Allot Ltd. (NASDAQ:ALLT) Q3 2020 Earnings Conference Call November 4, 2020 8:20 AM ET

Company Participants

Kenny Green – GK Investor Relations

Erez Antebi – President and Chief Executive Officer

Ziv Leitman – Chief Financial Officer

Conference Call Participants

Michelle Waller – Needham & Company

Eric Martinuzzi – Lake Street

Marc Silk – Silk Investment Advisers

Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.


[00:00:00] Ladies and gentlemen, thank you for standing by. Welcome to the Allot third quarter Twenty twenty results conference call. All participants are present in listen only mode following management’s formal presentation, instructions will be given for the question and answer session as a reminder, this conference is being recorded. You should have you should have all received by now the company’s press release. If you have not received it, please contact a lot of investor relations team at G.K Investor and Public Relations at one six four six six eight eight three five five nine or Vuit in the news section of the company’s website. W w w got a lot dotcom. I would now like to hand over the call to Mr. Ken Green of Investor Relations. Mr. Green, would you like to begin, please?

Kenny Green

[00:00:51] Thank you, operator. Welcome to a third quarter 2020 conference call. I would like to welcome all of you to this conference call and thank all of the management for hosting this call. With us on the line today, Mr. Ehud Helft president and CEO and Mr. Ziv Leitman, CFO, I will begin and summarize the key highlights followed by this review. A lot of financial performance of the course that will then open the call for the question and answer session. Before we start, I’d like to point out that this conference call may contain projections or other forward looking statements regarding future events of the future performance of the company. These statements are only prediction, and I cannot guarantee that they will, in fact, occur. A lot does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of the impact due to the covid-19 pandemic. Changing market trends reduce demand and the competitive nature of the security systems industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. And with that, I now like to hand over to error and said the errors. Please go ahead. Thank you, Kenny.

Erez Antebi

[00:02:12] I’d like to welcome all of you to our conference call and thank you for joining us today. Our third quarter was another quarter of solid growth. Revenues grew 26 percent year over year for the third quarter and reached thirty four point eight dollars million.

[00:02:30] This is our 11th straight quarter of double digit revenue growth year over year. And I am very pleased with the results we achieved during the third quarter. I believe it shows we are on track and successfully executing on our plan. The number of opportunities we see continues to grow. We continue to close new deals, win against competition, bring more business and grow our revenues. Our revenue growth in 2020 accelerated so far compared to our revenue growth rate in 2019, and we expect this to continue in the fourth quarter as well. As we see our opportunities grow, we increased our investments to capitalize on the significant number of opportunities that we see. Zeeb will provide more details on our financials and forecast later. In order to allow better focus and faster response to market needs, we recently implemented an internal organizational change instead of having a single R&D group for all products and a single product management group for all products. We created two new product business groups, one for a lot secure products and one for a lot of smart products.

[00:03:49] Each product business group will have its own R&D and its own product management. Sales and customer success will continue to be global and serve all product lines as today to lead to a lot secure business group. We are joined by Elvina. Yeah, and is a cyber and data science expert.

[00:04:11] Among her previous roles, Ya’el was VP Security and Cisco and General Manager and CTO of RSA Israel and holds a Ph.D. in mathematics and statistics.

[00:04:25] Karen Romanenko, who served very successfully in the past couple of years as our senior VP for customer success, will now lead the Smart Business Group.

[00:04:37] I believe this change, together with the new leadership, will create a stronger vision forward and will accelerate both product line success. I would like to take the opportunity to wish both Yale and Kevin lots of success in their new roles. Like most everyone else, our way of working has been significantly affected by covid-19 pandemic. I would like to update you on how we and our customers are adapting to the new situation.

[00:05:08] Most of our employees worldwide are continuing to work from home while the numbers change from country to country as rules and conditions differ.

[00:05:17] In Israel, for example, approximately 25 percent of employees work from the office and the rest work from home.

[00:05:24] Meetings, even for those in the office are mostly held by videoconference to minimize physical contact.

