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Radware (NASDAQ:RDWR)

Q1 2013 Earnings Call

April 25, 2013 8:45 am ET

Executives

Roy Zisapel - Co-Founder, Chief Executive Officer, President, Director and Director of Radware Inc

Meir Moshe - Chief Financial Officer

Analysts

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

Mark Sue - RBC Capital Markets, LLC, Research Division

Alexander B. Henderson - Needham & Company, LLC, Research Division

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Joseph Wolf - Barclays Capital, Research Division

Rohit N. Chopra - Wedbush Securities Inc., Research Division

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to the Q1 2013 earnings conference call. [Operator Instructions] And also as a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Mr. Roy Zisapel. Please go ahead.

Roy Zisapel

Thank you. Good morning, everyone and welcome to Radware's First Quarter 2013 Earnings Conference Call. Joining me today is Meir Moshe, our Chief Financial Officer.

Meir will start the call by reviewing the financial results and afterwards, I'll discuss the business highlights of the first quarter results. After my comments, we'll open the discussion for Q&A. Meir?

Meir Moshe

Okay. Thank you, Roy, and welcome, everyone, to our first quarter conference call. First, I would like to read you the Safe Harbor language.

During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially, including, but are not limited to, general business conditions and our ability to address changes in our industry, changes in demand for products, the timing and demand of orders and other risks detailed from time to time in Radware's filing. We refer you to documents the company files from time to time with the Securities and Exchange Commission, specifically the company's last Form 20-F filed in March 2013.

And now ladies and gentlemen, for the financials. As we announced in our preliminary results call, revenues for the first quarter totaled to an amount of $45.1 million compared to revenues of $45 million in the first quarter of 2012 and the revenues of $48 million -- $49.8 million in the fourth quarter of 2012.

Non-GAAP gross margin remained at 82%. The non-GAAP net income this quarter totaled to an amount of $7 million or $0.15 per diluted share compared to net income of $9 million or $0.19 per share in the first quarter of 2012.

Stock-based compensation expenses in amount of $1.1 million, amortization of intangible assets in amount of $700,000, acquisition-related expenses in amount of $500,000, and exchange rate expenses in amount of $200,000 bring the GAAP net income this quarter to $4.5 million or $0.10 per diluted share compared to net income of $6.9 million or $0.15 per diluted share in the first quarter of 2012.

Non-GAAP operating expenses reached $30.6 million this quarter. The headcount for the end of the quarter was 831 employees. Following the cash payment of $8.4 million in relation with the acquisition of Strangeloop, our overall cash position, including cash short-term and long-term bank deposits and marketable securities amounted to $274 million and we have no debt.

Shareholders' equity amounted to $280 million. Buyback. As announced today, Radware's Board of Directors has authorized a share repurchase plan of up to $40 million of ordinary shares.

Guidance for the second quarter. We expect revenues to range between $46.5 million to $47.5 million; 82% gross margin; operating expenses will range between $31.5 million to $31.8 million; financial income at $1.3 million; and non-GAAP EPS to range between $0.15 to $0.16.

As a reminder, we are hosting a Financial Day on Monday, May 6, in New York City. Registration is still open at www.radware.com. We look forward to seeing you there. And now, I would like to turn the call over to Roy.

Roy Zisapel

Thank you, Meir. As we discussed on our call several weeks ago, we had lower-than-anticipated results in the first quarter. We experienced challenging market conditions in EMEA and China, with lengthening project sales cycles, especially within our existing customer base. Yet, at the same time, we are witnessing robust demand for our solutions in North America with an expanding customer base and footprint.

The beginning of the second quarter continues the trend we saw in the first quarter with longer-than-usual sales cycles in EMEA and strong demands in the America. However, we fundamentally believe there is no change in the growth drivers or target architecture in the application delivery and the application security market and we continue to believe we will be able to translate it to revenue growth in 2013.

On the technology and product front, this past quarter, we acquired Strangeloop Networks. Through this acquisition, we launched the FastView line of products, which we believe is the best-in-class web application acceleration solution. The FastView solution is offered as a physical appliance, virtual appliance and as a cloud service for acceleration.

Our application delivery solution comprised of Alteon and FastView, offers customers accelerated answer and response time and improved conversion rates, which is a unique capability in the market and adds to our existing competitive advantages with our VADI and application performance monitoring offerings.

