our supplemental financial data accompanying our results, you will find a GAAP to non-GAAP reconciliation of $0.09 difference in EPS. My comments in the quarter will be focused on the non-GAAP results. The main differences between the GAAP and non-GAAP results for the quarter are attributed to stock-based compensation expenses, exchange rate differences, IP litigation costs and amortization of intangible assets.

We continue to keep our high gross margin which remains at approximately 83%. Our operating expenses in Q3 were $36.7 million, similar to our expectations. The lower than expected revenue has a negative impact on our operating profit and profitability.

The net income this quarter was $4.8 million or $0.10 per share diluted compared to net income of $11.2 million or $0.24 per share diluted in the third quarter of 2014. Weighted average number of shares used in computing diluted net earnings per share for the third quarter was approximately 46.6 million shares.

Turning to the balance sheet, in the third quarter and according to the plan approved by the Board, we've purchased over 1.2 million of our common shares for a total of approximately $25 million. As of September 30, 2015, we had approximately $310 million in cash and financial investments. Given our strong cash position and positive outlook for continued cash generation in Q4 2015 and in 2016, we plan to continue executing share buyback plan.

Our deferred revenues, including amounts invoiced to customers for whom revenue has not yet been recognized, increased 13% year-over-year. As previously mentioned, as we move more and more into the cloud and product subscription and service as a business model, we expect this trend and increase to continue. We ended the quarter with 981 employees, an increase of 24 from prior quarter.

Moving on to our outlook for the fourth quarter, we continue to remain focused on optimizing our business model to support the growth. We will continue to add resources, mainly field sales and services teams. As Roy mentioned, we entered the fourth quarter with solid indicators to our key drivers and our year-over-year bookings should be better representing our product offerings, our strong position in service and growth in the subscription. Our revenues guidance for the fourth quarter are $54 million to $56 million. Gross margin is expected to be approximately 83% and non-GAAP EPS guidance is $0.15 to $0.18 per share. Roy, please.

As Doron mentioned, although our revenues guidance reflect year-over-year revenue decline, our business is still strong and we expect 2015 bookings to be higher than 2014 bookings with a strong growth in deferred revenues. We are very excited by the opportunities ahead of us, especially in the cyber security space. We provide the best attack mitigation solution in the market with a complete data center and cloud solution. We have the strongest market adoption by leading security vendors such as Cisco and Check Point, cloud security providers such as Akamai and Level 3, and large enterprise accounts for our solutions.

We continue to see strong market validation of the strength of our technology and product offerings through independent tests, industry analysts and customer feedback. For example, this month, Gartner noted Radware as the leader in the Magic Quadrant for the Application Delivery Controller market for the sixth time.

Looking forward, we will execute our strategy with the following key points. First, we are very focused on providing a comprehensive integrated solution for data center application delivery and security. Second, we lead innovation in the market as it relates to data center attack integration, secure hybrid cloud, NSD and NFV applications for secure networking. Third, we increased our market footprint through traditional channels, OEM, cloud and CDN channels, and acquisitions.

To summarize, although we are disappointed with our financial results, we feel very good about the current momentum we have in our business, about the strong customer loyalty reflected in increasing annuity bookings and about our leading technology and solution sales. We have a strong financial standing with continued strong positive cash flow and we are starting to build the cloud and product subscription revenue stream next to our traditional product and service contracts revenue streams.

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

Thank you. (Operator Instructions) Mike Kim, Imperial Capital.

So turning back to some of the delayed large transactions, you commented in your prepared remarks about expectations for closing. What's your visibility around the remainder of the deals, win rates and pricing?

So I think we have pretty good visibility. I think the win rate is not dependent on competition, but more on some of our customers' budget cycle. As I said, we do believe we will close more and more deals and beyond the two that are already closed. So, I think we're progressing well; some, there are some budget issues in the segment, in the cloud hosting service providers, but overall we are working to close them.

And then, when we think about the cloud services, is there an attach rate that you can describe on the number of cloud services and pricing around that?

I cannot speak yet on attach rate, but as I discussed, we are seeing more and more deals that a cloud service or a managed service is part of the deal, especially in the security side of our business.

Regarding pricing, pricing varies according to the level in our service and the type of cloud service the user subscribes to. So generally speaking, the Web application, firewall cloud ranges between 20,000 to 50,000 a year and the DDoS Cloud Service can go anywhere from 50,000 to 500,000 a year. So it's a pretty big spectrum and in our terms, it's quite significant numbers, especially if you think about the DDoS Cloud Service.

Great. And then lastly, you talked about expansion of the field sales organization, where do you expect to focus some of your resources either by geo or vertical?

