Allot - Earnings Call - Q3 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by. Welcome to the Allot Third Quarter twenty twenty Results Conference Call. Question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release.

If you have not received it, please contact Allot Investor Relations team at GK Investor and Public Relations at +1 (646) 688-3559 or view it in the news section of the company's website at www.allot.com. I would now like to hand over the call to Mr. Ken Green of GK Investor Relations. Mr. Green, would you like to begin, please?

Speaker 1

Thank you, operator. Welcome to Allot's third quarter twenty twenty conference call. I would like to welcome all of you to this conference call and thank Allot's management for hosting this call. With us on the line today are Mr. Erez Ntsebi, President and CEO and Mr.

Ziv Leitman, CFO. Erez will begin and summarize the key highlights, followed by Ziv, who will review Allot's financial performance of the quarter. We 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 or the future performance of the company. These statements are only predictions, and Allot cannot guarantee that they will, in fact, occur.

Allot 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 nineteen pandemic, changing market trends, reduced 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 would now like to hand the call over to Erez Ensevi. Erez, please go ahead.

Speaker 2

Thank you, Kenny. 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% year over year for the third quarter and reached $34,800,000 This is our eleventh 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. Ziv 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 and D group for all products and a single product management group for all products, we created two new product business groups, one for Allot Secure Products and one for Allot Smart Products. Each product business group will have its own R and D and its own product management. Sales and customer success will continue to be global and serve all product lines as today. To lead the Allot Secure Business Group, we are joined by Yael Villa.

Yael is a cyber and data science expert. Among her previous roles, Yael was VP Security in Cisco and General Manager and CTO of RSA Israel. Yael holds a PhD in mathematics and statistics. Karen Rubanenko, who served very successfully in the past couple of years as our Senior VP for Customer Success, will now lead the Allot Smart Business Group. I believe this change, together with the new leadership, will create a stronger vision forward and will accelerate both product lines' success.

I would like to take the opportunity to wish both Yael and Karen lots of success in their new roles. Like most everyone else, our way of working has been significantly affected by COVID-nineteen pandemic. I would like to update you on how we and our customers are adapting to the new situation. Most of our employees worldwide are continuing to work from home. While the numbers change from country to country as rules and conditions differ, in Israel, for example, approximately 25% of employees work from the office and the rest work from home.

Meetings, even for those in the office, are mostly held by video conference to minimize physical contact. We continue to see high productivity across all departments. During the third quarter, R and D released several product releases in both Allot Smart and Allot 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, to deliver, and service according to plan are a result of the spirit and dedication of all Allot 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 broad observations. CSPs 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. These changes have, for the most part, stabilized. Most CSPs 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 CSPs 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, the more challenging part is establishing new relationships and generating new leads with operators and people we are not familiar with. To this end, we modified our sales approach to increase our lead generation by using targeted marketing campaigns. We started this with a security services campaign. The result of this approach looks promising, as we have generated quite a few new leads for CSPs 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.

Allot Smart Traffic Management is used to provide operators visibility on their networks and manage their traffic. We are seeing growing interest by CSPs to gain better visibility on the network, as well as manage traffic surges and congestion on both mobile and fixed networks. I believe Allot Smart is well designed to address these needs, and this gives us an advantage. Many four gs and fixed networks already have a DPI system, either from Allot or a competitor. Usually, stickiness with a 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 EMEA to replace our competitor's 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 RFPs for DPI systems in 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. The growth we see in this use case is 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-nineteen 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 Allot products to enterprise customers currently using the PacketShaper 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 Allot Smart product family is similar to or even a bit larger than pre COVID-nineteen demand.

