Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by the conference will begin shortly.
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Ladies and gentlemen, thank you for standing by welcome to a low first quarter Twentytwenty results conference call.
All participants are present in listen only mode. Following managements formal presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded.
One of all received by now the company's press release, if he has not received it please contact our loads investor relations team at GK Investor and public relations.
16466883559 or view it in the news section of the company's website www dot a load dotcom.
I would now like to handover the call Mr. Kenny grain.
Mr. Green would you like to begin please.
Thank you operator.
Welcome to all of you saw no third quarter 2020 conference call.
Like locomotive due to the cost in school and I'd like to lock management for hosting this call.
With us on the call today.
That said, the president and CEO and Mr. Ziv Leitman CFO.
It will summarize the key highlights.
Hi, David will review financial performance Gulf War.
Well then open the call for the questions no session.
Well, we saw I'd like to point out the conference call may contain projections or other forward looking statements regarding future events for the future performance of the company.
These statements.
And a lot count guarantee that they will in fact pickup alone does not assume any obligation to update that information actual events or results may differ materially from those objectives, including as result of the impact you used to the co in 19 pandemic changing market conditions and trends reduced amount.
I mean competitive nature of the security systems industry as well as other risks identified in the documents filed by the company with Securities Exchange Commission.
With that I would now like to hand, the call over to Eric Eric. Please go ahead.
Thank you Karen age I'd like to welcome all of you to our conference call and thank you for joining us today.
I would like to start with some highlights for the first quarter.
Our first quarter was another quarter of solid gross revenues grew 16% year over year for the first quarter and reached $29.3 million.
Non-GAAP gross margin improved to approximately 75% and our non-GAAP net loss shrunk to approximately $400000 about 22% of our net loss in the first quarter of 2019.
This is our ninth straight quarter of double digit revenue growth year over year and I'm very pleased with the results. We achieved during the first quarter I believe it shows we're on track and successfully executing on our plan.
The number of opportunities. We see continues to grow we continue to close new deals when against competition bring more business and grow our revenues.
We expect revenue growth in 2020 to accelerate compare to our growth rate in 2009 team.
As we see opportunities grow we're continuing to increase our investments to capitalize on the significant number of opportunities that we see.
Ziv will provide more details on our financials and forecast later.
The last couple of months have been challenging as the cobot 19 pandemic is changing both the way we operate and the way our customers operate.
I would like to start and discuss what is happening inside a lot and then turn to discuss what is happening with our customers and where we see the market going.
As a pandemic on restriction started we set for ourselves to primary goals was equal importance, one to maintain and safeguard the health of our employees and their families.
And to to continue to meet our commitments to our customers in a timely manner and achieve the goals we set for ourselves.
Like most companies during the past couple of months over 90% of our employees worldwide are working from home and we are of course not traveling internationally.
We adjusted to the situation quickly and are continuing product development sales and customer support remotely from People's homes.
While we initially did have some temporary challenges and supply of components and servers et cetera, those were overcome with no measurable impact to customer commitments so far.
As part of our efforts to lower delivery risks to our customers. We expedited some inventory orders when the pandemic started which resulted in some inventory growth at the end of the quarter.
Overall, we did not see significant degredation and performance and this situation did not cause us so far to miss commitments to our customers.
We are continuing to deliver products, we're continuing to develop products, we're continuing to install pass acceptance and we are continuing to serve our customer base.
For example, just last week, we released a major software general availability release of our look smart those being worked on for over seven months was a negligible to working day delay.
A lot has not laid off people as result of covert 19, nor have we foresee any of our employees to go on vacation with or without pay.
We view this time when people are being let go elsewhere as an opportunity to higher qualified people.
I would like now to turn our focus to our customers worldwide.
Our CSP customers are obviously open for business as the Coke was the increase demand of communications to serve their end users consumers and businesses worldwide.
While most csps, we are working with our also working from home many of the projects and services. We are involved with continue as planned.
A notable example would we wouldn't be rack to turn in Japan, which went live with commercial launch April eight despite almost everyone working from home.
We are saying sorry.
Objects, but many projects, including new projects are continuing as planned.
We have seen several new opportunities as operators launch new RFP or decide to launch new initiatives, even after the pandemic started.
I would say that while this situation poses certain challenges. It is also creating new opportunities for unlocked.
I will try to briefly address each of the different market segments, we are accident and provide a bit more granular color on what we see in the market.
Working that hall, and working remotely have significantly increased the use of online applications such as zoo, Microsoft teams and others. In addition, many people staying at home or watching significantly more over the top entertainment apps such as Netflix as.
A result, this created a sharp rise in network network traffic volume by as much as 40% worldwide on fixed networks and about 15% to 20% on mobile.
As badly as demand increases worldwide. This is driving growth in the operators need to have good visibility into the traffic on their networks and the need for better traffic management.
As the pandemic really hit and we saw our customers scrambling to add capacity to their networks.
A lot came up was campaigns to provide operators and existing customers with additional licenses on a loan basis free of charge for the first few months. So they can focus on solving the burning issues first and deal with commercials later I.
I believe this was the right thing to do as good corporate citizens and then the spirit of partnership with our customers.
As we all adjust to what will end up being Z new normal quote unquote it might be that part of deals licenses will be acquired for use beyond alone period.
I believe that in both the short term and long term the increase in bandwidth requirements of operators worldwide should drive demand for network visibility traffic management solutions.
Given the increase in time spent on the Internet, we're seeing a growing need for governments to protect their citizens from malicious or illegal activity.
As a result, we're seeing growth and the number of opportunities for our regulatory compliance use case.
At this point I would like to expand a bit on our enterprise segment, which in 2019 was roughly 19% of our revenues.
Typically we sell to enterprises, which are large and to a degree look and act like a CSP.
Example of such customers are the Italian post office or state or local governments.
The sector of the large enterprises does not seem to be significantly affected by the covert 19 pandemic.
While some deals are getting delayed the interest that we see coming from this sector continues as it was before.
However, where we sell to smaller businesses, we do see larger delays in projects and hesitancy to spend money now.
One of our main competitors in the enterprise segment was a product line called packet Shaper originally developed by a company name packet tier.
Through a series of acquisitions. This product line was recently acquired by Broadcom.
During March we were chosen by Broadcom as the recommended vendor to offer a transition pass from their packet shaper line of products to the a lot secure service gateway or SSG and we signed an agreement was broadcast.
As part of the partnering agreement Broadcom began the end of life process to the packet shape for product line and refer their customers to alone.
Also as part of the agreement, we are offering attractive financial terms and discounts for product replacements to help customers transition from packet shaper, two equivalent a lot products.
As a result of this many value added resellers and distributors of packet Shaffer, our now engaging with a lot to deliver the a lot enterprise product to their customers.