So in general, we are going to invest in all three geos. Inside each geo, we have specific I would say markets and segments where we are focusing. Depends on where we see the biggest opportunity, but overall given our view that the market is strong, our view that our solutions are extremely competitive and as I shared many indications for leadership, we think we need to increase our fire power in the market and that's why we're adding more field sales teams and for the cloud services given the growth in subscription and customers' activity also in a service team for the cloud business. So, those

are going to be our two main investments going forward.

Great. Thank you very much.

Thank you. Mark Sue, RBC Markets.

Hi, good morning. This is Spencer for Mark Sue. First, just a quick housekeeping question, maybe I missed it, can you let us know what cash flow for the quarter was?

No, the cash was a bit negative mainly due to some prepayments that we did, approximately $2 million (inaudible).

Okay. And then, when we're looking at these deal pushouts generally, are the size of the deals approximately similar, similar-type customers or do they vary greatly?

They don't vary greatly. As I said, the smallest is $1 million and the segment is primarily the US carrier and service provider, so it's quite focused on that market.

Okay. And then, finally, in the other regions, can you just talk a little bit about what you're seeing in Europe? It seems like APAC year-over-year was a little bit soft again and if there is some headwinds near term there or if there are any particular steps that you're taking focused on those regions outside the US. Thank you.

No, I think there are two phenomena in the last quarter, one was the US weakness in the service provider and second is the fact that we're booking more subscription in services that the relative weights are changing in our business. So If I am looking at booking, the international business was okay and there was some impact for the deferred revenues, et cetera, that you're seeing in the actual revenues, but the booking trends were relatively stable and the key issue came from the US if I'm looking on year-on-year comparison. Going forward, we believe that international markets are improving and we think APAC can grow and have good momentum currently.

Thank you.

Alex Henderson, Needham.

Roy, I'm struggling with your explanation here a little bit. The third quarter of last year was $56.8 million in revenues. You had bookings, which include your subscription orders, which were generally overstating bookings a little bit because they have multiple periods in them. In terms of deliveries is actually less than what you reported as revenues in the year-ago period. So if the subscription business was causing the cannibalization, that would obviously result in a decline in numbers that were more significant than that. So the question really is how are you confident that in fact, this is just a function of the shift to subscription when you're talking about solid conditions and improving conditions internationally?

And then, if you look at the guidance for the fourth quarter, it's down substantially year-over-year again, and for the full year, you're now down. So I'm struggling a little bit with your explanation a little bit here. I mean certainly pushouts from the third quarter into the fourth quarter should theoretically help you see a rebound in 4Q. And you really haven't delineated how you fixed the problems that you expressed in the second quarter on the APAC business. So can you hit some of those issues, what gives you the confidence?

And then, finally, just one last point, obviously the Cisco deal was a big deal potentially, that's obviously not in the numbers yet. Can you talk a little bit about how that might manifest itself in the forward year?

So first, regarding your first question, and what we are seeing and I think we tried to share it in the prepared comments, is that the growth in deferred that we expect for this year is very substantial. And when we look on bookings, what we expect for this year versus last year, we do see growth. We also project at this point quite significant increase in the deferred revenue, also in the fourth quarter. While the revenue year-over-year is in a decline, we believe booking for Q4 will be at a much higher level than of Q4 last year. So when we're looking at our booking trends, we see a very good momentum coming into Q4 and that reflects also in our confidence level about the business and the underlying trends.

Isn't your booking in Q3 below your reported revenues in Q3 of last year. How is that a good trajectory?

So in Q3, absolutely, we had an issue and we said we are attributing it to the push-out of the deals, but if I'm taking Q3 and Q4 even together, we still believe that there is a positive booking trend by the end of the year and that takes into account of course the push-out deals. So the way we look on it, Q3 was a bad quarter, no question about it. However, the booking trends when we look for the full year and when we look for the second half in comparison to last year should be both positive. Doron?

So do you consider yourself still a 10% plus growth company and is that off of this depressed base, something that we should be able to write in pretty easily for next year or is this a company that is now in a transition period for an extended period of time, as it's just the way it delivers its product and services to customers?

So in terms of booking, we definitely look on that as we should be at a double-digit growth area.

In terms of revenues, we are in a shift right now, as you see in Q3, beyond the delay in deals and in our guidance in Q4. And so we're in a bit of shift in terms of the weight of the model. However, those should come back into the revenue already next year. So we do have now more deals that are being deferred, even the Cloud subscription and the service components in that. However, the underlying booking, we still see them as a double-digit growth area.

And the fixing of the problems in the Pac Rim that were identified as the cause for the 2Q miss.