Continuing on the product front, this past quarter, we introduced a new cloud-based attack mitigation solution to protect customers against Internet pipe saturation. This new offering, DefensePipe, is an innovative solution for end-to-end attack mitigation, on-premise and in the cloud. DefensePipe starts automatically once the customer's DefensePro unit detects that pipe saturation is imminent. The customer's suspicious Internet traffic is immediately diverted to DefensePipe cloud-based scrubbing centers and the attacks are mitigating -- mitigated there. The clean traffic is then sent to the organization and regular operations continue once the attack has ceased. A unique capability of our expanded solution is the sharing of behavioral baseline data between the on-premise attack mitigation device and the DefensePipe cloud, enabling DefensePipe to start mitigation in the cloud much faster and with greater accuracy.

With a complete set of on-premise data center attack mitigation capabilities, now expanded with cloud mitigation solution against pipe saturation and managed by our emergency response team, we provide the industry-leading solution to mitigate cyber attacks.

Also, just introduced towards the end of February, we have experienced strong and early traction for this solution and have already closed initial customer contracts. On the software defined networking front, we presented together with Mellanox a combined solution to enable mobile carriers to leverage network functions, virtualization and SDN. Through this cooperation, the Radware OpenFlow-enabled Attack Mitigation System extracts network information from Mellanox 10-gig and 40-gig server NIC cards to detect and protect against security threats in real time. We see SDN and OpenFlow in particular as a major opportunity to provide application delivery and security intelligence to the whole data center and carrier networks through our software-centric approach.

To summarize, today, we have a leadership position in the market as it relates to our product and solution offerings. We are introducing key innovations into the space, and this past quarter, releases of FastView and DefensePipe are great examples of that. We're expanding our addressable market with highly competitive and unique product offerings and while we experienced flat yearly revenue results, we continue to believe we will be able to translate our leading position and market growth drivers into revenue growth in 2013.

Before concluding, I would like to thank our customers and partners for their continued support and trust and the whole Radware team for their effort and commitment.

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Jess Lubert with Wells Fargo.

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

A couple of questions, actually. First, just a housekeeping issue. Can you give us the geographic breakdowns?

Meir Moshe

Again, this is -- the U.S. actually, North America, 38% of revenues this quarter; EMEA, 25%; and Asia Pac, 37%.

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

Okay. And then, when you look at the business before there were issues, did you notice it was more concentrated in security versus the ADC business or perhaps enterprise versus carrier? Any incremental thoughts there? Any change in the number of close rates surrounding larger deals?

Roy Zisapel

No, the key issues were in EMEA. It was more geographic than segment or vertical. All in all, our carrier business, for example, did relatively well for this quarter at 30% of total, and enterprise, 70%. So in the vertical segments and in the type of opportunities, we didn't see any difference. It was focused on EMEA and to some extent, in China.

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

Or how do you think about that going forward?

Roy Zisapel

So as was mentioned in my prepared comments, we still see those difficulties also in April in EMEA. Some of the deals have closed that we were expecting in Q1, but some are still going on. So we are still seeing the same environment in EMEA and there might be a room for bit more optimism. But all in all, it's still very challenging for us. At the same time, the strong trends in the Americas continue as well, and we do expect strong market share gains in that geography also in Q2.

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

It seems like it was a fairly strong investment quarter, expenses are expected to step up in the June period. So I was hoping to better understand how you're thinking about investment going forward and what that might mean for offering margins over the next few quarters. Has there been a decision to really kind of see the market to try and capture share in the Americas and maybe that keeps margins subdued for a little while before ramping up? Or how are you thinking about the balance between the need to invest and growth?

Roy Zisapel

Okay. I think we've got in the operational -- operating expenses for the coming quarters. There's 2 main factors there beyond the ongoing management of the -- of our infrastructure and that is the Strangeloop acquisition headcount that will -- that we will see a full quarter impact of that headcount, as well as the exchange rate of dollar-shekel that played negatively since the beginning of the year to our dollar expenses. So these are the 2 main factors. In addition to that, we continue to invest in R&D and in the Americas, geography. In Americas, we do it very balanced with our growth rates, which are, as you can see, are quite nice.

Meir Moshe

I would like to add that, as we believe in the fundamentals, and we believe that the growth is existing, we would like to continue to invest in the company based on our plan. By the way, if you take the high end of our guidance, this quarter, you see expansion on the operating margin, even in the June quarter. So to cut long story short, that's based on the fundamentals. And the expected growth, we'll continue to invest while watching the total operating margin. We have done it before that we expand the margin, but this is based on the growth. It was in the past, it will be hopefully also in the future.

Operator

Our next question will come from the line of Mark Sue.