To summarize, I believe demand for the Allot Smart product line including congestion management, traffic management, analytics, regulatory compliance and enterprise use cases will remain solid for Allot for the remainder of 2020 and the years ahead. I would now like to turn our attention to the security market. We continue to see an increase in cyber attacks, most notably phishing attacks, on both consumers and small medium businesses, or SMBs. This is giving rise to growing awareness on behalf of consumers and SMBs 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 a major tier one operator in APAC to provide our home secure product to protect the routers and Wi Fi connected devices in customers' homes. When deployed, HomeSecure will protect millions of homes, making this the largest HomeSecure deployment till now. In addition, since the previous conference call, we were selected by several operators worldwide throughout EMEA, APAC, and Latin America to provide them with our security products and launch services to their consumer and SMB customers. 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 with decided to expand the use of Allot Secure to either additional products in the Allot Secure family, or to expand the service to an additional country in which they operate. Since the previous earnings call, Mail, Portugal, and another European operator with whom we previously signed recurring security revenue deals launched the service to the public. 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. We consistently see that customers are willing to pay a premium of 5% to 10% over the access charge to get security services, and we see the take up rates are high. 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 SMBs reached over 30% 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. We are continuing to see more projects initiated and new RFPs published for security service for consumers and SMBs. Interest by CSPs to deliver secure broadband connectivity to their customers looks to be growing worldwide. We continue to see new opportunities worldwide, and 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 SMBs. While motivations vary, I think this is a result of operators viewing SMBs as part of the enterprise customers that see both growing cyber attacks and are willing to pay more. While our pipeline is growing nicely, we are seeing some projects getting delayed as operators are more focused on delivering existing services rather than new services. I remind everyone again that working with CSPs takes time, with sales cycles typically exceeding twelve months and the time from signature to launch of the service around nine months. The current COVID-nineteen pandemic may delay some sales cycles by even a few months more, and even delay the launch for some of the deals we already signed.

As I discussed in the past, Allot is endeavoring to sign 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 CSPs who accept a recurring 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 Allot.

I would like to address briefly five gs networks and where we fit in. An increasing number of operators are moving ahead with their five gs plans and are rolling out five services. We expect this trend to continue, and we see a very large opportunity for Allot here. Five gs networks have significantly higher bandwidth and will 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, Allot has a unique position here to play in securing the user plane in five g networks. Our combination of being able to analyze in real time the full traffic flow, ability to mitigate DDoS attacks in line very quickly, and protect the network from rogue IoT devices, puts us in a unique position to help operators secure their five gs networks. Allot comes to the five gs world with a very strong telco grade technology, products that scale easily to the five gs bandwidth requirements, and full multi tenancy support to enable differentiated services. These abilities are key differentiators for us in future five gs deployments. As I mentioned previously, we are currently active in several major opportunities, including in several Tier one carriers.

In some of them, we passed POCs successfully and are advancing to commercial discussions. Overall, we view five gs as a potentially significant growth engine for cases. We believe there is 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 of these opportunities, we are temporarily increasing our R and D investments this year by using subcontractors to help us close product gaps quickly. In 2021, we expect R and D expenses to be lower than those in 2020. 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. In the Allot 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 Allot Smart at similar or even higher levels to pre COVID-nineteen. 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 nineteen has pushed the closure of several deals a bit more. It is also postponing services, commercial launch and 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, I would like to reiterate our revenue guidance for 2020 to be between 135,000,000 to $140,000,000 I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2020 to exceed an MAR of 140,000,000 This will be, of course, in addition to the $85,000,000 MAR 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, please go ahead.

Speaker 3

Thank you, Erez. Before I begin reviewing the financial results for this quarter, unless otherwise noted, we will judge the ongoing performance of our business. Non GAAP financial measures defer in certain respects from the generally accepted accounting principles and exclude share based compensation expenses, expenses related to M and A activity, amortization of certain intangible assets, exchange rate differences, changes in deferred tax and tax related items. And now to the financial results. Revenues for the 2020 were $34,800,000 growing by twenty six percent compared with those of the 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 was $1,900,000 or 6% of revenues EMEA was $28,000,000 or 80% of revenues and Asia Pac was $4,900,000 or 14% of revenues. The breakdown between products and services in the 2020 versus the comparable quarter last year was as follows: Product revenues were 24,400,000 compared to $16,600,000 last year. Professional services revenues were $2,900,000 compared to $2,400,000 last year. Support and maintenance revenues were $7,500,000 compared to $8,700,000 last year.