They continue. I don't think we're over there. We said also that it will take us six to nine months and so we are progressing. I don't want to speak specifically that if we have a good result in Q4, we're out of the gate, but currently we do expect a strong performance from that region in this quarter, but it's still a process. I don't have any change there to report either negative or positive.

And the Cisco piece was last one.

Yes, regarding fiscal, they are preparing the launch. We are obviously tied to their launch schedule. We continue to work with them both on the product side as well as training and the ramp-up of the marketing material. At this point, we believe it's going to be a Q1 launch and we think the product line there is going to be expensive and can supply us with survey group revenue stream on licenses as well as services.

Okay. Thanks.

Jess Lubert, Wells Fargo.

Hey, guys. This is Mike coming on for Jess. Hey, Roy and Doron. Just a few couple house-keeping items first. For Q4, I didn't catch it, what is the OpEx guidance or how should we be modeling OpEx and also for tax rate, it looks like the tax rate dipped a little bit in Q3. How should we be thinking about the tax rate for Q4?

Basically the tax expenses are recorded based on our GAAP results. So this is the reason why you see in Q3 some number that you are most familiar, but we are now in the current trends we expect to stay in the low 20s in GAAP basis and as for your model, you can take a 60% and 70% out of the non-GAAP tax rate for Q4 or for the all year.

As for the guidance for the fourth quarter regarding the OpEx, you can take for the model approximately $38.5 million to $39.5 million. It's in line with the growth and especially with the booking phenomena that Roy mentioned. So these are the numbers that you can take for the model.

Okay. Great. Thanks. And then, just as far as visibility entering Q4 and just your forecasting methodology, have you made any just changes to the approach versus the prior quarters? Are you assuming similar close rates to the pipeline? Have you made any changes to your views regarding the macro environment? Just in general, what's the level of conservatism baked into the forecast?

We definitely increased our conservative measures and we did apply higher than what we used to ratio of this cloud and subscription [deferral] based on our Q3 and what we believe can happen in Q4. And as I said, we do expect a higher booking result while we are still targeting or providing guidance for our lower revenue. So it means that deferred revenue should grow substantially in the fourth quarter. And it's a combination of maybe being a bit more conservative but mainly due to our view of the proportion between cloud subscriptions and product sales.

Okay. And just on the deferred revenue point, on the balance sheet, you guys lumped it together with other items. Can you provide what deferred revenue is and if it's up sequentially as well as year-over-year?

No, we cannot provide right now the numbers, because you have it all in the balance sheet. However, due to the accounting principles, we do not recognize revenues and neither book to our balance sheet invoice services contract, which we didn't collect. So the number that we talk about, what we call the deferred revenues is not what you see in the balance sheet. And one can consider it in the pipeline and this is what we are focusing on.

Okay. So the pipeline is up year-over-year 13% is the way we should be reading that?

Yes, it's a combination of mainly actually deferred revenues, which you do see in the balance sheet and on top of that, the unrecognized invoices which is what call the pipeline, so yes.

Okay. And then, just the last one, yes, you spoke a lot about the service provider business, but the enterprise just looks like a little bit soft in Q3 as well. Can you maybe just talk about the trends you're seeing on the enterprise?

I think enterprise was definitely stronger than the service provider. I think what the main impact you are seeing there is the deferred contracts that we have versus our more regular trends. For the full year, still enterprise is up year to date and enterprise is up while the carriers and service providers is down.

Okay. Thanks.

Ittai Kidron, Oppenheimer.

Thanks. Doron, can you comment on the bookings number? Do you have a lot of services-related bookings that are more than 12 months? Is there a way to give us an annualized booking number instead of an overall bookings number?

No, no, We don't reveal this number.

Is the average service contract of your services more than a year?

It's a bit more than a year. It's changing, so the average is more than a year, but I cannot say more than this right now.

Okay. So it is then correct to say that this is not a 12-month booking number. The 12-month booking number would be lower than this, than the $54 million you mentioned?

Yes.

Okay. And then, in your guidance assumptions for the fourth quarter, does it assume that you close on the other four deals that are still open or what's the assumption regarding that?

We don't have deal-by-deal committed, but it's part of our, I would say, high-probability deals for the quarter. So we are taking some weighting on all the high-probability deals and those deals are part of it.

Okay. Roy, I wanted to go back to the pre-announcement where you talked about the six deals in North America that got delayed. I mean now that you had a little bit more time to kind of dig into this, is there a common theme to this delay in that they're related to a specific product or a specific sales team? I'm just trying to get again better understanding on what was the real reason behind this, because it doesn't seem like there's a market issue out here. So I'm just wondering how come six all at the same time just delay?

