Radware Ltd. (RDWR) Earnings Call Transcript & Summary

Please welcome Director of Investor Relations, Yisca Erez.

Hello, and welcome, everyone. I'm Yisca Erez, Director of Investor Relations, and I would like to thank you for joining us today at Radware's Virtual Analyst and Investor Day. We have a busy schedule, so let's get started. Roy Zisapel, our President and CEO, will kick off the day with market trends the company's journey and strategy. Next, Yoav Gazelle, our Chief Business Officer, will provide insight on the sales organization and the new go-to-market that will enable us increased sales and market share. Then, we will continue with David Aviv, our Chief Technology Officer, who will take us through the latest innovation and technology challenges in the cybersecurity arena. We will wrap up with Guy Avidan, our CFO, who will explain how other information you heard today fit into our long-term model. Following the presentation, we will open it up for Q&A. [Operator Instructions] And lastly, is a safe harbor statement. During this event, we may make projections or other forward-looking statements regarding the future events or the future financial performance of the company. These forward-looking statements are subject to various risks that are detailed in the company's 20-F report. We undertake no commitment to update any forward-looking statements. In addition, I would like to remind you that all numbers in the presentation, except revenue and cash flow are non-GAAP. Just before I turn it over to Roy Zisapel. I would like to invite you to watch a short video on how Radware protects its customers. [Presentation]

Now Chief Executive Officer, Roy Zisapel.

Good morning, everyone, and welcome to the Radware Investor Day. We have a packed agenda, and we plan to share with you a lot of information about our business and give you visibility to our future growth plans. Let me start with the why Radware? We are a leading cybersecurity vendor in the critical market of application and data center security. We have a large and growing TAM aided by the evolving threat landscape. We have a differentiated technology that we plan to sustain these advantages as you'll hear in David's presentation. We are selling to very large enterprise and carriers, and we can leverage these relationships to guarantee the future growth of our business. In recent years, we've built a very fast-growing Cloud Security-as-a-Service business. And a lot of my presentation is going to focus on that and give you more visibility into the KPIs. And all of that is resulting in a sustainable growth business with very high profitability for years to come. Let me share with you the journey that Radware did over recent years. In 2017, we were a predominantly application delivery and DDoS on-prem business. We now have built a very strong Cloud Security-as-a-Service business as well. We used to have the majority of our business coming from application delivery, but now the vast majority is cybersecurity. We were and still are selling to the very large enterprise and carriers, but leveraging our cloud security offering, we're now expanding our SAM to the mid-sized enterprise. This journey has resulted in significant impact on our financial metrics. For example, our total ARR that was $122 million in 2017 just crossed $200 million. And more significant, the cloud ARR that used to be $13 million is now above $50 million, growing very rapidly. When I look at 2022, we had significant highlights. We crossed $200 million in ARR. Our cloud business, both in customers and in ARR has grown rapidly. 22% growth in number of customers, 21% growth in ARR. We continue to build our footprint around the world. We've opened 8 new data centers. And we put a lot of focus on focusing the Radware business on cloud security and application security. We did that by spinning off EdgeHawk for 5G security and SkyHawk for public cloud security. So today, our business looks like this. The core of Radware is focused on application delivery, cybersecurity and more and more on Cloud Security-as-a-Service. And next to that, we have 2 start-up companies, one for 5G security and the other one for public cloud security. Let me now cover the trends in our industry. First, we have a growing threat landscape. Second, our customers are transitioning to the public cloud. Third, they have a journey of accelerated digital transformation. And fourth, there's a global shortage in cybersecurity experts. Let's go into the details. The growing threat landscape. In 2022, we've seen a record number of attacks. You can see our statistics in this slide. Web attacks, bot attacks and DDoS attacks, all have either doubled or tripled in 2022. It's not only the number of attacks, it's also the complexity. We've seen new groups of attackers, some of them stayed backed. We've seen new tools of attacks, all contributing to an increased level of complexity in mitigating and blocking these attacks. And last but not least, it's also the volume of these attacks. For example, in October, we've seen a major attack campaign against U.S. airports. A Russian-backed group Killnet published this list of airports and at the same day attacked all resulting in many outages in the websites and web-facing applications of these airports. For example, as you can see from this article, the Atlanta airport, Los Angeles airport, all went down under this attack. We've seen this also as recent as 2 weeks ago, similar campaign against U.S. hospitals. In this slide, you can see again a list of hospitals in each state and the outcome, all of them being brought down, eliminating the use of the web applications, their customer-facing applications, major damage. So to recap, we've seen a lot of attacks against U.S. infrastructure. We've seen significant growth in the size of the attacks. For example, last year, we've blocked for the first time a 1.1 terabit attack against one of our customers, a U.S. service provider. And we're seeing a lot more state-backed attacks. As you know, and you'll hear about it in Yoav's presentation, we are protecting the government of Ukraine against the Russian attacks. This significant increase in threats and attacks has one outcome, our customers must have a state-of-the-art security in order to continue to operate. It's a critical need for our large enterprise and carrier customers. The second trend is the cloud transition. All our customers are migrating workloads to public cloud. Most of them, by the way, have more than 1 public cloud. If you're going to use in your legacy data center and in each of the public cloud different security tools, for example, the native hyperscalers tools, you're going to end up with multiple security tools, each one of them different from the other with different capabilities, policies and different teams that are in charge of mitigating attacks. It's going to be extremely complicated to win the cyber war this way. Our customers are telling us that they need a consistent security across all these form factors. And this is a major requirement that they have. The third is the accelerated digital transformation. Our customers are shipping more code, deploying more applications in order to gain competitive advantage and accelerate their business. But security is generally holding them back. We need to wait, tailor the policies, configure, tune and generally, security is in the past between the end user and our applications. The businesses want frictionless