I will note that the packet shape for product line revenues in 2019 were somewhat larger than a lot of 2019 enterprise revenues.
While this is a very promising deal for us we should remember that many of the packet shape for customers are small businesses. Some of them will transition to other technologies. So that not all the fact that shape for customers will indeed move to a lot products.
It is too early to tell what the size of our enterprise business will be going forward, but we expect that in the next year or to our enterprise business may growth as a result of this agreement.
To summarize.
I believe demand for the I look smart product line, including congestion management traffic management steering visibility regulatory compliance and enterprise use cases.
We will remain solid for a lot in 2020 and beyond.
Yes.
I would now like turn our attention to the security segment.
We see a significant increase of cyber attacks on both consumers and Smbs.
This is giving rise to growing awareness on behalf of consumers after the need for protection.
It is also contributing to a growing awareness on behalf of operators that they should provide a secure broadband connection.
Our security segment to seeing good traction.
During the first quarter, we signed several new security deals two of which were recurring security revenue deals with the operators in Asia Pacific and Latin America, neither of which were a lot customers before.
While we did see some projects getting delayed as operators focused on delivering basic connectivity services. We also saw new projects initiated and new RFP is published after the pandemic and even after locked down started.
I remind everyone again that working with Csps takes time with sales cycles, typically exceeding 12 months.
Current covert I'd 19 pandemic may delay some sales cycles, but even a few months more taking more time than we would like to close deals.
As we discussed previously it typically can take about nine months from contract signing to launch of the service.
As may be expected with the effect of covert 19, we are seeing some delays in the launch of the services.
Probably no more than several months.
This may reduce a bit the amount of recurring security revenues in 2020, we previously expected to be a few million dollars.
As I have discussed in the past a lot as 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 and more operators do accepted.
I will remind everyone again that as we signed recurring security revenue deals, we do not book anything nor do we recognize any revenues.
Only one to services launched by the operator and consumers or small businesses begin to use it will revenue stream to a lot gradually build up.
Our goal there for us to build a substantial base of Csps, which will launch security services to their customers and work with them to help a large number of end users sign up for the security service.
These are the type of deals that will ensure longer term growth and success of outlook.
It is too early to accurately assess the impact of the epidemic and behavioral changes on recurring security revenues. Both in terms of number of operators and in terms of take up rate of customers.
Currently we do not see an adverse impact on the interest from operators to launch security services and there are even signs of growing interest.
And services that were already launched we continue to see growth and a number of consumers and SMB is paying for the services, but the growth as lower during the weeks of walk down compared to the period before.
While it is too early to tell how this will play out as we return to the quote new normal unquote, we do expect growth rates to go back up.
To track our performance, we use a metric internally that we call maximum annual revenue or MCR for sure.
This number reflects the potential annual revenue a lot will receive showed 100%, though the CSP is relevant customer base sign up for the security service.
Of course, we do not expect 100% of the csps relevant customers to actually sign up for the service. So a lot revenues will actually be the MTR multiplied by the actual penetration level achieved.
Looking at the initial recurring security revenue deals we signed.
The healthy pipeline, we have in hand, and the growth in tenders in RFP that were issued I am confident that we are heading into right direction and I'm very optimistic about this market segment and our future growth in it.
I would now like to summarize the overall picture and key messages.
Despite the cobot 19 pandemic most people working from home and inability to fly to customers. We are proceeding according to plan and growing our business.
We are continuing to deliver to our customers and serve them in a timely manner.
And the visibility and control area, we're seeing some delays in some of the projects. However, the growth and bandwidth requirements is creating demand for our products and new opportunities are emerging.
And the security area. The increased cyber attacks are contributing to increased awareness from both operators and end users.
While sales cycles are somewhat longer and the launch of new services may be delayed we see the need for security service to protect consumers and SMB is continuing to grow.
Looking at our backlog entering 2020, the market demand as we see it now and the pipeline of deals that we're working on I would like to reiterate our revenue guidance for 2020 to be between $135 million to $140 million.
I would also like to reiterate our guidance for 2020 of a new recurring security revenue contracts signed in 2020 to exceed in May our of $140 million. This will be of course on top of the 85 million dollar MTR deals we signed in 2019.
In addition, we expect to become 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.
Thank you.
Let me begin reviewing financial results for this quarter.
Unless otherwise noted I will refer entirely.
The non-GAAP financial.
Measure when discussing operational results.
Gentlemen.
Ongoing performance fall.
Non-GAAP financial measures can be found in certain spec generally accepted accounting principle and exclude share based compensation expensive.
Expenses related to M&A activity and motivation of certain intangible asset exchange of a defensive and changes in showed deck.
And now through the financial.
Revenues for the first quartile, twentytwenty, well $29.3 million going by 16% compared to those first quarter 2019.
Generally speaking the cone of.
Jamie you didn't have a significant effect on the first quarter revenue.
However.
As we explained in the press release, we issued three weeks ago. During the first quarter of Twentytwenty, Some deep which were expected to boot will delay if the consequences of the corporate 19 can damage and are now expected to close during the second quarter.
I would like to give you more color regarding the revenue breakdown.
Asia.
The geographic breakdown for the first quarter was follow America with $1.5 million or 5% of revenues.
EMEA with 23.1 million dollar or 79% before revenue in Asia, Fac with $4.7 million of 16% revenue.
The breakdown.
Between products and services in the first quarter of Twentytwenty versus the comparable quarter last year was as follows product revenue as well $18.9 million compared to $16 million last few professional services revenues.
$2.6 million compared $2.8 million last year support and maintenance revenue will $7.8 million compared.
$8.5 million last year.
The portion.
Of communication service provider revenue out of the total revenue in the first quarter, well, 87% compared to 83%.
Comparable quarter last year.
I know the revenue breakdown may fluctuate from quarter to quarter, depending on the specific revenue and deal with recognizing the specific water.
Our top 10 and customers made up 75% ROFO revenue in the first quarter of Twentytwenty compared with 62% into first quarter last year.
Gross margin for the quarter was 74.8% confirmed.
72.4% in the first quarter of 29 team.
The variation between the quarter reflect the product mix.
Old given me.
Sold into particular quarter and is not indicative of any specific.
Trends.
Operating expenses for the quarter were $22.5 million compared to $20.2 million as reported in the first quarter of 29 view.
The total worldwide number or full time employees as of March 31st Twentytwenty, well three or 633.
This is an increase.
39, full time employees come from that of the end.
2019, which stood at five I'm going to 94.
I know to do the due to the copied 19 condemning our expensive were slightly lower than what we had planned though.
This was in call due to the.
Upstream then.