So from what we see, it is not one sales team, but it's mainly around one segment, the US service provider and it's both across the security and ADC but given our business in the US, it's more focused on security obviously and more around security deals and I'm not sure I can have no more information. Two already closed, so relatively quickly. I would say it was more of a technical maybe delay and we could have probably executed better and some are more linked to budget allocation and CapEx investments in that segment. I think we have a couple of items. If you want to ask me what do I see that is not related to us internally, it's maybe the capital allocation to these projects in that specific segment, but again I think we can and we should execute better and as I said, we think Q4 booking wise for us is going to be a very strong quarter.

Have you made any personnel changes to the service provider North America team to make sure this doesn't happen again, at least from your end?

I don't think that it's about the personnel team. This team including the whole North American team, has tripled our sales in three years, so I think our execution level is very, very good. While we are not happy, we are confident in our execution and this thing continues to win for us many new large service providers and tier one carriers in the US and we believe that they will carry us forward as well.

Okay. And then, lastly, have you already resolved the leadership issues in Asia? Have you found the hires that you needed to fill in the gaps there?

We are in the process adding certain capability and I think one is already in place working and I believe there will be a couple more additions.

Very good. Good luck, guys.

Okay.

Joseph Wolf, Barclays.

Thank you. One quick question on the share buyback. I'm just wondering given what you did in the third quarter, what we can expect about increasing that share buyback with respect to the third quarter.

Hi, this is Doron. Basically, repurchased $25 million out of the $40 million. So as mentioned, we will now continue with the plan with the remaining $50 million and after this, we will wait and see what the Board will decide, but we are on track with the plan of the Board.

Okay. And then, I think you've touched on this in a couple ways, but I'm hoping to get a little bit more clarity. As we think about the model going forward, is this happening across the business and did it take you by surprise because you gave guidance for the third quarter and then all of a sudden, bookings and the timing that you're spending in deferred revenue is shifting. I'm wondering if you can get a little bit more insight into how that change happened and also it was asked before as we think about this pipeline number that you've given us, how we should be looking at that going through to revenue over six months, four quarters, eight quarters, as we think about modeling the Company going forward.

So regarding what we're seeing, and especially in security deals, we are seeing a trend that the customers are asking for the cloud component and they're asking for a fully managed model, especially when they're starting to speak about cloud offerings or that cloud offering is something the customer is interested. They are looking for an OpEx model obviously. They are not looking for a CapEx model, in line with how people consume a cloud. And what we're seeing is more and more deals where cloud is a component of that deal.

In addition, we've launched several new product subscription, whether it's the Alteon NG product subscription around web application firewall, FastView and SDN as well as some of our security subscription. We are seeing customers committing to these product subscriptions, which one might say are substitute to product sales. We believe for the long-term, this is a much better trend for us and a much more profitable business for us to do. Yet, it has some impact on the short term. So I think once we will finish Q4, and this trend as you said is new to us and it's not in line with our previous metrics of service sales and product sales. Once we'll finish Q4, I think we'll be in a much better position to give revenue guidance and deferred business growth for the coming year. At this point, we're very, very focused to make sure that our booking numbers are coming where they should, cash flow from operations number where it should and we feel confident about that.

Just as a quick follow on, you mentioned security, is there a trend in there on soft ADCs that's accelerating as well or is that not happening instantly, is that not part of the story?

We didn't see that.

You didn't see that.

No.

Okay. Alright. Thank you.

Mark Kelleher, D.A. Davidson.

Thanks. Most of my questions have been asked and answered. I was just wondering, if you might break out security as a part of your revenue, how important is that to you and if you're not prepared to do it now would you do it down the road a bit?

I think given the trend in the business, we are thinking on actually starting to break the cloud and product subscription, which will probably give better visibility also to revenue and our progress in that metric. So we will probably have more visibility and granularity around these metrics in the coming call.

Okay. Thanks.

Rohit Chopra, Buckingham.

Guys, I had four questions for you. Roy, just want to get a sense on OEM with Check Point, was that up or down in the quarter, so that's my first question. Second question which is on the competitive environment, I just want to get a sense, did you see any uptick in competition maybe on the security side, because you did mention security seems to be the one that was impacted with the SPs, but any detail on change in the competitive environment within ADC or security?

My third question is just I want to come back to something Ittai was asking, but you mentioned on the first call about execution issues, but I didn't really hear any changes you're making. So I just want to get a sense of what you're doing to make any corrections on the execution issues, which you mentioned. And the last question was, I just want to come back to your prepared remarks, you talked about average deal sizes going up because of the subscription-type deals. Is there any way that you could share maybe a year-over-year on average deal sizes or maybe some trends because it's the first I heard of that and it typically has been kind of flattish. So if you can give us any type of metrics on average deal size, that would be great. Thank you.