security, state-of-the-art, but one that does not hold them back. And that's a key focus for security solutions for the coming years. And last but not least is the shortage in personnel. We are talking about realtime protection against attacks. You don't have time. You need to know what you're doing. The attackers are experts. You need to have at least the same expertise at your premise, but there's a big shortage of cybersecurity professionals. Millions of people are missing across the world in that job description. So in order to stay ahead of the attackers, two things must happen. You must have automated protection that would reduce the reliance on manual work and you need a fully managed services. If I summarize the trends, it's clear that the solutions we need have to be state-of-the-art security, frictionless and consistent across all environments and automated with a fully managed service behind them. These are exactly the requirements we've built into our leading cloud security offer. The CISO challenge of choosing between state-of-the-art security and frictionless security is no longer a challenge. Radware can provide both. And that's actually the basis for our leadership in the market. Our competitive advantages in state-of-the-art protection are coming from the very wide coverage we provide. Whatever the attack vector is against your applications, we would protect that. We're doing it with very high accuracy, thanks to our leading algorithms. And David Aviv in his presentation, is going to share much more information about those algorithms and our plans ahead. And that translates to realtime detection of attacks and mitigation without false positives. At the same time, we are able to provide it in a frictionless manner. Our security is delivered consistently across all form factors and agnostic to the cloud or the customer environment. They're adaptive and automated. They auto learn the application and auto tune the security measures, and they are provided as a fully managed service. Those differentiators are well recognized in the market. For instance, take the industry analysts. As you can see in this slide, whether it's the DDoS market, the web market, the bot market, different analyst firms, all of them rank Radware as a leader. And also, Gartner on the right side, in web security and in API security is ranking us second out of 11 vendors in this market. It's not only the analysts that recognize our technology leadership. It's also the customers. On the left side, you can see that 94% of our customers would recommend our cloud web application security and cloud DDoS to their peers. And our offerings are consistently getting very high marks from our customers, the DDoS, the WAF all of them at 4.7, 4.8, 4.9 out of 5. So significant recognition of our leadership in these markets. I now want to talk about how we are going to take this leadership and translate it to growth strategy. And our focus is profitable growth powered by our cloud security. As I've mentioned, and as you can see in this slide, the TAM is growing. That's a very good tailwind for our business, whether it's the bot market, the web market, the DDoS market, all of them are growing aided by the increased cyber threats. Our business is based on the first layer of the $240 million of our on-prem business. We're selling to very large enterprise and carriers. Those are long-term relationship, very loyal customer base that we can continue to grow over time. Our solution is critical for them. And that allows us to have a very robust business model and highly profitable. Have a look on this slide, and Yoav in his presentation, will elaborate more but we're doing business with 7 out of the top 10 carriers, 6 out of the top 10 banks and so on, very, very strong and impressive logo list. On top of this business for the large and carrier customers, we've built a fast-growing cloud security business. Last year, it was around $50 million of revenue and growing quickly. It brings us a lot of new logos. We're very proud that in Q4, we had a record number of new logos to the cloud security, pointing to our expansion also to the mid-sized enterprise. The cloud ARR, and Guy is going to provide you that metric and KPI also going forward, has grown 21% to $53 million in 2022. We're planning to scale significantly the cloud security business. And in the coming 5 years, we plan to enjoy a CAGR of 25% in scaling that business. We're going to do that, leveraging what we announced also today, our new cloud security offering. The Radware 360 Application Protection provides you holistic protection against cyber attacks, whether your application is a web application, a mobile application, an API-based application, does not matter where it deployed on public cloud, private cloud, Kubernetes. Against all the various threat actors and threat vectors, the Radware 360 Application Protection would protect your application and data centers. We also announced packages and suites for this, to enable fast and easy sale process. We now have 3 packages, the standard, advanced and complete, mapping all our capabilities to this very simple sales model. And on top, we have 3 possible add-ons, unlimited DDoS protection, content delivery network and premium support. Very easy suite. Our cloud security strategy is focused on these 5 elements. First, continue to lead in technology, continue to be the best-of-breed supplier of web, DDoS, API and bot protection in the world. As we saw, this is critical for our customers. Second is the best of suite, leverage our suite and packages to ease the sales process, to accelerate the go-to-market and to be more relevant to more mid-sized enterprises. The mid-sized enterprise is a very big opportunity for us. In the past, with our on-prem solution, we could only market to the very large enterprise. But with our cloud security solution and the fact the needs of the midsize enterprise are exactly the same like the large one, they just lack the budget and the people. Our cloud security solution, we believe, is a perfect solution for that market, and we're planning to leverage that. We're going to do that, and Yoav is going to expand on it. through channels and partnership, our new channel program and our increased relationship with our OEM partners. And we're going to continue to expand our global footprint to be closer to more customers around the world to open new markets and to be able to grow significantly our cloud security business. So to summarize our Radware strategy, we are operating in critical areas of application, security and data center security. With the evolving threat landscape, our solutions are critical to our customers' environments. We have a significant on-prem business with the large enterprises and carriers that we plan to continue to grow, and Guy would share more details in his long-term model about it. Next to that, we have an accelerating cloud security business. It allows us to grow our SAM, expand to the mid-market and all of that delivered in a SaaS business model that drives our ARR growth. And last but not least, we have significant leverage in the model, industry-leading gross margins, very strong subscription business and big leverage on the OpEx allows us to increase profitability significantly in the coming years as you're going to see in Guy's presentation. With that, I would like to introduce to you, Yoav Gazelle, our Chief Business Officer, to present the next chapter. Yoav?