International travel by employees since mid February and the configuration of the mobile World Congress trade show in both Ilona swell to further marketing activity.
Furthermore, the pandemic and.
Ed and impact on our phase of.
Irene you employees.
At the same time, the majority of Apollo global workforce working from home.
And we invested in result in ensuring an effective platform.
Two in Aberdeen.
Non-GAAP operating loss for the quarter was point 6 million dollar compared to non-GAAP operating loss of $1.8 million in the first quarter of 29 feet.
Non-GAAP net loss for the quarter, we'll point $4 million of one cents.
Share versus $1.9 million or five cents per share in the first quarter of 29.
For the three month ended March 31st Twentytwenty.
The weighted average number of basic shares was 34.6 million.
The weighted average number will fully diluted show for the same period was 36.8 million.
Turning to the balance sheet, our cash reserve comprise of cash cash equivalent.
And the investment Ashcroft monotherapy for 2020.
Well $110.7 million compared to 117.6 million dollar on December 31st 29 feet.
$33 million out of the total cash balance it was predicted.
Due to advance payment from customers.
Margin required for foreign currency hedging activities and other color.
The decrease in cash level was due to three primary.
I'm very optimistic.
Sure I know the told at the end.
Last year, we received loans up upfront payments from various large new deal we had sign second given certain supply constraint.
In the market due to corporate 19, we've strategically increase our inventory level to ensure we have the files and component we need to fulfill commitment to customer.
I know the inventory every reason.
From 10.7 million dollar and began to 29 10 to 15.1 million.
As of March and.
Portion of those purchases are expected to be also paid in the second quarter of 22 and.
Phil.
Payment of accrued expenses, which were booked in the previous quarter.
Finally in term of guidance.
As mentioned earlier, we continue to expect revenue to grow significantly in twentytwenty to between $135 million to $140 million preventive accelerated year over year revenue growth of 25% at the midpoint.
We expect gross margin.
For the reminder of Twentytwenty whoever's around the same level as we had seen in previous year to around 70%.
However.
We integrate this on a quarterly basis. The gross margin may fluctuate as a result of deal mix and the revenue recognition.
Our Planful twentytwenty.
The optics would be in the range of 95 to 98 million dollar mainly due to investment in sales and R&D to facilitate future goals of the company.
We expect to return to profitability on the quarterly basis for the end of the.
We're expecting a negative net cash flow.
A few million dollar for the entire Twentytwenty of course, excluding any M&A activity.
However.
The net cash flowing the first off of Twentytwenty, you expect to be less than the net cash flow towards the end of the.
Mainly because we will receive high level of advance payment.
The year end of 29 feet.
We are currently more focus on signing additional.
Accounting security revenue view other than security Kartik.
There are flight delays in the rate of signing those deals due to the coffee 19 pandemic, but we do but we do believe that in 2020.
We will find deals with EMEA outperform leased 140 million dollar.
As to take some time from contract today to commercial launch.
No the new deal with sung we signed this year.
I will produce little to no recurrent revenues in Twentytwenty, but we'll build the strong foundation to future revenue growth in the coming to you.
Overall, we're pleased with our financial performance in the quarter.
As things appear from today perspective, we continue to stand by our financial plan for Twentytwenty.
That concludes my remark.
We will be happy to take your question now operator.
Thank you ladies and gentlemen.
This time, we will begin the question and answer session. You have a question. Please press star one if you wish to cancel your question. Please press star killed.
If you are using speaker equipment tiny lift the handset before pressing the numbers questions will be pulled in the order they aristide.
Please standby, while we pull for your question.
The first question is from.
Eric Martinuzzi of Lake Street.
Eric Please go ahead.
Thank you I'd like to get a little bit more detail on the linearly over the past few months I understand.
Quarter was as you anticipated with the April 16 news and you've reiterated your commitment to the year, but just.
How things progress in March and April and to this point in May.
We're seeing.
Where things turned south and then maybe where things turn north.
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Look it's a it's I'll try to give you that level of granularity typically when we.
We book orders.
Or I'd say most of the orders that we book in a given quarter are booked in the last month of the quarter, that's sort of typical for for our business.
It was no different in quarter, one I don't expect it to be at any different than the second quarter. So if if if you ask me how I look at new business coming in.
And what is what is it looks like in April and go back to look at the pipeline and what the projections are and like I said generally we think we're on track and Thats why we reiterate the yearly guidance.
You talked about not seeing as much of the contribution from the Sicad deals that were signed in the first quarter.
Is there any chance if that comes back.
Maybe.
Well, we is the reason let me rephrase the question.
It is that due to consumer demand or is that due to your partners in there.
Okay.
That part of their business, what's behind that because you also talked about it increased demand for heightened level of cyber security threats as a result.
And I think it's a it's a couple of things okay.
And it's a it's a bit it's a bit early to dissect it to two exact.
To exact reasons, but I think deals that if I look at if I look at services that were already launched like I said as the number of customers is continuing to grow but during walk down period, it grew less than before.
So I expect that to change as.
Situations ease up and people start going back to some kind of normality.
It's part of that is due to to the operators.
Focusing on other things and part of that may be due to wear to where consumers being.
Being at at this point in time, focusing on other stuff as well add deals that we signed towards the end of 19 and that will are expected to launch this year are getting a bit delayed. So the revenues that we thought we see from them. This year will probably be a bit less so.
Overall, I think we'll see a bit less of the a recurring revenues that we expected this year, but overall, we see the guidance for the year stands as it is.
Yes, Thats, what I wanted to finish my questions with.
I was surprised that the robustness.
Look the.
This is still I think about three quarters on the visibility tied in about a quarter on the security side what is behind that.
We've obviously got a robust second half built in here to get to the 135 to 140 is this more on maybe perpetual license side of the.
Security business is more.
Increased demand on PPI licensing, maybe where those free licenses are complementary licenses turned into revenue.
What's driving that second half robust outlook.
Hi, Eric.
Ziv, if you will recall, we started the year with the backlog of 138 million dollar.
And we said this a at least 70% of the backlog will be recognized in twentytwenty.
So most of the revenues.
2020.
We will not come from new all deals.
And we feel comfortable that we will be able to deliver those projects.
In the in the coming quarter.
Gotcha.
And that and very helpful. Thanks, Greg It might go ahead.
And that's we said most most of the revenues.
In Twentytwenty will come.
From.
On visibility and control.
And just kind of business other than from security since the global search engine of the company is the security coming from the seek a deal, but we will see those kinds of revenues only in the coming you and knocking twentytwenty when the seacoast.
We will be just.
Few millions of dollars if.
Thanks before.
Got it thanks, and congratulations on the robust outlook relative to other.
David.
Occasion equipment companies.
Thank you.