[00:05:32] We continue to see high productivity across all departments during the third quarter, R&D release several product releases in both a lot smoke and a lot secure product lines. They were released on time with the required content and quality. Our Customer Success Group continues to deliver, install and pass acceptance on new installation many times without being physically on site. Our global service organization is continuing to solve problems and lower the number of open customer trouble tickets. These achievements to sell, deliver and service, according to plan, are a result of the spirit and dedication of all alert employees worldwide. I want to take this opportunity to thank them for all their efforts and fantastic work. As I mentioned in the previous call, we do see that the current situation of working from home and lack of physical interaction is stressful for many of our employees. In an attempt to help, we maintain a policy where we fully adhere to all local rules and regulations, but allow our employees personal freedom of choice, whether or not to come to the office where and when this is allowed. I would now like to turn our attention to our interactions with our customers worldwide and share with you a few a few broad observations. Bees are continuing to provide services to their customers, even though many of their employees are working from home. Overall, operators are adjusting well to the situation and for the most part, have managed to handle the changes in traffic patterns.

[00:07:16] These changes have, for the most part, stabilized. Most caspase are continuing not only with the regular business, but with new projects as well, while delays in processes and decisions continue. We do see accelerated efforts by Silsby’s to get back to business as usual, despite not physically returning to their offices. Overall, I think demand, depending on the product, has either remained as it was or grown. I believe to a very large degree. We are all adjusting well to virtual meetings, replacing physical meetings and saving much travel time and expense in the process. We are, however, losing some of the informal relationship building that is important to establish long term trust. So far, the impact of this on the business is limited. As we discussed in the previous earnings call.

[00:08:11] The more challenging part is establishing new relationships and generating new leads with operators and people we are not familiar with.

[00:08:19] To this end, we modified our sales approach to increase our lead generation by using targeted marketing campaigns. We started this was a security services campaign.

[00:08:31] As a result of this approach looks promising as we have generated quite a few new leads for Silsby’s interested in promoting security services to their customers. I will now try to briefly address each of the different market segments we are active in and provide a bit more granular color on what we see in the market.

[00:08:54] A lot of smart traffic management is used to provide operators visibility on their networks and manage their traffic. We are seeing growing interest by CSP to gain better visibility on the network, as well as manage traffic surges and congestion on both mobile and fixed networks. I believe a lot smart as well designed to address these needs. And this gives us an advantage. Many 4G and fixed networks already have a DPI system either from a loop or a competitor. Usually stickiness with the DPI product is high and operators do not tend to replace their current provider easily during the third quarter. However, we were selected by a large tier one operator in email to replace our competitor system. We are currently involved in several processes with other operators considering to do the same. While we cannot be assured of success in these processes, we view them as encouraging opportunities. In addition, there are also new RFP for DPI systems and operators that do not have such systems in place. As we discussed in the last earnings call, we are seeing a growing need for governments to protect their citizens from malicious or illegal activity. As a result, we are seeing growth in the number of opportunities for our digital enforcement use case.

[00:10:23] The growth we see in this use cases worldwide and we are very encouraged by the growing pipeline we are creating. In the enterprise market, larger enterprises, which are the focus of our business, seem to be less affected by the covid-19 pandemic than smaller businesses while we see some delays in projects overall, our enterprise business is doing well and we see it growing. As you may recall, during the first quarter, we signed an agreement with Broadcom to provide a lot of products to enterprise customers currently using the packet cheaper product, which Broadcom chose to discontinue. Since signing the agreement, our enterprise pipeline has seen a strong double digit growth as a result of this agreement. We have signed new distributors that previously worked with a competing product and we closed deals to replace our competitors product. I am very optimistic about the growth our enterprise business may enjoy as a result of the Broadcom deal. While some deals take longer to materialize and it’s a bit more challenging to bring new deals into the pipeline. Several of our use cases are showing demand growth. So overall, on balance, I think the market demand for a lot of smart product family is similar to or even a bit larger than Prie covid-19 demand.