Thank you.

Now Chief Business Officer, Yoav Gazelle.

Thank you, Roy, and thank you all for joining us today. We appreciate your time. I'm pleased to share our business strategy and plan for 2023 and beyond. Let's start with a short recap of our highlights in 2022. We closed the year with more than $200 million of ARR business. If we zoom in, we crossed the $50 million bar of cloud ARR business, representing 21% growth year-over-year. We continue to gain momentum and add many new logos to our cloud service. We ended the year with 22% growth in the number of total cloud customers on our service and with an accelerated pace in Q4. A great deal of these clients are top large enterprises, service providers and blue-chip accounts. If you drill down even further into the cloud business, our application security cloud ARR business, known as cloud AppSec, grew 42% year-over-year. And its pipeline grew even faster than that. As I look at this data, I am confident we can further grow our cloud business even faster in the future. Geographically speaking, we had a very good performance internationally and especially in EMEA, where we demonstrated double-digit growth of booking and very strong double-digit growth of cloud business, both in EMEA and in APJ. Radware is a strong cybersecurity leader. We secured the digital experience of many of the large blue-chip accounts worldwide. We continue to be very active and successful in that domain, and it has been demonstrated in our results and achievement throughout 2022 as well. It is a continuous endorsement to the value we bring to these organizations. And I can say with confidence that it is today even more than ever. Radware serves 6 of the 10 world's banks and 6 of the top 12 stock exchanges. Networks and Applications availabilities are key to all financial institutions. During 2022, we cross-sold our cloud AppSec, WAF and bot management in this case to an American multinational Fortune 500 company. It was a multimillion dollar deal, which came only a few months following the initial win with the same company, protecting their global networks from DDoS attacks. Towards the end of the year, we secured another large 7 figures DDoS deal, with an American multinational investment bank in this case, another Fortune 500 company. And this deal was only Phase 1 of a much bigger project. We also serve 7 out of the top 10 world telecom companies. During Q4 of last year, we secured a multimillion dollar DDoS deal with Bharti Airtel in India, the second largest mobile network operator in the world. We displaced the competitor in this case. Earlier in the year, we secured another prestigious multimillion dollar new logo deal with an American communications technology company, one of the world's leading video communications organization. Radware also protects flow of the biggest cloud SaaS applications companies in the world. During last year, we closed a substantial multimillion-dollar deal with a renowned Fortune 500 American cloud SaaS company. In this case, it was an existing customer of ours. But this deal was a breakthrough with a new and innovative Kubernetes swap technology to protect their global applications and APIs across all of their environments. Moving on to our 2023 strategy and plan. We defined 5 focus areas where we see a huge growth potential, and I believe can make a very big difference on our results moving forward. The first one is cloud security services. We clearly see here an opportunity, and I'm confident this will be our main growth engine going forward. The second one is scaling our business together with our OEM partners Cisco and Check Point. Our market is great. The addressable market is huge. And our key challenge is the coverage and the market reach. Being a mid-sized company, it is vital that we use these strategic partners as a route to market. Both have an incredible coverage, sales resources, active channel partners community and a huge installed base, which we can and should be able to leverage. The third area is penetrating to the mid-sized enterprise market. As you saw, we are doing good in the high-end segment of the market. And as you heard from Roy's presentation, with a growing threat landscape, frequency and complexity of the attacks, the mid-market enterprise need to take an action to protect their organizations as well. With a growing need, they are also short in security expert resources and skills and therefore, they can benefit from our fully managed cloud services. We haven't focused on this segment so far. But at the same time, we did have many wins, and so I'm confident we can win market share in this domain. The fourth area is the carrier market. Although it's not new to us, recognizing a very big opportunity, and I will elaborate on it shortly. Last, we are giving North America a special attention. This region holds the biggest portion of our addressable market, and so we will treat it accordingly. We would like to give it a serious boost going forward. Okay. Zooming in into the cloud security services. To accelerate the cloud sales, we decided to add pure cloud sales managers to the organization. The additions are mostly in Americas and in EMEA. What we saw until now is that few territories have done extremely well in selling cloud services, and some of them have been demonstrating a continuous track record of success. We are working now on replicating this success across all other territories as well. To boost the sales even further and have the team focus on cloud and subscription sales as a priority, we have decided to establish a new incentive plan this year. The essence of it is the move from TCV, Total Contract Value bookings, to ACV, Annual Contract Value. And I trust that this move will accelerate our ARR results moving forward. We are introducing these days new cloud services packages and a unified portal to oversee and manage the suite of services moving from the best of breed to the best of suite. And with that, we will improve our cost sales of the various cloud services. Another important indicator is our cloud business win rates. Our win rates are improving. We have won more than 30% of the deals in our pipeline. And when we perform a POC or POV, proof of concept or proof of value, our win rates even grow even further to the 57%. This confirms our competitiveness in the marketplace. As Roy shared, we're also investing a lot of resources in expanding our global cloud network capacity, capabilities and reach. These expansions enable my team to satisfy customer needs and as a result, to sell more. Okay? Moving on to the OEM partners area. I will start with the first one, Check Point. Check Point has been a solid partner of ours thus far and a good source of new logo wins. We have a tighter relationship with Check Point, more and more teams are trained and enabled to sell our services. And the progress is shown in the pipeline growth. Cisco. As you know, this OEM started a number of years ago, and it took us quite a long journey to get to where we are today. Today, we have an extremely strong partnership and alignment with the security business unit. We are being treated exactly as if we are one of the existing in-house security solutions Cisco has in its own portfolio. Our solutions are highly complementary to the Cisco Security as well as enhance and differentiate their own offering. The DDoS, WAF and bot protection services are all embedded and integrated into the Cisco Secure solution. Recently, Cisco Security leadership launched a new project called Turbo. With this, we jointly mapped the largest Cisco security customers globally, and we agreed to jointly and actively engage with the aim of introducing our solutions and cross-selling them to those