Mark Sue - RBC Capital Markets, LLC, Research Division

If we look at the reasons and the root cause for some of the lengthening sales cycles, does anything come up aside from the macros that, for example, did they say we're evaluating new technologies? Are you considering a virtualization approach to ADCs? They have a lot of projects that need to go first. Any other granular data as you talk to yourselves also on why major companies in the ADC market just saw such an abrupt slowdown in the market would be helpful.

Roy Zisapel

Yes. So again, I would like to split it according to the region. In Americas, we see very strong investments from both the carriers, the -- and the leading financial services companies in ADC and in securities. In EMEA, the deals that we were forecasting to the -- to Q1 are obviously already agreed and the customer on the exact bill of material, deployment modes and so on. And it's more budgeting issues, sometimes priorities, sometimes cycles of approvals that are getting longer, and budgets that are not allocated and so on. I do believe that, also in this environment, we need to improve our execution. And as we are targeting cloud computing environment, mobile data and cybersecurity, there's definitely the pockets that are still investing greatly and on plan. I will say that some of the obvious verticals in EMEA, like government, maybe financial services, will experience and will continue to experience problems that are lengthening sales cycles for obvious reasons. But even within that, in EMEA, I believe there's enough opportunities for growth.

Mark Sue - RBC Capital Markets, LLC, Research Division

Roy, if I look at some of your customers, particularly at the data centers, some of them are moving towards rudimentary load balancing themselves without requiring the high-end use of ADC solutions such as yourself. Is this a trend that others are considering, basic rudimentary load balancing that they can bring in-house? How do you feel that the role of the ADC market will develop over time and does the growth rate actually contract with the market? And is there some element that we might move to a virtual ADC environment in the future as well?

Roy Zisapel

So there's a couple of points here. First, in the large public clouds, definitely, they're building a lot of the IT systems themselves both for security, load balancing and so on. But our business was never reliant on them. In order to do that, they need to invest a lot in R&D and optimize a lot of application capabilities in -- with -- through in-house R&D. And in order to do that, you need a very big scale to support cost-effectively this. So it's very similar to the fact that they build their own servers, they build their own network switches. But I think for the second tier cloud providers, for carriers, for enterprises, this is not an approach that is doable. Number one, they don't have those R&D teams in-house. Number two, the scale does not allow them to build everything on their own and then to excel in that and to support that. So I don't see that as a major issue for the whole industry. In terms of the virtualization in the software, obviously, the multi-instance, multi-tenant virtual infrastructure is core to our strategy, that's the base of our VADI strategy that we're discussing for over 3 years. And we don't really care whether the ADC instance runs on a dedicated Radware box [ph], if this dedicated appliance runs 200 instances of our Alteon ADC or whether this Alteon virtualized ADC runs on KPN or VMware. For us, all those instances are the same, all are managed the same way, operated the same way, scaled, provisioned, decommissioned, et cetera. So virtualization is actually a very good trend for ADC and security, simply because there's more instances, there's more application, there's more dynamic nature in the data center, which requires better means to deliver applications to control traffic, et cetera. So data center virtualization, cloud computing, in general, private clouds and so on are very favorable growth drivers for our industry.

Operator

Our next question will come from the line of Alex Henderson.

Alexander B. Henderson - Needham & Company, LLC, Research Division

Roy, could you give us a little bit of a sense -- I mean, it sounded like when we talked after the pre-announcement that the weakness in Europe was coming predominantly from existing customers not pre-ordering. Can you give us some sense of how broad a portion of your European customer base that represented? And is that still your read of it after you had more time to go back and determining what the root cause was? And what portion of the weakness in Europe was the result of new customer contract wins versus old customers?

Roy Zisapel

So the project -- the vast majority of projects that we were expecting to close in Q1 and have pushed were in Europe in existing customers. And I think there's a good reason for that because an existing customer has a deployment in place, especially with those that are upgrade projects and not expansion projects. Then timing can -- might be more elusive sometimes. I think, on the other end, that if they build their next-gen data centers or as they deploy new applications, there is a sense of urgency to complete these projects. On one hand, the good news is, in existing customers, you have a lot -- quite high confidence. We will close the deal eventually. On the other hand, especially not great projects, if budget come to play, they can slow down some of these projects. So we continue to track these projects. We put a lot of focus on new initiatives, especially in the growth markets that I've mentioned where we feel the deal velocity. And the criticality of time we close a project is higher, and we feel we can improve the performance in EMEA. Again, at the same time, and that's what is a bit of a surprise for us, we do see relatively stable trends Asia Pacific and very strong trends in the Americas. So very similar customers, very similar use cases. We're seeing Americas investing quite strongly. And in EMEA, we felt, in Q1, a stop.