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[00:11:49] To summarize, I believe demand for the smart product line, including congestion management, traffic management, analytics, regulatory compliance and enterprise use cases will remain solid for a lot for the remainder of Twenty twenty and the years ahead. I would now like to turn our attention to the security markets, we continue to see an increase in cyber attacks, most notably phishing attacks on both consumers and small medium businesses, or SMB. This is giving rise to a growing awareness on behalf of consumers and assemblies of the need for protection. It is also contributing to a growing awareness on behalf of operators that they should provide a secure broadband connection. One result of this is that our security business is seeing good traction. During the quarter, we signed an agreement with some major tier one operator in Asia-Pac to provide our home secure products to protect the routers and Wi-Fi connected devices in customers homes. When deployed home, Secure will protect millions of homes, making this the largest home secure deployment until now. In addition, since the previous conference call, we were selected by several operators worldwide throughout email, Asia-Pac and Latin America to provide them with our security products and launch services to their consumer and SMB customers.

[00:13:27] We are currently in contract negotiations with these operators and believe we should be able to sign recurring revenue contracts with most of them before the end of the year. Additional operators we previously signed, we decided to expand the use of a lot secure to either additional products in the secure family or to expand the service to an additional country in which they operate. Since the previous earnings call, male Portugal and other European and another European operator with whom we previously signed recurring security revenue deals, launched the service to the public.

[00:14:08] While only a short time has passed since launch, the penetration rates we see are very encouraging and consistent with the high penetration rates we see in other security services that were launched.

[00:14:21] We consistently see that customers are willing to pay a premium of five percent, 10 percent over the access charge to get security services. And we see the take up rates are high.

[00:14:35] Another European operator who launched the service to customers physically entering stores recently sees the number of customers signing up for the services grow to a majority of those to whom it is offered. Yet another operator, who is offering the service to As and BS, reached over 30 percent penetration in a year, and the penetration is continuing to grow month by month. These numbers are very encouraging and I believe they validate the value security services bring to customers and the willingness to pay for them.

[00:15:12] We are continuing to see more projects initiated, and you are a piece published for security service for consumers and S&P interest by Silsby’s to deliver secure broadband connectivity to their customers looks to be growing worldwide. We continue to see new opportunities worldwide in our pipeline for recurring security. Revenue deals is growing and encouraging. It is worth noting that we see a large growth specifically in the number of opportunities we have to provide security as a service to SMB while motivations vary. I think this is a result of operators viewing SMB as part of the enterprise customers that see both growing cyber attacks and are willing to pay more.

[00:16:03] While our pipeline is growing nicely, we are seeing some projects getting delayed as operators are more more focused on delivering existing services rather than new services.

[00:16:14] I remind everyone again that working with CSP takes time. With sales cycles typically exceeding 12 months and the time from signature to launch of the service around nine months, the current covid-19 pandemic may delay some sales cycles by even a few months more and even to delay the launch for some of the deals we already signed. As I discussed in the past, a lot is endeavoring to science security deals in a recurring security revenue deal model, while not all operators will accept this model. We are encouraged to see that more operators do accept it. Our goal, therefore, is to build a substantial base of CSP who accept the recurrent security services model, which will launch security services to their customers. We will work with them to help a large number of end users sign up for the security services. These are the type of deals that will ensure the long term growth and success of a lot. I would like to address briefly 5G networks and where we fit in. An increasing number of operators are moving ahead with their 5G plans and are rolling out 5G services. We expect this trend to continue and we see a very large opportunity for our lot here. 5G networks have significantly higher bandwidth and we’ll have a very large number of Iot devices on them, as well as many breakout points connecting to the Internet. This results in higher vulnerability of the network itself to cyber attacks, as I discussed in our previous call.