organizations. And last but not least, I'm very excited to share with you that we reached a major milestone last week. Our Cisco Secure Cloud DDoS has been integrated and is now live on the Cisco Enterprise Agreement, known as Cisco EA. So what is Cisco EA? Cisco EA is a simplified licensing model for Cisco software and services. And as far as I know, the Cisco cloud DDoS protection is the first and only non-Cisco solution on the EA. All in all, I'm very bullish on our partnership with Cisco. I know very well that we all expected it to deliver faster results. But at the same time, I am proud of what we have achieved so far, and I truly feel we are at an inflection point and that 2023 will be a breakthrough year of our joint business. At the end of my presentation, we will also share a testimonial from Emma Carpenter. Emma is the Global Head of Cisco Security sales. So you could also hear her view. Moving on to the mid-market enterprise. In this slide, I will try to explain our updated go-to-market. On the lower part of the triangle, you can see the existing sales go-to-market motion. And as I shared before, this part works well. We wish to keep it intact. We have a direct touch sales and sales engineers teams, and they are benefiting from a business development overlay team and the channel managers that support them with our strategic partners. This group is targeted at the large enterprises, carriers and cloud and hosting companies. In addition to this, we have introduced a new group at the upper part of the triangle to go after the mid-market. This group includes new additions of cloud-first sellers, channel account managers, business development team, sales development reps, and it's all complemented with marketing campaigns to boost the demand generation even further. This group includes new additions of cloud-first sellers, channel account managers, business development team, sales development reps, and it's all complemented with marketing campaigns to boost the demand generation. This group is developing new routes to market, new partnerships and applicable sales motions. This is all with the goal to simplify the entire sales process and to shorten it, so it will be more of a transaction sales. As part of this plan, we introduced a new global partners program last month. This new program is built around Radware's strategic focus on cloud business. The program includes 3 tiers: certified, spotlight and signature. The latter being focused still who makes the bulk of our business and our business growth potential. This is a modern and attractive plan that simplifies us doing business with us and which incentivize the partners to sell more. The new incentive packages offers top-tier partners, speeds and rebates on bringing us new logos opportunities and winning cloud business. The plan contains modern best practices, and I'm encouraged from the market reaction since the launch. We received very good feedback so far. This slide is a snapshot of our existing signature partners landscape. Some of these partners are relatively new and promising, for example, Presidio in North America. Presidio is a global services solution provider focused on delivering secured cloud environments. It is a massive AWS and Cisco partner. We signed the agreement with them somewhere in mid of last year, completed the onboarding, built the joint plan and initiated the ongoing enablement process. And we start to see recently an accelerated flow of new registration from this partnership. And as I said, we are augmenting this list now with new and applicable cloud partners as we go. Next area is the carrier business. Although this is not new to us, we recognize a large opportunity in selling to and selling through the carriers. On the sell to front, the carriers have a growing critical needs, especially in the network security. We see many examples where the carriers provide clean pipes to their B2B clients, but where DDoS and applications or bot attacks are passing through and bringing down those clients. We practically see it all over the world. With the growing attack landscape, the carrier needs to invest, need to refresh and they need to expand their detection and mitigation capabilities. And on our side, we are very well positioned to capture this opportunity. Not only that we have a technical leadership, we augmented our portfolio with new and advanced offering recently with the biggest, fastest and strongest platforms. In addition to that, we also developed new resell cloud offering, which the carriers can resell to their B2B clients. We introduced it recently to a couple of carriers. And we have already 3 interested and engaged customers that asked us to work on it and see how to productize it later in the year. And I have personally a very good feeling, this can be another growth element of our cloud services towards the mid-market. Last one is North America sales. As I shared earlier, we are doing well in North America in some domains, especially in selling to the large enterprises and service providers. We have many large clients with long and successful track record. We keep on winning new logos as well in that domain like you saw before. At the same time, we wish to expand further and amplify ourselves with focus on cloud business and penetrating to the mid-market, developing the channel partner ecosystem and leveraging our OEM partnerships. To that end, we've appointed [ Jeff Martz ] as the new Head of Sales. Jeff joined us 3 months ago and I can already feel his contribution. We also started hiring cloud sellers and developing the mid-market group, which I highlighted earlier in my presentation. The opportunity in North America is massive. We recognize it, we know it. We feel it. And I'm very optimistic that we will see already this year much better results. To summarize, we have a big opportunity ahead of us. We know what we want to do. We define a clear plan, which the entire company is aligned to, and we moved on now full force ahead to execute on it. Some of our tasks may not be so easy or simple and some of them may take time. But I trust the company and I trust my team, and I'm confident we will see the results of these efforts in 2023 and beyond. Okay. To sum up my presentation. It is my view of where we are today and why I'm confident and excited about our future. We are a leading cybersecurity company. We have a DNA of innovation with an innovative portfolio and an exceptional security proposition. We have a large customer base of prominent blue-chip accounts. We act in a fast-moving market where the attack strength landscape keeps on growing rapidly. This imposes a great challenge for all customers, big or small. Radware is at a unique junction that can assist those organizations to be protected and remain online and performing. As you heard from Roy, our TAM and SAM are growing fast. We have much more to sell to today versus a couple of years ago. The OEM partnerships are the highest qualitative level since they were established, especially the one with Cisco. I believe we are very close to seeing the impact of it quantitatively as well. Our cloud services has reached a maturity level, both in terms of solution set of services, quality of service as well as proven and strong customer base. And so it is becoming a serious growth engine. And fast moving a couple of years from now, Radware will become a large, fast-growing and profitable cloud security company. Finally, today, more than ever, we have a bigger market to sell to, we have a growing portfolio and more we can sell. We have a much better and more mature routes to market. And so I'm very confident and excited about our future. And now I would like to introduce David Aviv, our CTO. David?