Alexander B. Henderson - Needham & Company, LLC, Research Division

So if you look at the activity rates -- when we do our VAD/VAR field checks, one of the questions we typically ask to the channel guys, and we did this in the U.S., was at the end of last year, they said that they had seen a deflation of their activity book coming into 1Q. But by the end of the March, April timeframe they were talking about a rate of face of the activity of books just in the business in the U.S. was going to be better as we go into the second quarter, second half. Did you see a deflation in the activity book late last year or any reinflation in the activity book in Europe late in the March quarter? Can you talk about how many leads you're chasing in that geography? Obviously, we don't do VAD/VAR field checks in Europe, so it's hard for us to read it.

Roy Zisapel

We didn't feel -- obviously, in Europe, Q4 is the strongest quarter, so obviously closing in Q4 is much higher in EMEA. And you can call it deflating of the deal books. But that's happening every year in EMEA in Q4. But entering into Q1, we thought we had a very solid pipeline and solid expectations, and the weakness surprised us. And as it relates to the Americas, I think you can see by our results that we had a strong Q4 and a strong Q1 and we feel that the pipeline is increasing. So we didn't see, in the Americas, the regular seasonality that we generally see in the business. We attribute that to several factors. Number one, the amount of cyber attacks in the U.S. is very high and it's coming in waves and that dictates a very high level of activity in all security markets. Number two, we believe that North American carriers are investing in our type of technology for ADC and for security, and they are less bound to the enterprise quarterly seasonality. And number three, I think, overall, we are strengthening in the Americas. We have more people, more coverage, more channels and we are exposed to more deals. So that, altogether, I think, is a -- gave us very good pipeline and results in Q1 and very good, I would say, outlook for Q2.

Operator

Our next question will come from the line of Ittai Kidron.

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Roy, I wanted to talk to you about the competitive environment. ACE have reported last night and maybe the outlook for them for June wasn't all that exciting as well. And that said, you look at Citrix and their net scale of business seems to be up 40% to 50% on a year-over-year basis. So is there anything that you're seeing out there competitively that could explain this discrepancy? And also can you comment about the Cisco areas? You haven't mentioned that all in your remarks. Is that not an opportunity for you?

Roy Zisapel

Okay. So first regarding Citrix, we don't see that much in the market regarding the growth rates. I think they've done a large acquisition of ByteMobile. So I think you need to compare apples-to-apples in terms of numbers. I don't think market the share is changing dramatically in the last couple of quarters, and especially on the pure plays that are reporting with a lot of clarity on the exact ADC numbers, I think that's the case. Regarding ACE, we continue to see ACE deals. And as time passes, there's more and more customers of ACE that are coming into the projects. I don't see that as hockey stick revenue accelerator. The ACE customer base for the last 4 years, Cisco was losing share and it continues to lose share. And I don't see that as a 1-quarter or 2-quarter phenomena. We continue to see more and more deals. We had some success in the past quarter in a couple of additional carriers that are starting to replace their Cisco ACE platforms with our Alteon and VX multi-tenant switches and I believe we will continue to win more and more Cisco accounts, but I don't see that as a one-time accelerator for the market.

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Okay. And regarding Juniper and Check Point, can you talk about the performance of those 2 partners in the quarter? And how's the pipeline for those 2 looking into next?

Roy Zisapel

So on Juniper, I don't have any real news to report, nothing of significance. On Check Point, we continue to see a growth in the pipeline. This -- the past quarter, they started to book the first deals that they won. And we are very opportunistic that this quarter, they will outgrow that. So I think the level of activity, the level of pipeline and customers in the Check Point relationship is very encouraging.

Operator

Our next question will come from the line of Joseph Wolf.

Joseph Wolf - Barclays Capital, Research Division

I wanted to first ask about the share buyback in terms of timing. Any end date on that, whether it's starting right away? And I guess, even if the current or the Q2 guidance for EPS includes a reduced share count. That's my first question.

Meir Moshe

Okay. The terms and condition for the buyback, it's set by the board. And of course, we don't share it with the market, in this stage. We have taken the share count some small number of buyback that we are going to do in Q2, the second quarter. But again, this number is not going to be shared with the market for reasons that you can imagine.

Joseph Wolf - Barclays Capital, Research Division

Okay. But is it like a 2-year plan?