[00:18:00] A lot has a unique position here to play in securing the user, plain and 5G networks, our combination of being able to analyze in real time the full traffic flow ability to mitigate the DOS attacks in line very quickly and protect the network from rogue Iot devices puts us in a unique position to help operators secure their 5G networks. A lot comes to the 5G world with a very strong telco, great technology products that scale easily to the 5G bandwidth requirements and full multi tangency support to enable differentiated services. These abilities are key differentiators for us in future 5G deployments. As I mentioned previously, we are currently currently active in several major opportunities, including in several Tier one carriers and some of them we passed Posse’s successfully and are advancing to commercial discussions. Overall, we view 5G as a potentially significant growth engine for a lot, as I mentioned today. We see significant opportunities in the market across multiple products and use cases. We believe there’s a market opportunity here we should take advantage of, given the strong opportunities we see even in the current environment. We remain committed to leveraging our strong cash position to invest for future growth as we work with more Tier one operators worldwide. We take upon ourselves additional commitments that span product development, delivery and customer support in order to take advantage advantage of these opportunities. We are temporarily increasing our R&D investments this year by using subcontractors to help us close product gaps quickly.

[00:20:04] In Twenty twenty one, we expect R&D expenses to be lower than those in Twenty twenty. I would now like to summarize the overall picture and the key messages we are proceeding according to our plan and continuing to grow the business despite seeing delays in several different projects. And they are not smart product line. We see a strong pipeline. Some use cases such as digital enforcement, congestion management and the enterprise business are growing. Overall, we see a solid demand for a lot smart at similar or even higher levels to pre covid-19 it is in the security area that we see our long term growth. We are very encouraged by the pipeline growth we see and by the consumer and SMB take up rates as they sign up for the service. We signed a significant deal for our home secure product and were selected by several other operators for recurring security revenue deals. While these deals always take time to close, covid-19 has pushed the closure of several deals a bit more. It is also postponing services commercial launch in a couple of the deals that were already signed. Overall, the pipeline is robust and I am confident we will meet our goal for recurring security revenue deals this year. Looking at our backlog, the market demand as we see it now and the pipeline of deals that we are working on.

[00:21:38] I would like to reiterate our revenue guidance for 2020 to be between 135 to 140 million dollars. I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2020 to exceed an MLR of one hundred and forty million dollars.

[00:22:02] This will be, of course, in addition to the 85 million dollars MSR deals we signed in 2019. In addition, we expect to be profitable during the last quarter of this year. And now I would like to hand the call over to Ziv Leitman, our CFO.

Ziv Leitman

[00:22:22] Please go ahead. Thank you. Before I begin reviewing the financial results for this quarter, unless otherwise noted, I would refer entirely to the non-GAAP financial measurement when discussing the operational results, which is what we use internally to judge the ongoing performance of our business, not get financial differences in respect from the generally accepted accounting principles and exclude Schill based compensation expenses, expenses related to M&A activity, amortization of intangible assets, and defensive changes in deferred tax and tax related items, and also the financial results.

[00:23:10] Revenue for the first quarter of Twenty twenty will be four point eight million dollar, going by 26 percent compared with those of the first quarter of 2019. I would like to give you some more color regarding the revenue breakdown and diversification. The geographic breakdown for the third quarter was as follows. Americas with one point nine million dollar, six percent of revenues, Imman 28 million dollars or 80 percent of revenue, and Asia-Pac was four point nine million to around 14 percent of revenues. The breakdown between products and services in the third quarter of Twenty twenty versus the comparable quarter last year was as follows. Product revenues were twenty four point four million dollars, compared to sixteen point six million dollars last year. Professional services revenues were two point nine million dollars, compared to two point four million dollars last year. Support and maintenance revenues were seven point five million dollars, compared to eight point seven million total of last year. Palsson of Communication Service Providers revenues out of total revenue in the third quarter well eighty six percent, compared to eighty two percent in the comparable quarter last year. I know that the revenue breakdown may fluctuate from quarter to quarter depending on specific revenues and deals we recognize in the second quarter, our top 10 and customers made up 76 percent of our revenues in the fourth quarter of Twenty twenty, compared with 64 percent in the second quarter last year.