Now Chief Technology Officer, David Aviv.

Hi, everyone, and thank you for joining us. I'm David Aviv, Radware's CTO. In my presentation today, you will hear about our vision, latest innovations and strategy in the CTO office. So the perfect storm is already here. Let me walk you through the impact on critical infrastructure, web applications and API and why good enough security is not good enough anymore. And the way we help our customer to protect themselves against the next generation or the next wave of attacks. Let's start. Modern applications are built for agility, cadence. Therefore, applications are more and more distributed in form of micro services. Workloads are all set within public and private clouds and consume cloud native services frequently from more than a single provider. To complete the delivery motions, third-party content platforms and S-bomb from open source repositories are integrated to accelerate the delivery cycles. As a result, part of application business logic is moved into the front end and to the consumers browser stacks to obviously, to facilitate faster content composition directly from the content platforms. This direct content download accelerates the delivery but create blind spots, bypassing the traditional WAF and other perimeter protection, which means opening the doors for critical data leakage. It means that perimeter protection such as WAF are no longer enough. As a result, modern application delivery, as we saw opens the door to more sophisticated and very importantly, targeted attacks. Attackers are shifting efforts to exploit these blind spots. To further understand the attacker opportunities, the third parties or supply chain, are only told by the application, which enable attackers to gain control at the early stage of the application development life cycle. The application release cadence becomes critical even frequent so-called shift left testing and sanitizing cannot cope with this growing risk. As classical perimeter dissolves, shift left becomes an infiltration channel. As you can see estimates of over 144,000 malicious packages are currently stored in open source repositories and potentially in use by application developers, which, in turn, creates more and more uncontrolled potential leakage channel. Lately, as you saw, we encounter daily growing aggressive encrypted application DDoS attacks, designed to drain the victims' exposed assets as well as targeting choking critical back-end resources. Attackers frequently use reconnaissance and pro attack tools to intelligently craft targeted morphing attack vectors, mimicking legit transactions. Maneuver application level attacks are not necessarily bandwidth consuming, but rather request for second base, draining the victims state engines. So traditional network DDoS protections are useless against those DDoS waves. Finally, signs of disruption, weaponizing AI is not only used by government, but the potential power of AI as a weapon is now unleashed and accessible by everyone using [ neti ] language dialogue and prompt engineering. This is a dramatic change used by adversaries, this lowers the know-how entry barriers and enables targeted and faster time to attack victim's vulnerabilities and exploit can be detected faster, attack on generation can be accelerated and used for malicious intentions. So the impact of open AI is only at infancy stage, and it's here to stay. It can be considered as the beginning of an AI against AI war for era as it evolves to a need of forming a new Turing test. In water, we studied the impact of this potential disruption and how to make the most of it, obviously, for our purposes. In summary, perfect storm is already here, backed by technology disruption and geopolitical tensions. This means that decision-makers understand that good enough security is not good enough anymore. In Roy's presentation, you saw some examples of DDoS campaigns. I'd like to share with you some notable recent examples of AppSec campaigns against publicly exposed applications, scalping campaigns, client-side campaign by injected malicious Java script to steal still personal sensitive data. And the latest API attacks, leaving millions exposed. These almost daily breaches demonstrate our attackers use different infiltration tactics and attack vectors and clearly indicate for a need of a wider and deeper protection to effectively defeat these attack waves. Next, I would like to discuss our technology leadership, where we address the new challenges and disruption described before. So let's start. The mission of the CTO office is to establish a sustainable technology leadership and differentiation across all our delivery motions, security cloud, cloud first, premise and telcos. We are about to enable our customers to defeat attacks in the most effective way, lowering the defense cost by imposing higher cost under advisory. Our 3 innovation pillars are based on the following: AI, machine learning and smart adaptive algorithms. We are at the stage where AI against AI warfare becomes reality. For years, we have a differentiation to our [indiscernible], which we continue to develop. But the last -- in the recent 5 years or so, we have added AI machine learning algorithm across all our AppSec security suite, anti-bot, WAF and API, protections designed to generate realtime and highly accurate signature with an unmatched low rate of false positive as well as to the tech zero-day attacks. The second pillar of investment is security and automation, which is critical to consistent security across all delivery motion, especially with a shortage of skilled security experts. Automation starts with highly accurate auto-generated signature under attack and spread throughout automating the entire attack life cycle, ensuring SLA under attack. This makes the attack easier and faster to be remediated and understood. The role of machine learning for automation is playing also a crucial role in the world of micro services and API protection. As declarative policies are used to accelerate application cadence, there's a growing need to trade configuration changes and auto generation of new adaptive protection policies. And finally, differentiate through high-performance and scalable solution designed for all delivery models. Our cloud scale multi-tenant solution automatically adjust protection resources during attacks. And the new DefensePro X lineup enables our premise customer to meet defenses and ensure SLA while maintaining high optimized operational cost. To summarize, our innovation process is designed for fast productization, only of our innovation are patented as part of maintaining our competitive advantage. And with that in mind, let me walk you through our current technology leadership before moving into our longer-term differentiation plan. So let's start with application protection motions. And we saw earlier, more than application run in a variety of portals, and integrate with content platforms while pushing part of the business logic into the front end and browsers. Our AppSec solution coverage is designed for co-system protection, exposing the blind spot across everything. So starting with micro service granularity, providing no South and East West protection, our unique airgap solution is designed to run within customers-critical cluster and protect the crown jewels or its critical assets. The solution is fully integrated within the customer delivery pipeline and supports all major runtime environments. Now for application hosted within the public or private clouds, we have created a unique security architecture under the trademark of secure path. This architecture enables to provide consistent protections across the clouds of customers' choice and eliminating the need to operate multiple different cloud native security tools. This becomes a growing operational and security burden, while our alternative is a consistent one-stop security shop. And finally, today, we have announced our new Client-Side Protection. The solution has the application security team to protect against direct connections between the application consumers or browsers and the third parties or supply chain providers. In that way, we inspect the downloaded Java scripts that bypass the perimeter protection to detect malicious one and blocks them. So let's continue with our DDoS differentiation. The DefensePro X new lineup provides an unmatched performance with state-of-the-art protections to fight against the new generation of DDoS attacks. This new lineup is ever more optimized for security processing by incorporating high-performance adopted hardware and software designed for both CPU-bound and memory-bound algorithms. This new lineup facilitated new refresh opportunities as well as market share gains, especially in the mid-sized market, where protection and automations are most needed. Moreover, DefensePro X is a carrier platform and as such, facilitates new scrubbing MSSP marketplace opportunity. The DefensePro X line will be used as the base platform in our cloud data service, which provide us with the first ended experience on attacker tactics and security operations used for continuous improvement and research. Next, our new cyber controller complements the DDoS suite, building for SecOps automation and analytics center. Automation starts at a realtime adaptive attack signature, which is generated without human intervention. It's built to address key SLA requirements requested by customers. And we have addressed those new capabilities, both for peace time insights as well as for attack life cycle management. We've also integrated and fused DDoS analytics fit to be exported and consumed by any higher actionable layer and once again, operated by our cloud delivery team, the entire suite is now ready for paving new business opportunities. And finally, our algorithm-first approach leadership. Years of IP results in unfair competitive advantage. We continue to invest and extend the technology gap with the introduction of new algorithms for network and application DDos. Our self-learning algorithm gap is growing. So let me introduce you to some of our deeper and wider investments towards the best of suite approach. First, as explained before, combating against aggressive application DDoS require new approach and protection to effectively mitigate with a very low false positive rate. We have added to our cloud 2 new production layers, Firewall as a service to reduce the noisier attacks, attack surfaces, as well as adding the new realtime adaptive signatures, which enables us to extend our DDoS technology leadership to the application layer. Let's now understand what is behind exposing application blind spots. As we saw before, classical perimeters are no longer in full control of the application consumer content. As more and more business logic is pushed to the browser, it enables the browser to accelerate the content composition by directly interacting with the third-party platforms. The classical perimeter protections are blinded as malware contained in the Java scripts might be downloaded directly to the consumer's browsers. So to fight against the poison Java scripts, which facilitates the infiltration and leakage option, we today, introduce our new Client-Side Protection to detect and block any attacks that results from supply chain or poison S-bomb, which bypasses the traditional data center protections. The ability to identify the infected package and the resulting infiltration path is a big step ahead towards 360 protection. Finally, the Cross suite, one of the most important enabler for the best-of-suite approach. It is an actor consumer identity. While in the enterprise domain, the Zero Trust paradigm is the cornerstone for traceability and abnormal activities detection such as account takeover, there are no formal alternatives in the open consumer world. Can best practices use either IP addresses or fingerprint, which advance attackers mutate or rotate to confuse any protection layer? Our blockchain inspired solution uses an unstackable digital identity, which enables early detection of those rotation signs and provide an anchor for continuous detection of malicious abnormal activity. This layer ensures a stable tracking system and is the corner store for the new challenge response layer that can gradually degrade attacker resources, and reverting the attack cost. To further explain the transition to the best-of-suite approach, I'd like further to explain the role of 2 key technology or technology enablers, the blockchain inspired that we briefly explained and the AID planning engines. So let's take example on the e-commerce or any public-facing resource to be protected, where bot management becomes an increasingly important issue, some multiple ways, multiple approaches to maintain consumer identity for traceability, such the bot solution can decide whether this is a legit consumer, a script, a browser or a tool. This long-standing problem so-called the Turing test, comes with annoying CAPTCHA challenges where besides of being mitigated by CAPTCHA forms degrades the customer experience. So we have introduced a blockchain inspired CAPTCHA-less solution. using what we call a crypto mitigation concept based on an invisible control plan. This method is used to gradually challenge the browser or the tool and punish the misbehaving one by draining the attack tool CPU resources with them and with the challenge and reverting the attacks on the attacker. So these are some of our new Cross suite security layers that we are going to introduce. This Cross suite capabilities amplifies the best-of-breed insights collected for security engines, the perimeter ones and the distributed one to provide the best of suite solution. Let me thank you again for listening. Now I would like to invite our CFO, Guy Avidan.