The next question is from Alex Henderson of Needham and company. Please go ahead.
Thanks.
I wanted to just dive into the.
The mix in orders that you expect over the course of 2020.
Obviously, when you do opex deals that Doesnt really show up in book to bill or anything of that sport.
But you ended the year with an exceptional backlog and I was wondering.
If you expect to be able to sustain that backlog.
Even as your mix shifts to.
More con contracts coming in on an opex relation or whether we should be anticipating the backlog will gradually diminish.
As the visibility shifts from.
The can the the traditional business to more of the Opex related security type business. So it's more of a conceptual.
Part and then then it.
Request for guidance.
So I Alex.
If you will recall.
We said that so.
Guidance, we didn't we didn't give a specific number but we said the booking in twentytwenty.
We expect them to be higher than the two on the 2019 revenues however, though.
There will be lower than expected twentytwenty revenues.
It will be this range in one of the explanation is that we don't put focus anymore.
On security capability, but on Opex deals.
Sales explained we will see asking.
In the booking we will not be it in the backlog, but we'll seating the booking ending the revenue only in the coming due and this is the reason why we are using the EMEA.
As a metric.
To follow.
Internally and externally our progress.
In this business.
And the right now we feel comfortable with the guidance of additional one on within $40 million now offer now and again this $140 million now will not generate revenues in twentytwenty, but.
Generates revenue in the common view.
Yes, I totally understand just want to make sure everybody understood the the mechanics behind it.
So going back to the gross margin, obviously very nice software mix in the the quarter to get that 74 eight a gross margin is it reasonable to think that the remaining three quarters should be model the pretty consistent to the 2019 average which was just at 70.
Yes, you will recall, that's what they felt.
In the.
In my comments before that's.
The gross margin depend on the.
On the product to be on the on the customer me.
And we think that for the rest of the.
The gross margin will be the same.
This was in previous fields, which mean around 70% boat, but there might be fluctuation from 1.1 quarter to another.
One more question if I could the.
The exchange rate, the shekel really fell out of bed.
Covert started happening.
It then probably rebounded most of that decline.
Were you able to take advantage of that decline.
We did sounds like you stepped up but given your comments about the balance sheet on FX expenses. So you give us some some sense of.
What you did during that window.
Uh-huh, usually we do some hedging activity for.
For.
The coming full quarters.
So it's not a.
It's not 100% of our operation.
But once you have a changing the exchanges for one month as it was lately.
So you can hardly benefit from it.
Because part of fuel operation is already covered and its goals both ways.
If it's going off all going down.
So I wouldn't say this though.
The real significant change.
Due to the exchange rate fluctuations.
Fluctuation.
Okay. So no no change because despite that decline okay.
One more question if I could.
The.
Enterprise business the packet here a stub how do you see that.
Feathering in do you I mean, obviously that takes a little while those type of programs to kick in there was just announced recently.
Is that more of a cap.
Dynamic or.
Or do you expect it to be more of a 21 dynamic how does how does that.
The timeline look on on realization there.
And well honestly, we're still we're still looking at it and trying to figure out how it will play out.
Look we've had we've had approaches from from many.
For many dozens of value added resellers of packet tier that are talking to us and discussing now how they can work with us.
What are there what are their end users' needs.
What type of products when do they need them, it's on so forth. So.
We think theres, a very nice potential in that deal for us, but it's a but I you know I I don't see anything significant happening in the next few months. It takes some time. So TRID. It's six of the end to end user or a small business, where a large business that has.
Back to your product on this requires a swap these kinds of things take time, so I don't see anything significant happening in the next few months, but we'll see in the next few months now the dynamics of this will will play out and we'll understand a lot better who are really these these end customers what are their demand what is their timeline.
Et cetera, we're learning that for as we go right now.
Maybe two wells, while emphasizing this we didnt buy the business of ER positive.
Yes that could change we didn't buy the business we don't support.
This product.
Broadcom, a announced that its end of life.
And they don't sell anymore.
Support and maintenance contract for this product.
So the current customer.
We expect them to move to our product, but it's a kind of forklift upgrade.
And this will and the timing how that will be determined by each individual customer. So since we're not familiar with these customers and we're only learning as of now.
We don't know yet what that will be.
Certainly understand thanks.
Oh.
The next question is from Marc silk with silk investment.
Please go ahead.
Thanks for taking my questions.
With the shift of working at home, probably being a way of life for percentage of the workforce worldwide going forward.
Telco starter connecting the dots to understand that a service like yours has done a Saturday based on some of your recent conversations with potential new customers.
And.
They look going in our discussions were say was operators. There. We are seeing increased awareness of the need to provide a secure broadband connections.
And we're even seeing a you know so so the answer is some of them, yes, I hope there will be more of those that will like you say connect the dots.
In the near future.
Okay and then a follow on question is based off of on this stay at home worker Tomorrow.
The stay at home work is going to more frequently access their employee and players cloud or server has that been any accretion has there been any increased interest in your depuy products by the enterprise.
And enterprise like I did likely discussed.
Previously enterprises, a bit of a mixed bag, it's not it's not one coherent.
Hey, I would say customer base, the larger enterprises like a you know the ones that really looks like Csps government local governments things like that with many many employees in larger branches et cetera.
His can they are continuing more or less I would say the let their level of interest is more or less likely was before covert I'd say I'd be 19 hit over 19 here.
The smaller businesses are more hesitant to smaller businesses are.
You are delaying projects they want to conserve cash they want to conserve expenses and there are delaying projects and then comes this new inflow of potential customers from the Broadcom deal, which is something that we didn't have before so to sort of mixed.
Yeah, I would say it's a it's.
It's a mixed bag.
Yeah overall I think in the long term the business should grow.
But I think it's a bit too early to four for me to analyze okay. How much is doing what in which of these subsectors.
That sounds good I guess I was premature and they are not pushing you on a share buyback because it looks like you could have retired from stock and the sevens in March but that's okay anyway. Good luck on forward and thanks for taking my questions.
Thank you.
If there any additional questions. Please press star one if you wish to cancel your question. Please press star to please standby, while we pull for more question.
There are no further questions at this time, Mr. On tabby would you like to make your concluding statement.
Let's turn to have the there is a further question.
The next question is from Shawn Boyd from next Mark Capital. Please go ahead.
Thank you gentlemen, just one quick follow up and that is on the deferred revenue.
Thanks, and great growth there.
Wanted to make sure that we're all clear on.
Exactly how that what's driving that.
That would be entirely on the a lot smart business as opposed to the secured revenues.
Yeah, beginning revenue starting to ramp is that correct.
This is correct.
Okay. Thank you that's it for me.
Mr. On tabby would you like to make you concluding statement.