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[00:25:10] Gross margin for the quarter was. Nine percent compared to seventy point two percent in the second quarter of 2019. I would like to mention the fourth quarter gross margin is expected to be around 70 percent. However, I remind you that the variation between the quarter reflects the product mix odille mix sold in that particular quarter and is not indicative of any specific trend operating expenses for the quarter. Well, 25 million dollars compared to twenty one point seven million overall in third quarter of 2019. In particular, I want to highlight that our expenses increased to eleven point three million, total of 33 percent of revenues versus seven point five million dollar, 27 percent of revenues in the fourth quarter of last year. The increase is in line with self-torture. If you remember last quarter we discussed that given the margin opportunities we see in our target market, we had intended to accelerate our development plans and increase our R&D at a faster rate than originally planned at the start of this year. We are fortunate in that our strong cash position, especially in the current market environment, enable us to pursue growth, further, enhance our competitiveness and take advantage of opportunities. The total number of full time employees worldwide as of the end of the quarter. Well, 684, this is an increase of 10 full time employees compared with that of the end of the previous quarter and an increase of 90 since the end of 2019.

[00:27:20] non-GAAP operating loss for the quarter was reduced to one million dollar, compared with two point two million dollar in the third quarter of 2019. No net loss for the quarter was one point two million dollar or three cents per share versus one point nine million dollar or five cents a share in the first quarter of 2009. For the three months ended, September 30th, 2020, the weighted average number of basic shares was thirty five point two million, an increase of eight hundred and fifteen thousand compared with the same period last year. The weighted average number fully diluted share one thirty seven point five million. Turning to the balance sheet, our cash reserves comprised of cash, cash equivalents and investment as of September 30th, Twenty twenty, well, one hundred and seven point two million dollars, compared to one point one under the nine point two million dollar on June 30th, Twenty twenty restricted cash balance was reduced to only one point seven million dollar versus 24 million dollar in the previous quarter. The countercyclical cash is due to margin required for foreign currency hedging activities and other collateral inventory. In the third quarter was fifteen point five million dollar, which is a reduction of one point seven million dollar from the previous quarter, but still four point nine million dollars above the level as of the end of 2009.

[00:29:12] This is primarily due to equipment waiting at customer sides for revenue, cognition terms to be fulfilled financially. In terms of guidance, we maintain our full year twenty twenty revenue guidance to be between one and so to five million total to 140 million. We continue to maintain our expectation to be profitable in the fourth quarter of the year. Finally, as you know, our focus remains to finally calling security revenue deals while the ongoing pandemic delayed closure some of the deal. We believe that by the end of the year, we will achieve our target of closing the total amount for at least one hundred and forty million dollar. Of course, this number is in addition to the 2019 Emelle, 85 million total. I know that the New Deal we have signed DC in and expects to sign until the end of the year will produce little to no recurring revenues in Twenty twenty. But we will build a strong foundation for revenue growth in the coming year over year, despite a much more challenging environment than when we started the year. We remain pleased with our overall financial performance. That concludes my remarks. We would be happy to take your question now, operator.

Question-and-Answer Session


[00:30:48] Thank you, ladies and gentlemen. This time we will begin the question and answer session. If you have a question, please. Press star one. If you wish to cancel your request, please press star to if you are using speaker equipment, kindly lift the headset before pressing the numbers. Your questions will be pulled in order. They are received. Please stand by while we poll for your questions. The first question is from Michelle. Michelle Waller from Needham and Company Michelle, please go ahead.

Michelle Waller

[00:31:32] Thanks. Hi, guys, thanks for taking the question on Groulx. Quick one for you guys are indeed declining in Twenty twenty one. Just wondering if you guys expect that to be offset by other factors such as travel expenses and whatnot, coming back into the model that we may have had taken out of the model due to covid. And also just wondering if you can give us an update on your hedging strategy there and how it impacted the quarter and maybe even looking at Symbicort or if you can and I have a follow up.