Meir Moshe

No, this is a 1-year plan.

Joseph Wolf - Barclays Capital, Research Division

It's a 1-year plan, okay. My second question is about the mix. If you look at the strength in the US and the comments about the carrier and the security, is it safe to say that those 2 businesses are different in terms of the mix of the rest of the business? So if it was 30-70, is it 40-60 in the US, or 50-50? And the same -- I guess the same question would be with relation to the mix of security versus core ADC business.

Roy Zisapel

So I think in the Americas, the enterprise business was actually very strong in Q1 as well. So I would not focus the strength of the Americas solely on carrier execution. We see strong trends across all the markets. Carriers, in general, performed well for the company. In terms of the product segment, in the -- I think it's more vertical approach, because in the U.S., if you ask about U.S. financial services, I can say yes, security is more dominant there than we usually see in other areas. But if you look at the U.S. enterprise as a whole, excluding security, you are going to -- including -- excluding financial services, you are going to see the regular trends. In manufacturing, in retail, we see the lion's share of our business comes from ADC. In the carriers, it's more lumpy, depending on the projects that we win. But across Americas, our -- until now, our biggest share of the business is the ADC.

Joseph Wolf - Barclays Capital, Research Division

Okay. And then just finally, is there a difference between product and services as you look at the relatively flat performance for the second quarter as well year-on-year?

Roy Zisapel

So we don't break it for product and services. But we believe that in 2012, our product has outgrown the services if you look on our 20-F report. We think that this year we will have, as a whole, we will have a more balanced growth between the 2. We think we can improve and that was an area of discussion last year. We think we can improve our growth rate in services and that, in turn, hopefully help us in the growth rates for 2013.

Operator

And our next question will come from the line of Rohit Chopra.

Rohit N. Chopra - Wedbush Securities Inc., Research Division

Roy, just wanted to ask you something about large opportunities. We keep getting feedback from the field that you're working on a lot of large opportunities. I thought maybe you could talk a little bit about where they're concentrated, both in North America and in Europe. And then maybe you could talk a little bit about the strength in North America again. What is driving the success? Because it looks like there's something that you're doing here maybe that's not working anywhere else, but -- there's something you're doing here that's actually driving a little bit of growth. I know there's a little bit of a promotion going on, on some Alteon products, but maybe you could talk a little bit about what's driving the strength in North America.

Roy Zisapel

In general, regarding North America, we think that the growth is coming from several areas. Number one, we are investing more in that market and we've increased our coverage, so we are exposed to more customers, more deals. And as we've noted many times, we believe we have a leading product and solution offering in the market. So given the opportunity and the customer ready to evaluate multiple solutions, we feel very strongly on our probability of winning that deal. So simply by getting exposed to more customers and expanding our reach, we're seeing growth. Number two, the U.S. is leading in the adoption of cloud computing, virtual data centers and recently also in cybersecurity. Those are the areas that we excel in. So there's a good correlation between where the market is heading and investing and where our solutions are excelling. And as a result, we're seeing increase. And the increase in these markets are -- is also an increase in large deals that you've alluded to in the first part of your question. So going now into the large deals, we are seeing very large opportunities in Radware terms, which means that multiple orders of about $1 million per quarter. Those deals are obviously very long in terms of sales cycle, but we're definitely seeing an increase in amount of these opportunities. And also in what I would vaguely refer to as the quality of these opportunities, meaning, what types of customers are we dealing with? Is it really the top tier of the carriers, government agencies, financial services, online companies? And I think the answer is positive to that. So we are very optimistic on the long term and especially on the our ability to penetrate strategically such accounts. But we don't see it happening in our Q2 guidance yet.

Rohit N. Chopra - Wedbush Securities Inc., Research Division

Right. Just one follow-up to that. On some of these large deals, are you displacing anybody or are these new opportunities?

Roy Zisapel

In large customers, there's generally an incumbent. So either they give you the new type of business, for example, they continue to use the incumbents for legacy ADC appliances and they give you the cloud, private cloud or hybrid cloud initiative, or in security, they might have security vendors, but they find them -- they find the coverage inadequate to the current threat landscape and then they need to add you to the mix. Those are the 2 main drivers. In the large accounts, they generally don't replace the legacy installation because they just let that infrastructure age out and they migrate to new type of infrastructure. So if you take a carrier, people are investing in LTE infrastructures. They will not generally replace 2G and 3G.

Operator

And our next question comes from the line of Rajesh Ghai.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

Another question on the Strangeloop acquisition. Do you have any revenue baked into your Q2 guide from that acquisition? And now that you've owned that asset for about a month, what do you think of the outlook for the rest of the year?