Yes. Thank you operator, so on behalf of myself and the management of a lot I want to thank you all for your interest in long term support of our business.
As we are currently not traveling we will be happy to hold the virtual meetings with investors.
If you would like to us to do that please be a touch with our Investor Relations team I look forward to talking to you in the next quarter and hopefully meeting some of your personal way as travel restrictions are will be lifted hopefully. Thank you again and have a good day.
Thank you. This concludes the low first quarter 2020 results conference call. Thank you for your participation you May go ahead im disconnect.
[noise].
[music].
[music].
Thank you operator.
Welcome to what it used to a low cost that 2020 conference call.
Well like welcome more due to the cost at school.
Thanks, a lot management for hosting this call.
We don't want to call today or at least the as I'd say, the president and CEO I missed the big Lightminer CFO.
This will summarize the key highlight.
Like the ignore if you look financial before the court.
Well then open the call for the question no session.
Well, we saw I'd like to points out that these conference calls they contain projections. The other forward looking statements regarding future events for the future performance the company.
These statements Oh, you prediction and alone cannot guarantee that they live in fact.
Hello does not assume any obligation to update that explanation.
Offense or itself may differ materially some nice objectives, including as was out of the impact due to the code at 19 patent pending changing market conditions trends, but Houston on any 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.
Thank you Michelle.
With that I'd now like to have a cool, let's see right Harris. Please go ahead.
Thank you correctly.
Like to walk them all of you to our conference call. Thank you all for joining us today.
I would like to start with some highlights for the first quarter.
Our first quarter was another quarter of solid gross revenues grew 16% year over year for the first quarter and reach.
The $9.3 million.
Non-GAAP gross margin improved to approximately 75% and now were non-GAAP net loss shrunk to approximately $400000 about 22% of our net loss in the first quarter of 2019.
This is our ninth straight quarter of double digit revenue growth year over year and I'm very pleased with the results. We achieved during the first quarter I believe it shows we're on track and successfully executing on our flat.
The number of opportunities. We see continues to grow we continue to close new deals when against competition bring more business and grow our revenues.
We expect revenue growth in 2020 to accelerate compared to our gross rate in 2019.
As we see opportunities grow we're continuing to increase our investments to capitalize on the significant number of opportunities that we see.
Disease will provide more details on our financials on forecast later.
The last couple of months have been challenging as the cobot 19 pandemic is changing both the way we operate and the way our customers operate.
I would like to start and discuss what is happening inside a lot and then turn to discuss what is happening with our customers and where we see the market going.
As a pandemic on restriction started we set for ourselves to primary goals with equal importance.
One to maintain and safeguard the health of our employees and their families.
And to to continue to meet our commitments to our customers in a timely manner and achieving the goals we set for ourselves.
Like most companies during the past couple of months over 90% of our employees worldwide are working from home and we are of course not traveling internationally.
We adjusted to the situation quickly and are continuing product development sales and customer support remotely from People's homes.
While we initially did have some temporary challenges and supply of components and servers et cetera. Those were overcome was no measurable impact to customer commitments so far.
As part of our efforts to lower delivery risks to our customers. We expedited some inventory orders when the pandemic started which resulted in some inventory growth at the end of the quarter.
Overall, we did not see significant degredation at performance and this situation did not cause us so far to miss commitments to our customers.
We are continuing to deliver products, we're continuing to develop products, we're continuing to install pass acceptance and we're continuing to serve our customer base.
For example, just last week, we released a major software general availability release about look smart that was being worked on for over seven months with a negligible to working day delay.
A lot has not laid off people as a result of covert 19, nor have we foresee any of our employees to go on vacation with or without pay.
We view this time when people are being let go elsewhere as an opportunity to higher qualified people.
I would like now to turn our focus to our customers worldwide.
Our CSP customers are obviously open for business as the Coke was the increased demand of communications to serve their end users consumers and businesses worldwide.
While most csps, we are working with our also working from home many of the projects and services. We are involved with continue as planned.
A notable example would we wouldn't be recruiting in Japan, which went live with commercial launch April 8th despite almost everyone working from home.
We are saying sorry.
Next but many projects, including new projects are continuing as planned.
We have seen several new opportunities as operators launch new RFP or decide to launch new initiatives, even after the pandemic started.
I would say that while this situation poses certain challenges. It is also creating new opportunities for unlocked.
I will try to briefly address each of the different market segments, we are activation and provide a bit more granular color on what we see in the market.
Working that hall, and working remotely have significantly increased the use of online applications such as zoo, Microsoft teams and others. In addition, many people staying at home or watching significantly more over the top entertainment apps such as Netflix.
As a result, this created a sharp rise in net network traffic volume by as much as 40% worldwide on fixed networks and about 15% to 20% on mobile.
As badly as demand increases worldwide. This is driving growth in the operators need to have good visibility into the traffic on their networks and the need for better traffic management.
As the pandemic really hit and we saw our customers scrambling to add capacity to their networks.
A lot came up with campaigns to provide operators under existing customers with additional licenses on a loan basis free of charge for the first few months. So they can focus on solving the burning issues first and deal with commercials later.
I believe this was the right thing to do as good corporate citizens and then the spirit of partnership with our customers.
As we all adjust to what will end up being zee.
New normal quote unquote it might be the part of deals licenses will be acquired for use beyond alone period.
I believe that in both the short term and long term the increasing bandwidth requirements of operators worldwide should drive demand for network visibility traffic management solutions.
Given the increase in time spent on the Internet, we're seeing a growing need for governments to protect their citizens from malicious or illegal activity.
As a result, we're seeing growth and the number of opportunities for our regulatory compliance use case.
At this point I would like to expand a bit on our enterprise segment, which in 2019 was roughly 19% of our revenues.
Typically we sell to enterprise, which are large and to a degree look and act like a CSP.
Example of such customers are the Italian post office or state or local governments.
The sector of the large enterprises does not seem to be significantly affected by the covert 19 pandemics.
While some deals are getting delayed the interest that we see coming from this sector continues as it was before.
However, where we sell to smaller businesses, we do see larger delays in projects and hesitancy to spend money now.
One of our main competitors and the enterprise segment was a product line called packet Shaper originally developed by a company name packet tier.
Through a series of acquisitions. This product line was recently acquired by Broadcom.
During March we were chosen by Broadcom as the recommended vendor to offer a transition pass from their packet shape or line of products to the a lot secure service gateway or SSG and we signed an agreement was broadcom.
As part of the partnering agreement Broadcom began the end of life process to the packet shape or product line and refer their customers to alone.
Also as part of the agreement, we are offering attractive financial terms and discounts for product replacements to help customers transition from packet shaper, two equivalent a lot products.
