Radware (RDWR) Q3 2026 earnings review
Radware's sales grow faster, but higher costs cut its profit
Radware, a maker of software and hardware that protect corporate applications from cyberattacks, grew sales faster while its profit fell. Revenue rose 12% as European demand rebounded, and upfront customer payments lifted deferred revenue by 18% by our math. However, higher research spending, employee stock grants, and a $4.6 million currency hit from a stronger Israeli shekel pushed reported operating profit down 63%.
| Revenue (continuing operations) | $84.4M +12% from a year ago |
|---|---|
| Cloud recurring revenue | $107M +21% from a year ago |
| Profit per share, excluding one-offs | $0.32 $0.33 a year ago ($0.41 without currency hit) |
| Operating cash flow (continuing) | $15.5M -$2.1M a year ago |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because better regional sales and cash collection were offset by steeper cost pressure and a slower cloud expansion. European sales grew 12% after two quarters of declines, but cloud recurring revenue growth eased for a third straight quarter to 21% and sits below the 25% full-year target.
The question now is whether heavy research spending on AI security will speed up cloud growth or keep squeezing profit margins. Either the new tools lift cloud bookings back toward 25% growth, or rising engineering salaries and shekel strength absorb all the gains from double-digit revenue growth. Fourth-quarter cloud recurring revenue and operating expenses will tell.
🐂 Bull Case
Revenue Grew Faster As Europe Rebounded
Radware sells cybersecurity software and hardware that protect corporate websites and applications from attacks. Total revenue from continuing operations rose 12.1% from a year ago to $84.4 million, faster than the 11% growth in the first half. Chief executive Roy Zisapel said "We delivered another record quarter, highlighted by accelerating revenue growth and continued expansion of our cloud security business."
- Europe, Middle East and Africa (EMEA) revenue: $25.6 million, up 12% from a year ago after falling 2% last quarter
- Americas revenue: $39.6 million, up 12% from a year ago after growing 24% last quarter
- Asia-Pacific (APAC) revenue: $19.2 million, up 12% from a year ago
The regional mix shifted in a healthy way because Europe and Asia picked up the slack as growth in the Americas slowed. That rebound eases the standing concern over European demand, though one quarter against last year's weak comparison does not settle it. What to watch: fourth-quarter EMEA revenue. Another double-digit gain against last year's high $32.2 million comparison would confirm that European demand has recovered.
Deferred Revenue and Cash Flow Jumped
Deferred revenue is cash customers have paid upfront for software subscriptions and maintenance not yet delivered, so it leads reported sales. By our math, total deferred revenue rose 18.2% from a year ago to $207.3 million, speeding up from 11.2% growth last quarter. Even with a normal third-quarter seasonal dip of $1.3 million from June, the balance held well above last year's $12.1 million drop.
Upfront collections lifted operating cash flow from continuing operations to $15.5 million, reversing a $2.1 million cash outflow in the third quarter of last year. After $3.1 million of equipment purchases, free cash flow reached $12.4 million, or 14.7% of revenue by our math. What to watch: fourth-quarter deferred revenue. Growth staying above 12% from a year ago would support double-digit revenue growth into next year.
Buybacks Kept Shrinking the Share Count
The Israeli security vendor spent $13.7 million buying back its own stock in the third quarter, bringing total repurchases for the first nine months of 2026 to $61.8 million. It bought back nothing in the first nine months of last year. Those purchases lowered the diluted share count by 3.1% from a year ago to 43.5 million shares by our math.
Fewer shares cushioned per-share profit against falling net income. Profit from continuing operations excluding one-offs fell 6.1% from a year ago to $13.9 million by our math, but per-share profit on the same basis dipped only 3.0%, from $0.33 to $0.32. What to watch: fourth-quarter share repurchases in the cash flow statement. Continued buying above $10 million a quarter would keep reducing the share count despite high employee stock grants.
🐻 Bear Case
Research Spending and a Stronger Shekel Cut Profit
While Zisapel highlighted record revenue, operating profit fell for a second straight quarter. Reported operating income from continuing operations dropped 62.8% from a year ago to $2.2 million by our math, and operating margin shrank by 5.2 percentage points to 2.6%. Excluding stock-based pay and other one-offs, operating margin still fell 1.8 percentage points to 14.1%.
- Research and development (cost of building software): 28.5% of revenue, up 4.2 percentage points from a year ago by our math
- General and administrative (overhead costs): 11.7% of revenue, up 3.5 percentage points by our math
- Share-based compensation (employee stock grants): 10.5% of revenue, up 3.4 percentage points by our math
- Currency headwind: $4.6 million hit to expenses from a stronger Israeli shekel
Radware said "The appreciation of the Israeli shekel against the U.S. dollar had an adverse impact on expenses during the third quarter." Without that $4.6 million currency hit, profit per share excluding one-offs would have risen 24% to $0.41 instead of falling to $0.32. What to watch: fourth-quarter research and overhead expenses as a share of revenue. If they stay above 40% combined, double-digit sales growth will not lift reported profit.