Erez Antebi

[00:32:16] Ok, I’ll take this for the first question. We don’t we don’t yet have a budget for 2021. So honestly, I, I don’t think we can we can address exactly what the various elements of expenses we expect to have or not have and so on. A, I really think we’ll have that by the end of the year in the next conference call or provide guidance on where we see where we share Twenty twenty one numbers go. But I think that’s about all we can say right now.

Ziv Leitman

[00:32:55] Regarding the exchange differences, this was the second question. So we didn’t have a significant effect on the quarterly results. By the way, each one percent change in the system, the Israeli currency, the effect is less than one million dollar.

[00:33:23] So it’s not a significant risk for a full year. Yes. All right. Yeah, hopefully so it’s not that it’s not a significant effect on each one of the quartos.

Michelle Waller

[00:33:41] Ok, thanks, that’s that’s helpful. And from a follow up, you know, you guys had some pretty good traction in announcing deals, this during the third quarter and just looking into next year. Can you talk a little bit about your pipeline and how that looks with you guys continuing when new deals, despite some delay launches? It seems like your pipeline would be building quite strongly. And you kind of mentioned that in your prepared remarks. Are there any areas where you see headwinds that, you know, like prolonged project launch, the ways that you, you know, that have seemed to extend more than you previously thought or or areas where you’re you’re not seeing as much still activity as you would have expected that might be offsetting factors for, you know, the pipeline or is it just, you know, there are no negative impacts in the pipeline, so to speak, outside of what you guys already mentioned on the prior year to second quarter call.

Erez Antebi

[00:34:44] And look, I think I try to help to address it during the call. I think, you know, when we look at each market segment separately, we’re seeing mostly growing demand across the across the various segments. Now, like I mentioned and, you know, we already talked about it, there’s yes, covid-19 does create some delays in the projects and closing the deals and signing them and launching them and so on. But overall, I think the net effect is that we’re seeing we’re seeing more business. And if I look at the pipeline that we have today and I look at what I would expect it to be going to the future, I think the pipeline is very robust. And I think that’s that’s particularly true for the security product line. But I think it’s also true for the LookSmart product line. It’s not it’s not defined to one segment. So overall, I think we see a very healthy pipeline. And so that looks promising.

Michelle Waller

[00:35:53] That’s helpful. And congrats in the quarter again. Thank you.


[00:35:57] The next question is from Eric Martinuzzi from Lake St. Eric. Please go ahead.

Eric Martinuzzi

[00:36:08] Thanks to my congrats on the quarter as well, you’re looking at it right now. I’ve got consensus at thirty nine point two million for Q4. If I back off the nine months from the full year, revenue guidance would be talking about 38 million to 43 million. Just clarification, is that correct? 38 to 43.

Erez Antebi

[00:36:28] Yeah. You subtract that correctly. You know,

Eric Martinuzzi

[00:36:31] I’ve got an MBA, so I just want to. Ok. So when I look at the the backlog exiting 2019, we had you know, you talked about 138 million dollar backlog exiting 2019, and that’s 70 percent of that would translate into revenue and twenty twenty. That’s still a correct assumption, roughly.

Erez Antebi

[00:36:57] Roughly speaking, correct assumption.

Eric Martinuzzi

[00:37:00] Ok. All right. And then as we look at this, the comet impacts the delays here. Your your expectation of the 140 million dollar mark are winding up with kind of a logjam here in Q4 because of covid in that in order to hit 140 million mark, we need to we need to sign a bunch of business or or their transactions maybe that you haven’t announced that translate into that 140 million mark.

Erez Antebi

[00:37:33] I think we can say that a significant portion of the one on one should be signed in Q4.

Eric Martinuzzi

[00:37:40] Ok, will you be able to announce them, or is it a situation where because of the operators preference, maybe you won’t be able to do that?

Erez Antebi

[00:37:49] Hopefully it will announce. But if we will, we’ll get the push back from the customer. We will not be able to announce it. Maybe we will announce it without mentioning the name. But I guess it’s by the beginning of February when we will finalize the usually revised.