As a result of this many value added resellers and distributors of packet shaper are now engaging with a lot to deliver the I looked enterprise product to their customers.
I will note that the packet shape for product line revenues in 2019 were somewhat larger than our look 2019 enterprise revenues.
While this is a very promising deal for us we should remember that many of the packet shape of customers are small businesses. Some of them will transition to other technologies. So that not all the fact that shape for customers will indeed move to a lot progress.
It is too early to tell what the size of our enterprise business will be going forward, but we expect that in the next year or to our enterprise business may growth as a result of this agreement.
To summarize I believe demand for the I look smart product line, including congestion management traffic management steering visibility regulatory compliance and enterprise use cases.
We will remain solid for a lot in 2020 and beyond.
I would now like turn our attention to the security segment.
We see a significant increase of cyber attacks on both consumers and Smbs.
This is giving rise to growing awareness on behalf of consumers 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.
Our security segment to seeing good traction.
During the first quarter, we signed several new security deals two of which were recurring security revenue deals with the operators in Asia Pacific and Latin America, neither of which were a lot customers before.
While we did see some projects getting delayed as operators focused on delivering basic connectivity services. We also saw new projects initiated and new RFP is published after the pandemic and even after lock down started.
I remind everyone again that working with Csps takes time with sales cycles, typically exceeding 12 months.
Current covert I'd 19 pandemic may delay some sales cycles, but even a few months more taking more time than we would like to close deals.
As we discussed previously it typically can take about nine months from contract signing to launch of the service.
As may be expected with the effect of covert 19, we are seeing some delays in the launch of the services.
Probably no more than several months.
This may reduce a bit the amount of recurring security revenues in 2020, we previously expected to be a few million dollars.
As I have discussed in the past a lot as 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 and more operators do accepted.
I will remind everyone again that as we signed recurring security revenue deals, we do not book anything nor do we recognize any revenues.
Only one to services launched by the operator and consumers or small businesses begin to use it will revenue stream to allow gradually build up.
Our goal there for us to build a substantial base of Csps, which will launch security services to their customers and work with them to help a large number of end users sign up for the security service.
These are the type of deals that will ensure longer term growth and success of overlooked.
It is too early to accurately assess the impact of the epidemic and behavioral changes on recurring security revenues. Both in terms of number of operators and in terms of take up rate of customers.
Currently we do not see an adverse impact on the interest from operators to launch security services and there are even signs of growing interest.
And services that were already launched we continue to see growth into a number of consumers and smbs paying for the services, but the growth as lower during the weeks of locked down compared to the period before.
While it is too early to tell how this will play out as we returned to the quote new normal unquote, we do expect growth rates to go backup.
To track our performance, we use a metric internally that we call Maxwell annual revenue or may our for sure.
This number reflects the potential annual revenue a lot will receive showed 100%, though the CSP is relevant customer base sign up for the security service.
Of course, we do not expect 100% of the csps relevant customers to actually sign up for the service. So a lot revenues will actually be there may or may our multiplied by the actual penetration level achieved.
Looking at the initial recurring security revenue deals we signed.
The healthy pipeline, we have in hand, and the growth and tenders in RFP that were issued I am confident that we are heading into right direction and I'm very optimistic about this market segment and our future growth in it.
I would now like to summarize the overall picture and key messages.
Despite the covert 19 pandemic most people working from home and inability to fly to customers. We are proceeding according to plan and growing our business.
We are continuing to deliver to our customers and serve them in a timely manner.
And the visibility and control area, we're seeing some delays and some of the projects. However, the growth and bandwidth requirements is creating demand for our products and new opportunities are emerging.
And the security area. The increased cyber attacks are contributing to increased awareness from both operators and end users.
While sales cycles are somewhat longer and the launch of new services may be delayed we see the need for security service to protect consumers in SMB is continuing to grow.
Looking at our backlog entering 2020, 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 million to $140 million.
I would also like to reiterate our guidance for 2020 of the new recurring security revenue contracts signed in 2020 to exceed in May our of $140 million. This will be of course on top of the 85 million dollar MTR deals we signed in 2019.
In addition, we expect to become 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.
Thank you.
Well I begin reviewing I mentioned results for this quarter unless otherwise noted our third entirely.
Non-GAAP financial measure.
Measure when discussing version resign.
And gentlemen.
Ongoing performance.
Non-GAAP financial measures can be found in certainly.
Generally accepted accounting principle and exclude share based compensation expenses expenses related to M&A activity, a motivation of certain intangible asset.
Exchange rate different.
Changes in.
Hi Tech.
And now through the financial.
Revenues for the first quartile, twentytwenty, well $29.3 million going by 16% compared to those first quarter 2019.
Generally speaking the for one of.
I mean, you didn't have a significant effect on the first quarter revenue.
However.
As we explained in the press release, we issued three weeks ago. During the first quarter Twentytwenty Sunday, which were expected to book will delay if the consequences of the corporate 19 pandemic and are now expected to close during the second quarter.
I would like to give you more color regarding the revenue breakdown.
Asian.
The geographic breakdown for the first quarter was follow America with $1.5 million or 5% of revenue.
EMEA with 23.1 million dollar or 79% of revenue in Asia Pac with $4.7 million of 16% revenue.
The breakdown.
Between products and services in the first quarter of Twentytwenty versus the comparable quarter last year was as follows product revenues were $18.9 million compared to $60 million last few professional services revenues were $2.6 million compared to.
Point $8 million.
Support and maintenance revenue were up $7.8 million compared.
$8.5 million last year.
The portion.
Of communication service provider revenue out of the total revenue in the first quarter, well, 87% compared to 83%.
Comparable quarter last year.
I know the revenue breakdown may fluctuate from quarter to quarter, depending on the specific revenue and deal with recognizing the specific quarter.
Our top 10 and customers made up 75% AFFO revenue.
Our first quarter of Twentytwenty compared with 62% in the first quarter last year.
Gross margin for the quarter was 74.8% confirm 72.4% into first quarter 29 team.
The variation between the quarter reflect the product mix.
Old given me.
Sold into particular quarter and is not indicative of any specific.
Trend.
Operating expenses for the quarter were 22.5 million dollar.
Compared to $20.2 million as reported in the first quarter of 29 view.
The total worldwide number of full time employees.
Mount filter twentytwenty, well three or 633.
This is an increase.
39, full time employees confirm that of the end.
2019, which stood at five I'm going to nine before.
I know good view the due to the coffee 19 condemning our expensive were slightly lower than what we had planned though.
This was in call due to the.
Upstream then.
International travel by employees since mid February and the configuration of the mobile World Congress trade show in both Ilona as well the further marketing activity. Furthermore, the pandemic Evan.
The impact on our phase.
Irene you employees.
At the same time, the majority of solid global workforce working from home.