So first, regarding Check Point, I don't have the number in front of me, but we do expect that for the year, Check Point revenues continue to grow and they are winning for us every quarter some very good new accounts. Regarding the competitive landscape, we didn't see a change and we think we're actually winning the key deals in service provider across the world. And to the extent we have exposure to the Enterprise, I think our competitive win ratio has not changed.

Regarding the adjustments we do for the business, we are making some adjustments. We discussed in Asia Pacific and and we're also putting more resources in sales and markets in the Americas, EMEA, and APAC, where we are seeing more opportunity that we are not governed. If you're asking me whether we're making personnel changes to the North America organization, the answer is no. As I said, we have very strong confidence in that team.

And the last one with just average deal sizes. You mentioned in your prepared remarks that you're seeing average deal sizes go up because of subscription or changes there. So I just want to get a sense if there's anything you can give us.

We don't have this information in front of me, but just to give you a sense of what we are talking about, lastly, the cloud component in a deal, a deal that has both cloud component and on-prem device, the cloud component roughly doubled the deal size from a booking point of view. Generally, it can be a year or a three-year deal, but let's say on average, the contribution of the cloud piece and the managed service piece will roughly double the on-prem deal size. From a revenue recognition point of view, it obviously creates a deferral of the complete revenue over the period of the contract because it's becoming a managed service deal, but from a booking perspective, it's doubling the deal size on the deals that we do have cloud subscription.

Yes, I understand that. No, I appreciate that. And can I just ask a follow-up on Check Point? Was that up or down sequentially?

I don't have the numbers in front of me.

Okay. Thank you.

Catharine Trebnick, Dougherty & Company.

Thanks for taking my question. Roy, could you clarify one thing on the subscription versus your hardware platforms? If I call up Level 3 or AT&T or Windstream or any of these carriers, they would sell me company X a service, a DDoS services in the range of $4,000 to $6,000. So how are you -- what's your go-to-market strategy with all your new services and how does that impact currently, how the carriers are selling the service? Thank you.

If the carrier is selling their own service, there is no, of course, impact on our revenue stream. The impact comes when they are buying additional capacity from us. We are selling our cloud services primarily to enterprises and generally they are not competitive with the carrier offerings. They are not competitive, because they are really global in nature, they are not linked to a specific carrier, linked they are actually generally covering multiple carriers, that are providing connectivity for that customer and they are broader than the DDoS service offered by the carrier including their [server] security web application firewall, intrusion prevention and so on.

So we don't see that competing with our partner over there. And we are selling those cloud services either through our channel to enterprise customers, all through partners. We've released over the past year several partnerships. Take Limelight for example or other cloud and hosting provider partners that are actually reselling our solutions to the customer base. So we have multiple ways to market those cloud services, either directly by our own sales force channels and partners. And as I mentioned, we are seeing growth in this area.

Okay. And then, a follow-up on that is where you're selling it directly, is that impacting any of your OpEx, the fact that you'd have to have more data centers up and with this stuff up globally? Thanks.

Yes, definitely, it shows in our OpEx, but that's already in the model. We've mentioned, I think Doron mentioned that the amount of some of the investments we are making are in a service teams and that's exactly for operating those cloud services. It also, of course, impacts our CapEx as we're building, those cloud data centers, but again this is already in the model, and we already have a global footprint, both for the DDoS service and for our Cloud WAF Service. And so I don't expect that still a new CapEx investment or a dramatic increase beyond what we are forecasting right now for continued build-out of this footprint.

Alright, that was very good. I appreciate you going through that. Thank you, Catherine.

Thank you.

Alex Henderson, Needham.

[Just if you could] go back to the mix on ADCs versus security a little bit, if you look at the enterprise ADC business, are you still seeing growth in that business or is that business in fact flattened out here and what are you thinking relative to the next three or four, five quarters there? Can we get that business back on to a growth curve?

I believe the business is growing or should continue to grow in a mid-single-digit, and we didn't change our view on growth drivers and growth percentage in this market.

So the second follow-up question relative to that is, if the primary driver of the weakness in the quarter was in security, did the security revenues in the quarter decline materially as a percent?

We're not breaking it, but one can assume that our major businesses in the US comes from security, then it's correct, but as I've mentioned, booking also went up beyond revenue. So on revenue, yes; on booking, it's much less evident.

Okay. Thank you.

At this time, we have no further questions in queue.

Okay. Thank you, everyone, for attending and have a great day.

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