A portion of communication service providers revenues out of total revenues in the third quarter were 86% compared to 82% in the comparable quarter last year. I note that the revenue breakdown may fluctuate from quarter to quarter depending on specific revenues and deals we recognize in the specific quarter. Our top 10 end customers made up 76% of our revenues in the 2020 compared with 64% in the third quarter last year. Gross margin for the quarter was 69% compared to 70.2 in the 2019. I would like to mention that the fourth quarter gross margin is expected to be at around 70%.

However, I remind you that the variation between the quarters reflects the product mix or deal mix sold in that particular quarter and is not indicative of any specific trends. Operating expenses for the quarter were $25,000,000 compared to $21,700,000 in the 2019. In particular, I want to highlight that our R and D expenses increased to $11,300,000 or 33% of revenues versus $7,500,000 or 27% of revenues in the third quarter of last year. The increase is in line with our strategy. If you remember, last quarter we discussed that given the emerging opportunities we see in our target market, we had intended to accelerate our development plans and increase R and 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 of our competitiveness and take advantage of opportunities. The total number of full time employees at Allot Worldwide as of the end of the quarter were six eighty four. This is an increase of 10 full time employees compared with that of the end of the prior quarter and an increase of 90 since the 2019. Non GAAP operating loss for the quarter was reduced to $1,000,000 compared with $2,200,000 in the 2019. Non GAAP net loss for the quarter was $1,200,000 or $03 per share versus $1,900,000 or $05 per share in the 2019.

For the three months ended 09/30/2020, the weighted average number of basic shares was 35,200,000.0, an increase of 815,000 compared with the same period last year. The weighted average number of fully diluted shares was $37,500,000 Turning to the balance sheet. Our cash reserves comprised of cash, cash equivalents and investments as of 09/30/2020 were $107,200,000 compared to $109,200,000 on 06/30/2020. The restricted cash balance was reduced to only $1,700,000 versus $24,000,000 in the previous quarter. The current restricted cash is due to margin required for foreign currency hedging activities and other collaterals.

Our inventory in the third quarter was $15,500,000 which is a reduction of $1,700,000 from the prior quarter, but still $4,900,000 above the level as of the 2019. This is primarily due to equipment waiting at customer sites for revenue recognition terms to be fulfilled. Finally, in terms of guidance, we maintain our full year 2020 revenue guidance to be between $135,000,000 to $140,000,000 We continue to maintain our expectation to be profitable in the fourth quarter of the year. Finally, as you know, our focus remains to sign recurring security revenue deals. While the ongoing pandemic delayed closure some of the deals, we believe that by the end of the year, we will achieve our target of closing a total MAR of at least $140,000,000 Of course, this number is in addition to the twenty nineteen MAR we have signed this year and expect to sign until the end of the year, produce little to no recurring revenues in 2020, but will build a strong foundation for revenue growth in the coming years.

Overall, 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?

Speaker 0

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press 1. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the headset before pressing the numbers.

Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Michelle, please go ahead.

Speaker 4

Thanks. Hi, guys. Thanks for taking the question. I'm on for Alex. Quick one for for you guys.

R and D declining in 02/2021. 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 FX hedging strategy there and how FX impacted the quarter and maybe even looking out into the December quarter if you can? And I have a follow-up.

Speaker 2

Okay. I'll take the first question. I I we don't we don't yet have a a budget for 02/2021. 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. I really think we'll have that by the end of the year, and then the next conference call, we'll, of course, provide guidance on where we see where we see our 2021 numbers go.

But I think that's about all we can say right now. Ziv?

Speaker 3

So regarding the exchange differences, this this was the the second question. So we didn't have a significant effect on the quarterly results. By the way, each 1% change in the Israeli currency, the effect is less than $1,000,000. So it's not a significant Work. For a full year.

Speaker 4

Okay. Yes. Alright. That's it.