And we invested in we saw in ensuring an effective platform.
To anybody.
Non-GAAP operating loss for the quarter, though was point 6 million dollar compared to non-GAAP operating loss of $1.8 million in the first quarter of 29 feet.
Non-GAAP net loss for the quarter $1.4 million.01.
Sure.
$1.9 million or five cents per share in the first quarter 29.
For the three month ended March 31st Twentytwenty.
The weighted average number of basic shares was 34.6 million.
The weighted average number of fully diluted show for the same period was 36.8 million.
Turning to the balance sheet, our cash reserve comprise of cash cash equivalent.
And the investment as of March 31st 2020, well $110.7 million compared to 117.6 million dollar on December 31st 29.
$33 million out of the total cash balance was predicted.
To advance payment from customers.
Margin required for foreign currency hedging activities and other color.
The decrease in cash level was due to three primary.
Mary uptick.
Sure I know the told at the end.
Last year, we received loans up upfront payments from very large new deal we had sign.
Second given certain supply constrained.
In the market view to corporate 19, we've strategically increase our inventory level to ensure we have the fall off in component, we need to fulfill commitment to customer.
I know that inventory every reason.
From $10.7 million, while at the end of 2019 to 15.1 million.
As of March and.
Portion of those purchases are expected to be also paid in the second quarter of 22 and.
Phil.
Payment of accrued expenses, which were booked in the previous quarter.
Finally in terms of guidance.
I mentioned earlier, we continue to expect revenue to grow significantly in twentytwenty to between 135 to 140 million dollar preventive accelerated year over year revenue growth of 25% at the midpoint.
We expect gross margin.
For the reminder of Twentytwenty.
Leverage around the same level, if we had seen in previous year around 70%.
However.
We integrate this on a quarterly basis, the gross margin may fluctuate.
As a result deal mix and the revenue recognition.
Our Planful twentytwenty.
The Opex will be in the range of 95 to 98 million dollar mainly due to investment in sales and R&D to facilitate future goals of the company.
We expect to return to profitability on the quarterly basis for the end of the.
We're expecting a negative net cash flow.
A few million dollar for the entire Twentytwenty of course, excluding any M&A activity.
However.
The net cash flow into first half of Twentytwenty, you expect to be left and the net cash flow towards the end of the.
Mainly because we will receive high level of advance payment.
The year end of 29 feet.
We are currently more focus on signing additional.
Accounting security revenue rather than security Kartik.
Dell flight delays in the rate of signing those.
Due to the corporate 19 pandemic, but we do but we do believe that in Twentytwenty.
We will find deal with EMEA out of at least one on within $40 million.
If you take some time from contract the commercial launch.
Note that the new deal we sung we signed this year.
I will produce little to no recurring revenues in Twentytwenty, but we'll build the strong foundation to future revenue growth in the coming to you.
Overall, we're pleased to sell financial performance in the quarter.
As things appear from today perspective, we continue to stand by our financial plan for 22 and.
That concludes my remark.
We will be happy to take your question now operator.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. You have a question. Please press star one if you wish to cancel your request please press star till.
If you're using speaker equipment tiny lift the handset before pressing the numbers questions will be pulled in the order they aristide.
Please standby, while we pull for your question.
The first question is from Eric Martinuzzi of Lake Street.
Eric Please go ahead.
Thank you I'd like to get a little bit more detail on the linearly over the past few months I understand.
Quarter was as you.
And with the April 16 news and you've reiterated your commitment to the year, but just.
How things progress in March and April and to this point in May.
Being.
Where things turned south and then maybe where things chart north.
Look at sets I'll try to give you that level of granularity typically when we.
We book orders.
Or I'd say most of the orders that we book in a given quarter are booked in the last month of the quarter, that's sort of typical for for our business.
It was no difference in quarter, one I don't expect it to be any different than the second quarter. So if if if you ask me how I look at new business coming in.
And what is what is it looks like in April and go back to look at the pipeline and what the projections are and like I said generally we think we're on track and Thats why we reiterate the yearly guidance.
You talked about not seeing as much of the contribution from the Sicad deals that were signed in the first quarter.
Is there any chance that that comes back.
Maybe.
Well, we is the reason.
Rephrase the question.
It is that due to consumer demand or is that due to your partners in there.
Their focus on that part of their business, what's behind that because you also talked about it increased demand for heightened level of cyber security threats as a result.
And I think it's a it's a couple of things okay.
And it's it's a bit it's a bit early to dissect it to two exact.
To exact reason, but I think deals that if I look at if I look at services that were already launched like I said.
A number of customers is continuing to grow but during locked down period it grew less than before.
So I expect that to change as.
Situations ease up and people start going back to some kind of normality.
It's part of that is due to to the operators.
Focusing on other things and part of that may be due to wear to where consumers being.
Being.
At this point in time, focusing on other stuff as well and deals that we signed towards the end of 19 and that will are expected to launch this year are getting a bit delayed. So the revenues that we thought we see from them. This year will probably be a bit less.
So overall I think we'll see a bit less although the a recurring revenues that we expected this year, but overall, we see the guidance for the year stands as it is.
Yes, Thats, what I wanted to finish my questions with.
I was surprised at the robustness.
Look the your businesses still I think about three quarters on the visibility tied in about a quarter on the security side what is behind that.
As we've obviously got a robust second half built in here to get to the 135 to 140 is this more on maybe perpetual license side of the security business is more.
Increased demand on PPI licensing, maybe where those free licenses are complimentary licenses turn into revenue.
Driving that second half robust outlook.
Hi, Eric.
This is Steve if you will recall, we started the year with the backlog of 138 million dollar.
And we said this a at least 70% of the backlog will be recognized in twentytwenty.
So most of the revenue.
In Twentytwenty.
We will not come from new Aldo.
And we feel comfortable that we will be able to deliver those projects.
In the in the coming quarter.
Gotcha.
And that entered helpful. Thanks, Greg and Mike. Please go ahead.
And we said most most of the revenues.
In Twentytwenty will come from.
From.
Visibility and control.
In this kind of business other than from security since the growth engine of the company is the security coming from the second deal, but we will see those kinds of revenues only in the coming you and knocking twentytwenty when the speaker.
We'll be Jeff.
Few millions of dollars.
Before.
Yes.
Got it thanks, and congratulations on the robust outlook relative to other.
Data center communication equipment companies are there.
Thank you.
The next question is from Alex Henderson of Needham and company. Please go ahead.
Thanks.
I wanted to just dive into the.
The mix in orders that you expect over the course of 2020.
[music].
Finally, when you do opex deals that Doesnt really show up in book to bill or anything of that sort.
But you ended the year with an exceptional backlog and I was wondering.