Cloud Recurring Revenue Growth Slowed Again
Cloud annual recurring revenue (Cloud ARR), the yearly value of active cloud security subscriptions, is the main driver of Radware's shift toward subscription sales. Cloud ARR reached $107 million, up 21% from a year ago and up $4 million from last quarter by our math. That $4 million addition matched the third quarter of last year, so the yearly growth rate slowed for a third straight quarter.
Growth has stepped down from 24% a year ago to 23% in the first quarter, 22% in the second, and 21% now. Earlier this year the company targeted 25% Cloud ARR growth for 2026, and the current pace sits four percentage points below that goal. What to watch: fourth-quarter net new Cloud ARR. Reaching the 25% full-year target from last year's $95.2 million base would require adding about $12 million in the fourth quarter, nearly double last year's $6.2 million fourth-quarter addition.
AI Security Launches Lack Disclosed Bookings
Radware has invested heavily in research to build tools that protect artificial intelligence models and application programming interfaces (APIs, the software links between apps). Zisapel said "Customer demand for our application security solutions is robust, as reflected in our cloud bookings and large deal activity." He added that customers are adopting its "new AI security capabilities" to "protect applications, APIs, infrastructure, and AI environments through a unified platform."
Despite those claims and a 31.4% jump in reported research spending from a year ago by our math, the release gave no revenue, recurring revenue, or customer counts for API or AI security. Because Cloud ARR growth slowed to 21% at the same time, the new tools are not yet speeding up overall subscription growth. What to watch: any quantified bookings or customer figures for AI and API security in the annual report.
Risks this quarter didn't answer
Several standing concerns and watch items were not readable from the third-quarter earnings release because Radware reserves its outlook and product details for the conference call.
- Total annual recurring revenue (Total ARR): absent from the release for a second quarter after dipping to $250 million in the first quarter; the call or annual filing will show whether it met the 8% to 9% growth target.
- Fourth-quarter outlook: Radware said management will host a call to "discuss its third quarter 2026 results and fourth quarter 2026 outlook", leaving no printed numbers in the release.
- Hardware memory costs and price hikes: non-GAAP gross margin dipped 1.1 percentage points from a year ago to 81.4% by our math, with no breakdown of appliance costs.
- Competition from larger platforms: no win-rate data against rivals like Cloudflare and Akamai that bundle security with network services.
👓 Other Themes
Discontinued Operations Still Burn Cash
At the start of 2026, the cybersecurity provider classified its SkyHawk subsidiary as a discontinued operation to exit the unit. In the third quarter, discontinued operations still recorded a $1.9 million reported net loss and used $1.9 million of operating cash, lowering total reported diluted profit per share from $0.11 to $0.06. Assets held for sale fell to $6.3 million from $13.3 million at year-end, showing gradual progress toward an exit.
💲 Other KPIs
Uncollected customer bills rose 35.6% from a year ago and 17.5% from year-end 2025 by our math, outpacing the 12.1% revenue increase. The rise follows strong third-quarter billings that also lifted deferred revenue, tying up $1.2 million of working capital during the quarter.
Total cash, bank deposits and marketable securities edged down from $422.9 million in June and $451.9 million at the end of 2025. The group carries no debt, and its $15.5 million of continuing operating cash flow in the quarter funded $13.7 million of share buybacks and $3.1 million of equipment purchases.
Gross margin excluding stock-based pay and intangible amortization slipped 1.1 percentage points from 82.4% a year ago by our math, and dipped from 81.8% in the second quarter. Reported gross margin declined 0.9 percentage points from a year ago to 80.4% as cost of revenues grew 17.2% against 12.1% sales growth.
❓ Key Questions
What was total recurring revenue in the third quarter?
Management previously called total annual recurring revenue its primary indicator and targeted 8% to 9% growth for 2026, but omitted the figure from the last two earnings releases after it dipped sequentially in the first quarter.
Why is the fourth-quarter outlook missing from the release?
Radware discusses its quarterly revenue and profit targets only on the conference call rather than printing them in the earnings release, leaving investors who read the filing without the fourth-quarter numbers.
How will management offset the Israeli shekel headwind?
A stronger shekel cut third-quarter profit excluding one-offs by $4.6 million ($0.09 per share), more than double the first-quarter currency hit, and kept operating income from growing despite 12% revenue growth.
When will the SkyHawk exit stop burning cash?
Discontinued operations have consumed $6.0 million of operating cash over the first nine months of 2026, including $1.9 million in the third quarter, and still carry $6.3 million of assets held for sale.
How much recurring revenue comes from AI and API security?
Reported research and development spending rose 31% from a year ago to build AI and API protection tools, while overall cloud recurring revenue growth slowed for a third straight quarter to 21%.