[00:38:14] We will announce that announcing the deal. There is a bit tricky because the operators tendency is to agree to make announcements when they actually launch the commercial service. It’s for their own reasons. They don’t want to alert the market to their local market of customers and their local competition to what they’re up to, what they plan to do and so on. So their tendency, it’s not always correct, but but the tendency of many operators is not to not to allow us to announce when they sign the contract with to to announce when they actually launch the the service itself, which, as you know, is typically say nine months later. So we try and we don’t always succeed.

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Eric Martinuzzi

[00:39:01] Yeah, I understand. And then last question for me. I’d like to dove a little bit deeper into the organizational announcement that you open the call with. Certainly brought on a skilled executive there. What what should we be looking for, given this, the bifurcation of R&D into two kind of four, maybe product into two different executives as well, them having their own R&D but not controlling their own sales force?

Erez Antebi

[00:39:34] And look, the reason the rationale behind that is pretty simple, I think that if you know, the R&D in the product and the product management was to, to a large degree, segregated previously because, you know, product manager, just for example, product manager of the home secure product is a different person. And the product manager for four already product and same. Of course, the Rennard Group is a bunch of guys working on the undeveloped, continuing, developing and supporting the DPI product. And other people are supporting Rhino Network, Secure Home, Secure Products. I think the big the the big difference here is bringing bringing leadership to both these groups. That is focusing on each one of them. But both, Kiran. And you are focusing on on a is I would call it a more well defined and targeted a use case customer audience type of sale type of business, I would say. And therefore, they’re in a better position to to innovate, to find the right vision going forward, find the right value of how we create value, not just tomorrow morning, but how do we do this properly and how do we advance the products and the strategy properly to be much more successful a year or two or three years down the road.

[00:41:08] And that’s why we made this this difference now. We didn’t do it in sales and support, honestly, because of scale. We are you know, we don’t have we don’t have many people in different geography and we have many people spread around the world. But if you want and you know, in Australia, we have a very small team. In Japan, we have a small team and et cetera, et cetera, go geography by geography. And had we segregated them and made a is a lot smaller team for sales and and a lot is security for sales and for support, we would have no one have to increase significantly our expenses because we would have to duplicate and number two, which is even a lot more important, we would have lost a lot of leverage on dealing with the operators to whom we are offering both product lines. So at the end, we decided to do it this way and gain the proper focus vision going forward. Quick response to changing market conditions and so on on the product lines. But keep the sales and customer support you globally, globally and regionally targeted as they are today.

[00:42:33] I hope that explains that a bit more.

Eric Martinuzzi

[00:42:36] Yeah, I appreciate that. Thank you for taking my questions.

[00:42:42] The next question is from Marc Silk of Silk investments. Please go ahead.

Marc Silk

[00:42:49] Thanks for taking my questions and congratulations on continued success in your strategy. So in the last few calls, you’ve said that on the recurring revenue model, some customers will accept that, others won’t. So the two recent deals you mentioned, MCO and then the Tier one home secure in the Asia-Pac with those recurring revenues knew it was a recurring revenue.

Erez Antebi

[00:43:17] But the latest the latest deal that we announced in Asia-Pac, it was the home security and nonsecure. You are about.

Marc Silk

[00:43:30] So because the MIO deal is announced, I’m assuming that that has been launched.

Erez Antebi

[00:43:37] Yes, it was launched just recently, but yes.

Marc Silk

[00:43:41] Ok, so besides the changes in the R&D structure, is there anything because of covid-19 that maybe structurally has changed going forward where you become more efficient, leading to more cost reduction?

Erez Antebi

[00:44:02] I don’t think that structurally much will change as a result of it, at least not that I see right now as we’re working through the our operating plan for Twenty twenty one and us. And as we’ll see and as we’ll see later on, you know, once once covid is finally left us at some point, I hope it will. I do expect some of the some of the practices that we have learned to in coping with covid will continue with us. I believe that long term we will we will know how to work better with much less travel than before.