Now Chief Financial Officer, Guy Avidan.

Thanks, David, and good morning, everyone. In today's presentation, I will start with Radware's journey and a recap of 2022 financials. I will then present our long-term model, highlights to 2027 and discuss P&L growth drivers and trends. I'll present new KPI that we plan to track in the future, the Hawk's contribution to our EBITDA, and we'll conclude with a brief overview of our investment highlights. Over the past 6 years, we've demonstrated proven track record of stable and high gross margin and increasing operating margin. Adjusted EBITDA margin nearly doubled in the last 6 years from 6.6% to 13%. Radware financial journey and financial parameters reflect nicely the Radware way and showed the path forward. Radware is striving for profitable growth. Now let's go back for a second for 2022 and some key financial metrics. Following our financial earnings call on February 8, 2022, I would like to highlight few key indicators from our financial statement. Our revenue for the year was $293 million. Recurring revenue out of total revenue grew from 68% to 68% year-over-year. ARR crossed for the first time the $200 million mark, and we ended the year with $202 million, 7% year-over-year increase. 41% of our booking in 2022 came from cloud and subscription. Last year, we had 35% year-over-year growth of large new business deals. This figure represents our lion's share business with large enterprise and carriers. And gross margin for the year came in at 83% compared to 82.4% in 2021. Year-over-year growth in gross margin was driven primarily by the successful security TAM integration and supply chain management. Now let's zoom on historical ARR figures. This is the first time that we disclosed cloud ARR as a stand-alone KPI. As highlighted earlier today by Roy and Yoav, we view our cloud security business is our main driver for growth. And as such, we will continue to track and report this KPI on a quarterly basis in addition to total ARR figures that we currently report. Shifting gears to our new long-term model. For the full year 2027, we expect revenue to be at approximately $460 million with 24% adjusted EBITDA. In the coming slide, I'll discuss our long-term operating model for the 5 years period from 2023 to 2027. Underlying the model is our projection that our current business addressing large enterprise and carriers will continue to grow. We also assumed additional revenue streams from expanding our cloud business and penetrating the mid-market. Now let's drill down to the factors that will impact our P&L. Assuming financial model highlights and basic assumption for the model, including accelerating our top line growth, predominantly driven by our cloud security business, joined with scaling up our model from best of breed strategy to best of suite strategy, we expect the implementation of this model to increase customer stickiness and improve cross-selling potential, and both trends will positively impact our top line and cost of selling. Adding effort to our go-to-market addressing mid-sized market is expected to significantly increased our serviceable addressable market. The model assumes cloud COGS improvement offset by product COGS increase. Since we are in the midst of changes in the macroeconomic environment, it is appropriate to address this issue as part of our long-term model. As mentioned in previous earnings calls, we are facing headwinds due to elongated sales cycle, budget scrutiny and multiphase deployment that impact our global business. On the long run, we do see bright point in the macroeconomic environment changes, related to the shift from on-prem to fully managed services predominantly, as Roy mentioned earlier, due to lack of qualified professional personnel and high cost of employment for a mid-sized enterprise. Just to remind everybody again, Radware's product and solutions serve critical cyber. Therefore, on a long-term basis, the demand for our product is less sensitive to macroeconomic changes. All right, let's start reviewing the model. The model is a continuation of our profitable growth strategy with additional revenue streams. Let's review key numbers for 2027. Based on the long-term model, by the end of 2027, we expect to see annual revenue at approximately $460 million based on organic growth and including the Hawks. $160 million cloud ARR following the same trend of approximately 24% year-over-year growth, we saw in the last 3 years, 83% gross margin, same as today, 22% operating margin and doubling our EBITDA margin to 24%, same as we did in the last 6 years. Moving to top line discussion. Our long-term model includes 3 vectors that will increase our revenue organically, and in addition, potential inorganic growth backed by our balance sheet. All these vectors are built on solid foundations of large enterprise customers and carriers that assemble Radware's current customer base and will continue to thrive in the future. The first vector is based on our focus on adding product and go-to-market techniques, serving Cloud Security business. The second vector rely on our ability to scale up from selling best of breed to best of suite selling. As we've seen in David's presentation, some components of our suite will still be tech leaders. The suite stickiness will improve customer retention and create another cross-selling leverage that will improve our future [ NLL ]. As Roy and Yoav discussed, the third vector derived from focusing on AppSec product and adding go-to-market ability that addresses mid-sized enterprise that will enable us to increase our SAM. Moving to gross margin drivers. Our long-term model, expect maintaining our high gross margin forward-looking to 2027. However, we do have several knobs under our control that will enable us to reduce cost of goods sold over time. The first knob is actually related to the best of suite strategy that we elaborate on the top line discussion. In addition to stickiness and other values attributed by the strategy to the top line, it will also enable us to aggregate and unify our cloud security centers, and by doing that, reduce our COGS. Second knob, is based on developing new automation tools and technologies that will reduce cost of services. As a technology leader, these knobs give us a relative advantage versus competition. The third knob is based on the shift in our business model and product mix that will, in addition to growing our top line, contribute higher gross margin to our P&L. As we continue to grow our business and number of cloud security centers around the globe, we expect to leverage the growing traffic volume versus hosting and telecom providers to reduce our cost of doing business. As mentioned earlier in the model assumption, gross margin remained high. That said, we expect some headwinds in our product gross margin that will offset the tailwind gained in the mentioned knobs. Therefore, we assume sustainable gross margin. Moving to operating leverage. Operating leverage, as previously discussed by my colleagues and myself, we expect a shift to our more cloud security offering. We will see efficiencies with adding go-to-market via a channel partner for a mid-sized enterprise and automation in our sales processes that will eventually improve our sales productivity. As a result, we will be able to generate OpEx leverage moving forward. In addition to sales and marketing leverage, as mentioned before, we are also expecting leverage on our R&D and general and administrative expenses due to top line growth. Long-term model assume growing revenue from $293 million in 2022 to approximately $460 million in 2027, while accelerating year-over-year growth to a point of 13% growth from 2026 to 2027. The main driver in the model for operating margin and EBITDA to revenue growth is top line growth and OpEx leverage. In 2027, we expect a large portion of our business to be SaaS in nature. The accelerated top line growth, coupled with EBITDA margin, demonstrates our sustainable growth. Over the last 5 years, we've demonstrated disciplined cash management. You can see on the left chart that on an annual basis, we are always generating cash and allocating cash to CapEx and buyback. Please let me note that in 2022, we had an extraordinary tax expense that impacted our free cash flow by approximately $15 million. We expect some of this tax benefit to return in the future. Forward-looking, we expect to invest in inorganic growth and we will balance cash allocation between M&A and buyback. From now until 2027, we forecast additional CapEx investment to scale up our cloud security centers, technology and size-wise. This may result with additional increase in CapEx of $2 million to $4 million annually with some fluctuation for specific projects. Assuming current interest rate will stay the same in the future, and our cash balances will stay the same as well. We should expect higher financial income from marketable securities and bank deposit in the future. As I mentioned before and as Roy and Yoav have highlighted in their presentations, cloud security is the main driver for our future business growth. The Cloud ARR KPI represent incremental growth, and to assist you track Radware's performance, we are adding this KPI to our quarterly financial reporting. The model reflects our expectation to maintain approximately 25% CAGR during the long-term model time period. Similar to last 3 years CAGR, we are expecting Cloud ARR to gain momentum as a result of the 2 additional strategy that we discussed earlier. Some increase by going to mid-sized enterprise market and best of suite selling approach. Cloud ARR is our new North Star. Early 2022, we span off SkyHawk and EdgeHawk. The spin-offs were done mainly due to the lack of common denominator in go to market between the Hawks and Radware's core business. Target Global Management made in May this year a $35 million strategic external investment, resulting in a valuation of $180 million. As of today, Skyhawk has approximately $30 million cash and cash equivalents on its balance sheet. We will continue to disclose SkyHawk and EdgeHawk combined adjusted EBITDA on a quarterly basis. Mid-2022, we added, for the first time, a VP core dev position to our forces. Our overarching strategy is, first, our spotlight is aimed on targets that complement our growth strategy as discussed today. Second, we're not limited ourselves to tech acquisition only. And third, we expect to see more reasonable pricing-wise opportunities in the market in the short to midterm. With that, let me return the floor to Roy for summary.

Thank you, Guy. Let me recap our Investor Day with the why Radware message. So first, we are a leading vendor in a critical cybersecurity market, the application and data center security. Our TAM is growing and also our SAM is expanding through our cloud security service offering and the packages that we've announced. We have a leading technology differentiator, and you've seen all the analysts and customer reviews backing it up. We have a very solid business selling to very large enterprise and carriers that generates highly profitable and highly sustainable business model. Next to that, we are building and scaling our fast-growing cloud security services. We are committed to grow it in a 25% CAGR over the next 5 years. And all of that is resulting in a sustainable growth and improved profitability over the coming years. Yisca?