Speaker 3

Yeah. Portfolio. So it's not a Yeah. It's not a significant effect on each one of the quarter.

Speaker 4

Okay. Thanks. That's that's helpful. And for my follow-up, you guys had some pretty good traction in announcing deals 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 to win new deals despite some delayed 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 like prolonged project launch delays that have seemed to have extended more than you previously thought or areas where you're not seeing as much deal activity as you would have expected that might be offsetting factors the pipeline? Or is it just is there no negative impacts in the pipeline, so to speak, outside of what you guys already mentioned on the prior year February call?

Speaker 2

Look, think I tried to, I hope, to address it during the call. I think, you know, when we look at each market segment separately, we're seeing mostly growing demand, okay, across the across the various segments. Now, like I mentioned, and we already talked about it, there's yes, COVID nineteen does create some delays in 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 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 into the future, I think the pipeline is very robust.

And I think that's particularly true for the security product line, but I think it's also true for the LOTSmart product line. It's not defined to one segment. So overall, I think we see a very healthy pipeline, and so that looks promising.

Speaker 4

Thanks, that's helpful. And congrats on the quarter again.

Speaker 3

You.

Speaker 0

The next question is from Eric Martinuzzi from Lake Street. Eric, please go ahead.

Speaker 5

Thanks. My congrats on the quarter as well. You're looking at right now, I've got consensus at 39,200,000.0 for q four. If I back off the nine months from the full year revenue guidance, we'd be talking about 38,000,000 to 43,000,000. Just clarification.

Is that correct? 38 to 43?

Speaker 2

Yeah. This is you subtracted correctly. Yeah. This is correct. I've got

Speaker 5

an MBA Ziv, so I just wanted to okay. So when I look at the the the backlog exiting 2019, we had, you know, you you talked about a $138,000,000 backlog exiting 2019, and that 70% of that would translate into revenue in 2020. Is that still correct assumption?

Speaker 3

Roughly roughly speaking, it's correct assumption.

Speaker 5

Okay. Right. And then as we look at these the the COVID impacts, the delays here, your your expectation of the $140,000,000 MAR, are we winding up with kind of a log jam here in q four because of COVID? In that in order to hit the 140,000,000 MAR, we need to we need to sign a bunch of business? Or are there transactions maybe that you haven't announced that translate into that 140,000,000 MAR?

Speaker 3

I think we can say that a significant portion of the 140 should be signed in q four.

Speaker 5

Okay. Will you be able to announce them, or is it a situation where because of the operator's preference, maybe you won't be able to do that?

Speaker 3

Hopefully, we'll announce. But if we will have we'll get the pushback from the customers, we will not be able to announce it. Maybe we will announce it without mentioning the name. But I guess that by the February, when we will finalize our yearly revolve,

Speaker 2

we will announce. Announcing the deals, Eric, is a a bit tricky because the operator's tendency is to agree to make announcement when they actually launch the commercial service. It's for their own reason. 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 their but the tendency of many operators is not to not to allow us to announce when they sign the contract, but 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.

Speaker 5

Yep. Understand. And then last question for me. I'd like to dive a little bit deeper into the organizational announcement that you opened the call with. Certainly, you brought on a skilled executive there.

What should we be looking for given this the bifurcation of r and d into two kind of or maybe product into two different executives as well as them having their own r and d, but not controlling their own sales force?

Speaker 2

Look, the reason the the rationale behind that is is pretty simple. I think that R and D and the management was to a large degree segregated previously because product manager, just for example, product manager of the home secure product is a different person than the product manager for for our DPI product. Okay? And same, of course, for Bernard Nie Group. There's a bunch of guys who are working on the on on develop continuing developing supporting the DPI product, and other people are supporting, I don't network secure or home secure products.

I think the big difference here is bringing leadership to both these groups, that is focusing on each one of them, both Karen and Yael are focusing on, I would call it, a more well defined and targeted use case, customer audience, type of sale, type of business, I would say. And therefore, they're in a better position 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, two, three years down the road. And that's why we made this difference. Now we didn't do it in sales and support, honestly because of scale. We don't have many people in each different geography.