[00:44:42] And I believe that that will enable us to save both time and hopefully expense. But I don’t see any structural change as such. The other change that I also mentioned on the on the call is the way we generate leads. If if, you know, before covid broke out, most of our lead generation was operators, was done really with physical meetings, face to face meetings and through introductions and so on. Like I mentioned, we are we are changing our method of operation there. And we’re moving to, if you call it you can call it sort of a sales transformation for lead generation and doing this a lot more with targeted marketing campaigns as we’re learning how this works right now. Right now, we’re still learning it, but it looks very promising. It looks effective. We are generating this quite a few new deal new leads with this. So if this continues, I would expect that this will be one of the things that we will want to keep even after covid is gone, because it’s simply good.

Marc Silk

[00:45:54] So to add on to that, so I get emails about your seminars and there’s been a few, how has that been successful, whether it’s generating leads or just showing support to your customer base?

Erez Antebi

[00:46:07] No, no, it’s it’s been successful and it’s generating leads. And we have quite a few new leads as a result of these campaigns and seminars and so on that that, you know, these are companies that we’re now talking to that we didn’t talk to before.

Marc Silk

[00:46:23] That’s great. I see that you have one tomorrow on the you on the long term player, so on the five G. Would that be maybe a second half twenty twenty one story or more of a Twenty twenty two story?

Erez Antebi

[00:46:39] I think it’s it’s starting it’s starting these days, so I don’t know if it’s I don’t know if it’s a first half or second half Twenty twenty one four four initial deal or not. But it’s definitely starting now. We’re really active in this area right now. But I think it’s going to you know, it’s going to grow. If you look at if you look at where where the projections for five are and how and the number of operators that are expected to launch over the next year and how they expect to grow their networks over the next five, six, seven years, whatever, then this is going to be a growing market. And that means that every year more operators will join, the existing operators will grow their bandwidth, they’ll grow their core network requirements, and they will need more protection. So while I think this business will start for us probably next year, I think it will from there it should be we should be able to grow it.

Marc Silk

[00:47:45] It’ll be exciting to watch. In the past, you’ve you to my question that you’ve had discussions with U.S. telcos or any of these and you talk to any of these companies about a recurring revenue model or something different.

Erez Antebi

[00:48:03] And we are we are talking to them, to the U.S. telcos and we’re talking about recurring revenue model, but we’re not at this stage. So I can say much further on that.

Marc Silk

[00:48:18] And then you mentioned on the in your press release, management continues to expect to close additional recurring security revenue deals and twenty twenty. Would you be upset if it’s less than two greater than three?

Erez Antebi

[00:48:34] You know, I’m I’m always upset that it’s not one more than whatever it is we closed, but it sounded like more than one you had before you had plural in.

Marc Silk

[00:48:44] So I’ll I’ll use my imagination. And last thing you know, your stock is down 25 percent since your last conference call, even though your guidance has stayed the same. I think people were kind of scared that some of these deals are being pushed out. So I just want you to know management of the board to know it would it would really boost the stock if they showed some confidence and took a few shekels out of their pocket and we were able to buy some shares. It would just show a lot of confidence and and good luck going forward. And congratulations on continued success.

Erez Antebi

[00:49:14] Thank you, Marc.


[00:49:20] If there are any additional questions, please press star one, if you wish to cancel your request, please. Press star two, please stand by while we poll for more questions. There are no further questions at this time, Mr. Erez Antebi, would you like to make your concluding statement?

Erez Antebi

[00:49:42] Yes, thank you. So on on behalf of a lot and the management team, I’d like to thank you for your interest and long term support in our business. We are currently not traveling, as you can imagine, but we will be holding virtual meetings with investors. We will be presenting at at Needham a November 17 and at the ideas conference on November 18. And beyond that, of course, we’re open to speaking with investors until the end of the quarter. And if you want to speak with us, please be in touch with our investor relations team. I look forward to talking to you the next quarter. Thank you very much for joining us today. Have a great day and stay healthy. Thank you.

[00:50:30] Thank you, this concludes that a lot, third quarter Twenty twenty results, conference call. Thank you for your participation. You may go ahead and disconnect.