Roy Zisapel

So currently, very little is -- and it's based on our expectations, and when we did the acquisition, and we think that the real revenues will ramp when we will -- towards the end of the year. Provide an integrated solution to our Alteon ADC, that was our guidance from the start. We do believe that some of the cloud computing, major hosting, content delivery networks and of course, the retail segment and online segment are very, very nice segments to use this technology, and we're starting to develop the pipeline. But again, the -- it was a technology acquisition that we plan to integrate into our ADC and bring a new competitive advantage to the ADC market as a whole.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

Okay. I just wanted to follow up on the North American strength question. Is that strength more on the security side or on the ADC side? And in general, did security once again grow faster than ADC this quarter?

Roy Zisapel

So in Americas, as I've mentioned, the financial services segment, yes, security has the lion's share of our business. And given the current threat landscape, I think this will continue to be. In general, our ADC -- the ADC is leading our business in the Americas.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

And you talked of -- with the Check Point pipeline being stronger into Q2. How do you handicap the probability of seeing any material traction from Check Point in Q2? And is Juniper kind of not going to contribute at all in Q2? Is that what you're telling us on the call?

Roy Zisapel

So regarding Check Point, we have some forecast that they provide us every quarter and we are working by that. I do believe that they are accelerating and we might see continued growth throughout the year. And in general, we're very happy with the way the relationship is growing and developing and expanding. Regarding Juniper, there's not enough traction to that -- we can see in the market for the joint solution. And we don't see them pushing a lot of value-added services. I don't think it's limited to ADC, but value-added services, on top of the routing platforms to carriers. We do have some large Tier 1 wins with them that we believe we are going to recognize more revenues from these wins throughout the year, but I cannot say that the -- that my view on the revenue contribution from Juniper is that it's going to expand. It's lumpy and the exposure currently, in our view, is limited.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

And last question on IBM. So my -- at a dinner event sponsored by IBM recently in OpenDaylight, the speaker mentioned working closely with Radware. Can you tell us what specifically you're working on? Is it the DefenseFlow app that is just recently announced? And what could be the timing of any revenue that you could recognize from IBM to develop your systems for this OpenDaylight collaboration?

Roy Zisapel

I don't want to speak specifically on IBM because we didn't announce any commercial agreement between the companies, more of marketing and such initiatives. So when we will have something to announce about commercial agreements, we -- I will discuss it in length. Regarding the OpenDaylight, OpenDaylight is one of the -- I will not go into the main details, that is one of the future developments around SDN that we are engaged in. In the last OpenFlow Summit, we also demonstrated and announced about DefenseFlow. And as I've mentioned in my prepared remarks, we see SDN and OpenFlow as a major opportunity going forward, because security acceleration, application delivery will be obviously needed in every future data center and on top of OpenFlow, with or without Daylight type of -- OpenDaylight type of controller, we are able to give those value, give those benefits of better availability, better performance, better security to the whole network and data center architecture. So we are working on multiple avenues in regards to SDN. I've mentioned Mellanox with OpenFlow cards in my call. You've mentioned Daylight, OpenDaylight, which is another -- and there's a couple of other passives that we are working on in regards to SDN.

Operator

[Operator Instructions] And our next question goes to the line of Alex Henderson with Needham & Company.

Alexander B. Henderson - Needham & Company, LLC, Research Division

Just a quick one. The acquisition-related expenses on the reconciliation page, what line items is that coming out of?

Meir Moshe

Yes. The operating expenses, you mean?

Alexander B. Henderson - Needham & Company, LLC, Research Division

It says acquisition-related expenses in the reconciliation to non-GAAP.

Meir Moshe

Okay, okay. I understand. This line -- this is in the G&A, usually, which is include all the costs that's associated to the transaction that we have to pay.

Alexander B. Henderson - Needham & Company, LLC, Research Division

Okay. So it's all on G&A?

Meir Moshe

Yes.

Operator

And there are no further questions in queue. Please continue.

Roy Zisapel

Thank you, everyone, for joining us today, and we look forward to meeting you in our Analyst Day. Thank you.

Operator

Ladies and gentlemen, this conference will be available for replay starting today at 10:45 a.m. and will run until May 9 at midnight. You may access the replay service by dialing 1 (800) 475-6701 and entering the access code of 286846. You may also dial (320) 365-3844 and enter the access code of 286846.

That does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive Teleconference. You may now disconnect.

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