Now Q&A session. [Operator Instructions]

So let's start with the first question. What gives you the confidence to reach $160 million cloud ARR in 2027?

I'll take it. I'll actually start with the, with some numbers. So we showed $53 million ARR, cloud ARR, and we're expecting 25% CAGR until 2027, which is not much different than what we've seen in the last few years. So we're pretty much going to the same trajectory. And as mentioned earlier, we expect to gain momentum by increasing TAM and increasing SAM and if Yoav, you can elaborate on these initiatives.

Yes, of course. So as you said, that TAM and SAM are growing quite big for us. We have now services we can sell to the mid-market as well, which before we couldn't do. We have more cloud services we can sell now with the introduction of the new services coming up with -- coupled with the packages and the bundles that we now offer. But I would say even more than that, we started the cloud service only a number of years ago not all sellers and not all our channels were active, and we start to see the motion now is growing faster and faster, and the adoption is wider. So I'm actually, in some sub-territories are growing even way faster than what we have already shown. So I'm very confident that if we replicate this across all other teams as well, we can even grow much faster, so I think the 25%, I feel comfortable with this figure at this point in time.

Thank you. And the second question comes from Tim. How are your cloud services different from the on-prem what new capabilities do you need for cloud? And who do you need to compete with in the cloud primarily?

Okay. I take it. Our cloud services are different from the premise one for the generic one by, first of all, being able to shorten the cycle from development into the production, we use cloud-based data lakes in order to process the data to analyze it, to apply the technology and push it automatically and very fast into the production. So this is very one fundamental change from legacy solutions. The second one is obviously in the cloud we have a complete we are able to share insights between different engines, we are able to create unique glue between the components like the identity-based protection and share it across all the protections. So in general, this gives some kind of an idea of the difference between what we do in the cloud and the way what we do in the premise one.

And can I add?

Yes.

Hi, Tim. Nice to meet you. I would add that if we look on the legacy solutions on the on-prem, by definition, they are limited in capacity and capabilities. And not all services are on all the all on the on-prem solutions. So when you move to the cloud, we have actually unlimited capacity we can offer to many more services. And I would say that even another element that is very strong now that we see quite often when we talk to customers, one of the biggest challenges is not only the limited security and capabilities that are on the on-prem deal, it is, but it's not the only one, is the fact that they need to manage it. And when they need to manage it, it takes resources, they need the skills, they need the manpower. And as you move to the cloud, it's all fully managed. And this is why it's very appealing and you can consume more services as well, and it's very easy to consume it nowadays in a more affordable way.

Thank you, Yoav, and we have Tim live with us. Tim, do you have a follow-up?

Yes. Could you just elaborate on what the artificial intelligence means for the security industry a little bit more? What type of new threats are you going to get? And what type of opportunity that is after you? I know you touched on it on you just go to a little more detail.

So we are using AI, artificial intelligence, machine learning and now starting also deep planning across all product line in the cloud, namely the bot, the WAF and the API. We are using it mainly to, I would say, first of all, to find the zero days. Zero-day attack is very tricky one to catch, and we are -- we have developed already algorithms that are able to detect early signs of attacks and early signs of zero days. And by that, being able to score it across multiple dimensions, we are able to score what we call the actor, the actor risk and automatically block the risk before it even reaches to attack -- to provide -- to run an attack against the target. So this is one example of what we do, and we use a variety of, I will supervise an unsupervised methods in order to run on crowd source information, specifically on different applications, and it depends really on the method that we are going to use. So this is one way of running it. Another very important way is being able to adopt the security and adjust the security cadence, I would say, to the application cadence. API is an excellent example where API discovery is done by machine. We discovered the changes, we maintain the deltas and by automatically, we generate security policies in very fast in order to patch the change and move it in the production. So these are two examples, I would say that provide a good understanding of what we do. Besides that -- yes.

Let me add another angle to the AI. I think one of the things we are -- we need to think about is also the attackers are going to use AI more and more. In that sense, all the rule-based solutions in security, they are becoming obsolete. The attackers are going to have generative AI to create attacks. And therefore, we believe that our strong investment in algorithm. So in AI on our end, and so on will be a very strong differentiator for the future as well.

Okay. We have the next question. Do you have the programs and partners fully in place to access the mid-sized enterprise? If not, what do you still need to add?

Okay. So maybe I'll take it. Yisca. So as I shared about a month ago, we launched a new partner program. It's not like we did not have one before, but we came up with a new one, way more innovative up-to-date with all the best practices. And I think the main theme of this program is actually to go after more cloud business, more to do easier to do business with Radware and to give all our channel partners community also the right incentives to be more active, to be trained, capable and to be more involved in generating the business to us. And actually, we have adopted it to what we saw from the market. We did a very thorough analysis of what partners actually want, need and we adopted many of the recommendations, so partners by definition, go after the large enterprises as well, and many of them go after the mid-market. The reaction we received so far from many partners that are actually even involved and active in the mid-market. It's very encouraging. And I'm feeling confident we have a very nice program. It's all about execution.

Thank you. Our next question is from George Notter.

I guess I'm curious about the changes you guys are making in the sales organization. If I look back historically, the company has had issues with sales execution in a number of different markets. You guys have had changes in the sales leadership. I guess I'm just curious about what's different this time?

I'm in the company for about 9.5 years. So I've seen also the history I was leaving EMEA before, then international and about a year, I'm running the entire business. I think the way I summarize my presentation says it all. I think, at this point in time, we are in the best time of our history. We have more to sell. The market need is like in the best of all time. You see the attack landscape is growing so fast. There are so many alerts. There are so many campaigns. And we see so many attacks into on our clients now. We actually receive now all of us, I think almost all of us and alert when one of our clients is being attacked on the cloud, we received an alert. So when we started this practice on the day 1, we did not have many customers, we received here and there, some alerts, and now we are like bombarded all the time by the amount of attacks. Our competitiveness is like, and again, at the best of all times, and the routes to market are way more mature. So we have more partners now at place. Our OEM partners, I'm very bullish on the OEM partnerships today that can really take us to market. So as you saw, I think our main challenge was we have a very good technology. And when we compete, we win. And the main challenge is the coverage. So investing all my effort, all my time and so is the entire team is how to scale the business, how to take what we have to offer, and we have a lot to offer to the customers. And yes, we are bullish now. And I mean we are aggressive. We come here to make a change, not to just continue with what we did so far. I can tell you, George, maybe last thing, when we started, the cloud business, it was about maybe 5 years ago, what was it, Roy?

Yes.

I remember the discussion I had with the CFO, Doron at the time, and he was telling me, "Yoav, relax, you still need to bring the revenue from so many other things because the cloud is a very small portion." And I told him, "Doron, I can feel it. I see it. It's coming, and it's going to be big." And looking backwards, as you know, we've achieved quite a lot in 5 years. We become a service company. We have so many clients, so many cloud services today, it's way more mature. So I think we will continue to invest in the cloud. I recognized it from day 1. And I'm very optimistic this will be a big growth engine for us.