If you expect to be able to sustain that backlog, even as your mix shifts to.
More current contracts coming in on an opex relation or whether we should be anticipating the backlog will gradually diminish.
As the visibility shifts from the can no.
The traditional business to more of the Opex related security type business or it's more of a conceptual.
Part and then then it.
Request for guidance.
So.
Yeah.
If you will recall.
We said that so.
Guidance, we didn't we didnt give a specific number but we said the booking in twentytwenty.
We expect them to be higher than the two on the 2019 revenues however, though.
There will be lower than expected twentytwenty revenues.
It will be this range in one of the explanation.
Is that we don't put focus anymore on security capacity, but on Opex.
And the plan, we will see it in.
In the booking we will not be it in the backlog, but we'll seating the booking ending the revenue only in the coming due and this is the reason why we are using the EMEA.
At the Mapthree.
To follow.
Internally and externally our progress.
In this business.
And.
Right now, we feel comfortable with the guidance of additional $140 million.
And now and again this $140 million now will not generate revenues in twentytwenty, but we'll generate revenue in the coming to you.
Yes, I totally understand just want to make sure everybody understood the the mechanics behind it.
So going back to the gross margin, obviously, a very nice software mix in the quarter to get that 74 eight a gross margin is it reasonable to think that the remaining three quarters should be model the pretty consistent to the 2019 average which was just at 70.
Yes.
Recall that is what I said.
In the.
In my comments before that's.
The gross margin depends on the.
On the product to be on the on the customer on me.
And we think that for the rest of the.
The gross margin will be the same.
This was in previous fields, which mean around 70% both bought the might be fluctuation from 1.1 quarter to another.
One more question if I could the.
The exchange rate, the shekel really fell out of bed.
Covert started happening.
And then probably rebounded most of that decline.
Were you able to take advantage of that decline.
It sounds like you stepped up given your comments about the balance sheet on FX expenses. So you give us some sense.
What you did during that window.
Usually we do some hedging activity.
For.
For.
The coming full quarter.
So it's not.
It's not 100% of our operation.
But once you have a changing the exchanges for one month as it was lately.
So you can hardly benefit from wheat.
Because part of fuel operation is already covered and its goals both ways.
If it's going off all going down.
So I wouldn't say that.
Off.
During the significant change.
Due to the exchange rate.
Fluctuation.
Okay. So no no change because despite that decline okay.
One more question if I could.
The.
Enterprise business the packet tier stop how do you see that.
Feathering in do you I mean, obviously that takes a little while those type of programs to kick in it was just announced recently.
Is that more of our cap.
Dynamic or.
Or do you expect to do more of a 21 dynamic how does how does that the timeline look on on realization there.
And well honestly, we're still we're still looking at it and trying to figure out how will play out.
Look we've had we've had approaches from from many.
For many dozens of value added resellers of packet tier that are talking to us and discussing now how they can work with us.
What are there what are their end users' needs.
What type of products when do they need them, it's on software so.
We think theres, a very nice potential than that deal for us but it's.
But I I.
I don't see anything significant happening in the next few months. It takes some time so TRID, it's sick of the end to end user or a small business, where a large business that has a packet tier product on this requires a swap these kinds of things take time, so I don't see anything significant happening in the next.
A few months, but we'll see in the next few months how the dynamics of this will will play out and we'll understand a lot better who are really these these end customers what are their demand what is their timeline et cetera, we're learning that for as we go right now.
Maybe it's worthwhile emphasizing this we didn't buy the business of.
Okay.
Yes, second Shaffer, we didn't buy the business, we don't support these products.
Broadcom announced that its end of life.
And they don't sell anymore.
Support and maintenance contract for this product.
So the common customers.
We expect them to move to our product, but it's a kind of forklift upgrade.
And it will and the timing of that will be determined by each individual customer. So since we're not familiar with these customers and we're only learning as of now.
We don't know yet what that will be.
Certainly I understand thanks.
Okay.
The next question is from Marc silk from Silk investment.
Please go ahead.
Thanks for taking my questions.
With the shift of working at home, probably being a way of life for a percentage of the workforce worldwide going forward.
At the telco starter connecting the dots to understand that a service like yours is that especially based on some of your recent conversations with potential new customers.
And.
The local in our discussions were say was operators.
We are seeing increased awareness of the need to provide a secure broadband connections.
And we're even seeing so so the answer is some of them, yes, I hope there will be more of those that will like you say connect the dots.
In the near future.
Okay and then a follow on question is based off of on US stay at home worker to more.
Stay at home work is going to more frequently access their employee and players cloud or server has that been any accretion has there been any increased interest in the DPP products by the enterprise.
And enterprise like I said, the likely discussed.
Previously enterprises, a bit of a mixed bag, it's not it's not one coherent.
Hey, I would say customer base, the larger enterprises like.
The ones that really looks like Csps government local governments things like that with many many employees in larger branches et cetera.
His can they're continuing more or less I would say the leather level of interest is more or less likely was before covert I'd be 19 hit over 19 here.
The smaller businesses are more hesitant to smaller businesses are.
There are delaying projects they want to conserve cash they want to conserve expenses and they are delaying projects and then comes this new inflow of potential customers from the Broadcom deal, which is something that we didn't have before so sort of mixed.
I would say it's a it's.
It's a mixed bag.
Overall, I think in the long term business should grow.
But I think it's a bit too early to four for me to analyze okay. How much is doing what in which of these subsectors.
That sounds good I guess I was premature on the not pushing you on the share buyback because it looks like you could have retired some stock in the sevens in March but that's okay anyway. Good luck on forward and thanks for taking my questions.
Thank you.
If there any additional questions. Please press star one if you wish to cancel your question. Please press star to please standby, while we pull for more question.
There are no further questions at this time, Mr. On tabby would you like to make your concluding statement.
Let's turn to heavy there is a further question.
The next question is from Shawn Boyd from next Mark Capital. Please go ahead.
Thank you gentlemen, just one quick follow up and that is on the deferred revenue.
Seeing some great growth there.
Wanted to make sure that we're all clear on.
Exactly how that what's driving that.
That would be entirely on the a lot smart business as opposed to the secured revenues in any of those.
Beginning revenue starting to ramp is that correct.
This is correct.
Okay. Thank you Jeremy.
Mr. On tabby would you like to make you concluding statement.
Yes. Thank you operator, so on behalf of myself and the management of a lot I want to thank you all for your interest in long term support of our business.
As we are currently not traveling we will be happy to hold the virtual meetings with investors.
If you would like us to do that please be a touch with our Investor Relations team I look forward to talking to you in the next quarter and hopefully meeting some of your personal way as travel restrictions are will be lifted hopefully. Thank you again and have a good day.