We have many people spread around the world, but if you want, Australia we have a very small team, in Japan we have a small team, and etcetera, etcetera. Go geography by geography. And had we segregated them and made a Allot small team for sales and an Allot secure team for sales and for support, we would have, number one, have to increase significantly our expenses, because we would have had 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 globally globally and regionally targeted as they are today.

Hope that explains it a bit more.

Speaker 5

Yeah. I appreciate that. Thank you for taking my questions.

Speaker 0

The next question is from Mark Silk of Silk Investments. Please go ahead.

Speaker 6

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 it, others won't. So the two recent deals you mentioned, MEO and then the Tier one Home in the APAC, were those recurring revenues?

Speaker 3

MEO, it was recurring revenue. But the latest the latest deal that we announced in in APAC, it was a CapEx deal.

Speaker 2

The home secure deal in APAC?

Speaker 3

The home secure. Yeah. You asked about the home secure, right? Yeah.

Speaker 6

So because the NEO deal was announced, I'm assuming that that has been launched?

Speaker 2

Yes. It was launched. Just recently, but yes.

Speaker 6

Okay. So besides the changes in the r and d structure, is there anything because of COVID-nineteen that maybe structurally has changed going forward where you become more efficient leading to more cost reduction?

Speaker 2

I don't think that structurally much will change as a result of COVID, at least not that I see right now. As we're working through the our operating plan for 2021 and as and as we'll see and and as we'll see later on, you know, once once COVID has finally left us at some point, I hope it will, I do expect that some of the some of the practices that we have learned in coping with COVID will continue with us. I believe that long term we will know how to work better with much less travel than before. 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 with operators was done really with physical meetings, face to face meetings, through introductions, and so on. Like I mentioned, 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 we're still learning it, but it looks very promising, it looks effective, We are generating 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.

Speaker 6

So to add on to that, so I I get emails about your seminars, and there's been a few. How has has that been successful, whether it's generating leads or just showing support to your customer base?

Speaker 2

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.

Speaker 6

That's great. And I see that you have one tomorrow. On the as you know, I'm a long term player. So on the five g, would that be maybe a second half twenty twenty one story or more of a 2022 story?

Speaker 2

I think it's starting these days, so I don't know it's a first half or second half twenty twenty one for initial deals or not, but it's definitely starting now. We're really active in this area right now. But I think it's going to grow. If you look at where the projections for five gs are, and how, and the number of operators that are expected to launch over the next years, 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. 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.

Speaker 6

That'll be exciting to watch. In the past, you've answered my question that you've had discussions with US telcos. Are any of these are you talking to any of these companies about a recurring revenue model or something different?

Speaker 2

We are we are talking to them, to The US telcos, and we're talking to them about recurring revenue models. But I'm we're not at the stage that I can say much further on that.

Speaker 6

And then you mentioned on the in your press release, management continues to expect to close additional recurring security revenue deals in 2020. Would you be upset if it's less than two, greater than three?

Speaker 2

Well, know, I'm I'm always upset that it's not one more than whatever it is we closed.

Speaker 6

But it sounded like more than one. You had you had plural in there, so I'll use my imagination. And last thing, know, your stock is down 25% 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 management and the Board to know 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 good luck going forward and congratulations on continued success.

Speaker 2

Thank you, Mark. You're welcome.

Speaker 0

If there are any additional questions, please press 1. If you wish to cancel your request, please press 2. Please stand by while we poll for more questions. There are no further questions at this time. Mr.

Entebbe, would you like to make your concluding statement?

Speaker 2

Yes. Thank you. So on on behalf of Allot 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 present be presenting at at Needham on November 17 and and at the IDEAS conference on November 18.

And beyond with 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 in the next quarter. Thank you very much for joining us today. Have a great day and stay healthy.

Thank you.

Speaker 0

Thank you. This concludes the Allot third quarter twenty twenty result conference call. Thank you for your participation. You may go ahead and disconnect.