Thank you, George. And the next question from Sergey. How do you see the competitive landscape, especially versus cloud for data solution and what are Radware advantages?

Yes. I think in DDoS, we're leading the whole market. Our -- first, it comes with the algorithms. Our algorithms are second to none. Our ability to detect new attacks zero-day attacks is better than anyone else. It's proven, and that's what our customers are telling us, and we're seeing such attacks like Killnet and others that are failing our competition, and we know how to handle them. So it's all started, I think, with the algorithms. Our mindset is algorithm first, no thresholds, not just the network but first, the algorithms. That's one. Second, I think we've built a large capacity of DDoS-only network, not bundled with a CDN, but a need that's very focused on DDoS that is architected to answer DDoS very well. And the third thing, I think we are providing a fully managed service, a very dedicated service with a squad of cyber fighters that are accompanying our customers. All of that together I think you've heard some of the testimonials like IDC and others are putting our DDoS solution, in my opinion, in the best place in the market. It's backed by the analysts, look at IDC, Forrester on DDoS, we are the leader of the leaders. So we feel very comfortable in the competitive position in. DDoS, I think we're expanding it. We are releasing new algorithms. We've mentioned DefensePro X, and that comes, of course, powering our cloud with a whole new set of capabilities. So we think we're doing very well in that front.

Thank you, Roy. And the next question is from Alex.

Great. I was hoping you could potentially clarify some of the data or the near-in starting point, 2023 estimates on the street, are all over the map. The splay gets worse as we go into 2024. So give us some clarity around where we are for the full year '23 and what we ought to be expecting in terms of near-term profitability and growth.

So again, Alex, as obviously you know we're not guiding for 2023. What we've shown in the long-term model is growing 9 plus CAGR. And we also mentioned that because of the 25% growth in cloud security, the weight of cloud security in the product mix of Radware will increase, and as a result, we expect, let's say, on the target year on 2027 to grow 13%. In today's presentation in today's call we're really going to address 2023.

Can you just at least give us some sensitivity to, as you're looking at the trajectory to get to that, is it all back-end weighted because of the slow start up front? Some sort of mechanics around it so that we have some sensitivity?

So the mechanics works like this. We have a very strong, fundamental layer of the current business that we're doing with large enterprise with carriers, and we expect this business to grow single digit. And on the other side, we have the cloud security business that we expect to grow around 25% year-over-year. And over time, that will accelerate our growth. So it's not really a back end. The mechanics is actually 2 engines. One is faster than the other.

Okay. One last question, if I could. When you talk, just a clarification, you said non-tech acquisitions. I'm not sure what that means.

It means business. That's the other way of saying, we have -- just as an example, we have a very strong infrastructure of point of presence of scrubbing centers. And if we acquire a business, that will bring us more WAF opportunity, the leverage is going to be amazing because of the gross margin because we already have the infrastructure in place. So instead of saying business, we, Radware is very well known for tuck-in acquisition for technology. We're not limited to technology. That's what we were saying.

Okay. And on the area of M&A and other question, what piece is missing in your offering? What do you see in the market and regarding valuations.

So I don't think, as Guy mentioned, we are interested in attacking technology acquisition to complement the offering. As a matter of fact, in the market of WAF, Web, API, bot and DDoS security. You see that we are ranked very, very high already. And I think we have a very strong engine of innovation. What we are interested in is our business acquisitions that would add customers and leverage to the model, leveraging what we already built and adding to that our capabilities. So that would be our focus. In valuations, obviously, they're starting to moderate. Public companies probably faster than private companies. But we believe that over the next 6 to 18 months, there should be significant opportunities for M&A along the lines that Guy mentioned as our strategy.

Thank you. And the next question is from Jim.

I wanted to maybe get a little more color on what type of investment may be needed to achieve the 2027 kind of outlook?

So obviously, most, the model is based on organic growth. So the investment is what we're currently doing, more R&D developing more product and a lot of investment in go-to-market. Yoav elaborate on the -- going to the mid-market, it means recruiting new reseller and new channel partners, different skills, different people. So it's more of the same with the twist going to more cloud cyber and more mid-sized market.

So Guy, would we expect then as you grow cloud, which is projected to have a much higher growth rate, and I know you guys have built some capacity in advance of that growth. Would it be more incremental now? Or would we be thinking about some stair step capacity additions over the next few years.

On the infrastructure side, which reflect CapEx increase, it's going to be incremental. Last year, we, just in terms of numbers, we were growing from 32 pulps and scrubbing centers to 40, we talked about the pace. We expect similar growth in 2023. Based on opportunity, obviously, we are looking for global coverage, more capacity, more redundancy and enable better infrastructure to our customers.

Thank you, Jim. Our next question is regarding the future revenue. What is the growth trajectory in 2027?

Yes. So we mentioned that we expect $460 million in 2027. We, that reflect 9-plus CAGR. We also said it's not going to be linear. We said because of the uneven growth of the basic business compared to the cloud security, the growth is going to be accelerated over years. We mentioned 1 data point. We expect '26 to '27 a growth of 13%.

Thank you. Another question. Why do you think you can succeed penetrating the mid-market? And what is your differentiator?

First, I want to put it in context. When we're saying penetrating the mid-market, in the numbers we've taken in the model, we don't need even to get to a 20% or 15% penetration. Today, it's completely upside for our model. With our cloud security services, we can grow tremendously by serving the large enterprise and carrier segments we are strong. We are seeing the mid-market as almost a greenfield for us and for several reasons. One, they do need the same level of security like the large enterprises. They don't have the people and they have less budget. Our cloud security services that is fully managed and that's a differentiator versus many of the players allows them to reach those goals and to jump the level of security significantly higher. That's one. Second, we are a channel-friendly organization. We know how to work with OEMs, with channels, we don't sell direct. So we are able to scale through those channels. Those channels are very, very important for the mid-market. You can either invest in a big way in direct marketing, direct selling approach or you can leverage the channel. I think we have a very strong fundamental there. We are known in the industry for the technology. We're a very good brand, so our channels would help us to scale into that market. And I think that the incremental growth we are looking is extremely achievable. We have very good numbers from the second half of 2022. We've mentioned to you the number of wins in Q4 being record high. We're seeing that momentum continues. So we feel very comfortable on our ability to scale in the mid-sized market.

Roy, If I can add 1 small thing, is that it's not completely new to us. So obviously, we were focusing more on the large enterprises and service providers, but we did have many wins in the mid-market as well since we started offering our cloud application security and DDoS. So in some territories more than others, but we already know that we have what we need to offer to the mid-market. So it's already quite successful in some domains and in some places. And this is why we actually decided to go with more resources towards the mid-market across all other territories as well.

Thank you. And our last question, is the long-term model based on organic growth only? Or do you bake M&A into it?

No, the numbers that we mentioned in the target year 2027, reaching $460 million. It totally depends on organic growth.

Thank you very much for everyone for joining us today and have a great day.

Thank you for participating in Radware's Virtual Analyst and Investor Meeting. We look forward to seeing you again soon.