Q1 2020 Earnings Call

Ladies and gentlemen, this was your operator your conference is scheduled to begin momentarily until that time your lines will once again be placed on old. Thank you for your patient.

[music].

Gentlemen, thank you for standing by welcome to the two from first quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone.

Please be advised the today's conference is being recorded if your acquire any further assistance. Please press star Zero I would now like to him a conference over to your speaker today, Ryan Burke, our director of Investor Relations. Thank you. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining today's first quarter 2020 financial results Conference call.

With me on the call today is really kicked off our chief Executive Officer.

Chief Financial Officer, Jeff key like underwent a medical procedure unrelated to told that it will be recovering for the next several weeks.

He will not be on the call today.

Before we begin I would like to remind everyone that any statements made in today's conference call to express a beep.

Expectation projection forecasting anticipation or intent regarding future events in the company's future performance, maybe considered forward looking statements as defined by the private Securities Litigation Reform Act.

These forward looking statements are based on information available to students management team as of today.

And involve risks and uncertainties, including though as noted in this mornings press release in Twoq <unk> filings with the FCC.

Such forward looking statements are not guarantees of future performance actual results may differ materially from those projected in the forward looking statements to can specifically disclaims any intention or obligation to update these forward looking statements except as required by law.

Please note that a reconciliation any non-GAAP number to the most directly comparable GAAP number can be found in the tables of our earnings press release located in the Investor Relations section of our website.

A telephone replay of this call will be available shortly after its completion.

On the dial in information in today's press release.

Archived webcast will be available for one year on the company's website at <unk> Dot com.

With that I'd like to turn the call, Alberta, Toupin, CEO and co founder worthy key tough.

Thanks, Ryan and good morning, everyone. Thank you for joining us today.

I hope that you and all of your families are safe unhealthy during these unprecedent at times.

I'll be speaking to the on jacks b since he cannot attend the call.

We're all watching them a speedy recovery.

In Jack's absence, Ryan Burkart, we've heard at the start of the call and who leads our Investor Relations will assistant answering some questions later on the call.

I'll start with a quick update on how we've adjusted our operations and the current environment associated with Covance 19, expanding on our press release that we issued a few weeks ago.

Oh, then touch briefly on our Q1 results, but we'll spend most of my time discussing the current environment, how we're managing the business.

On the opportunities and risks that we see.

Let's start with our operations.

And these challenging times, we remain committed to the supported satisfaction of our clients as well as the health and wellbeing of our employees and partners.

We've taken several business continuity measures with this in mind.

First we implemented they work from home policy, we're all employees and ensure that all too can functions have proper and secure access to the systems that they need to perform their duties.

So far are distributed workforce approach is working well.

We postponed some of the plan in person events, while turning others into virtual that's.

Our sales and professional services teams, which have historically you face to face meetings or onsite visits as part of the process. He.

And successfully moved to operating entirely remotely using video calls instead of face to face meetings.

We're monitoring the situation closely and we'll adjust accordingly as help guidelines evolve.

I'm very confident in our ability to continue to deliver services and execute the sales process effectively however, long the corn environment may last.

Moving onto Q1 results as we previously announced our business in Q1 was meaningfully impacted by disruptions associated with Cobot 19, especially at the end of the quarter.

Revenues were 21.2 million and the first quarter down 5.4% year over year.

The quarter was progressing well in January February and we had a solid pipeline going into March.

We're making good progress on the field execution improvements that we have previously discussed.

On boarding our new VP of sales operations and new line managers in North America.

And improving our sales processes.

We successfully close a few deals that slipped from Q4 and in addition, our new secure cloud product became generally available in February.

Then came cobot 19 in March.

As many of you know given our perpetual license model more than 50% of our quarterly revenue typically closes in the third most of the quarter and most of that closes in the last two weeks of the quarter.

The last two weeks of March this year coincided with an unprecedented wave of stay at home orders spreading throughout the world in response to the cobot pandemic.

This created two significant challenges for us.

First and most impactful our customers specifically network security managers became the main focal point in every organization for enabling remote work.

Within a few days the network and security professionals that we sell to we're tasked with mobilizing remote workforces thousands of employees, who in many cases have never worked remotely before.

This monumental task became the sole focus for many of our customers and the last two weeks in March and that resulted in deal being delayed.

Second some customers, whose businesses were very significantly impacted by global shutdowns implemented immediate budget freezes on all discretionary spending, including new IP spending, which also delayed some deals.

These cobot impact in the last two weeks of the quarter resulted in several million dollars product revenue being pushed out of the first quarter.

As a reminder, the revenue components attributed to services in deals that come at the animal quarter will always be recognized in the following quarters. Therefore deals that slipped at the end of a quarter heavy significant negative impact on product revenue.

The good news is that the majority of these deals remain in the pipeline and while we have now close some of them in Q2, the timing and monetizing these and other deals on the pipeline is uncertain due to the environment.

The end of Q1 was obviously challenging and I'm very proud of all the to fund employees for pulling together, so effectively to help our company and our customers and an unprecedented and difficult operating environment.

The first quarter ended just six weeks ago, but a lot has changed since then.

Want to take some time now to talk about the current environment from our perspective, and what we're doing to manage through it.

At times like this it's important to remember the significant value that we bring to our customers.

We are these security policy company and our products help large organizations.

Chris efficiency by automating manual error prone network change processing.

While improving security at the same time.

Efficiency and security are more important than ever and the current environment.

All of you there are falling to cyber security industry, no that cyber taxes increased significantly during this pandemic as bad actors look to take advantage of a much larger attack surface given the sharp escalation remote work.

In addition security professionals are being stretched thin as the workload is increased due to employees working from home and requiring access to various parts of the network.

These challenges cannot be simply solve by increasing headcount into these cost conscious environment.

Instead security professionals and companies need to do more with less.

This is where two cents automation solutions, which improved efficiency and security will become even more important and valuable to our customers.

The abrupt shift to remote work globally. In addition to increasingly attack surface has also accelerated the trend of large organizations moving workloads to the cloud.

As I mentioned earlier, our new secure cloud product became generally available in February and is poised to benefit from the accelerated moved to the cloud.

On a related note you may seem to Twoq and secure cloud is now available on the red hat marketplace.

This marketplace is a significant milestones and 90 EMS journey to build a strong ecosystem around red hat Openshift.

We believe that Openshift is an important strategic compute platform for the future and to fund is committed to providing visibility in management for cloud security posture without compromising on the agility and business benefits of adopting that dynamic platform like openshift.

Now the IBCM openshift install base and trial and purchase tooth and secure cloud and the red hat marketplace.

We're excited to be a part of it.

Given our products ability to address some of the key challenges for security teams moving forward as well as the accelerating market for secure cloud I'm very confident in the long term opportunity ahead of us.

Shifting gears to the near term I wanted to share with you what we're seeing on the ground today.

I talked earlier about the impact that we saw in late March it's our customers were dealing with work from home challenges.

What we've seen since then is reengagement for most customers as they successfully adjusted to remote work.

In addition, we've seen some early signs of budget freezes being ease and spending plans getting reprioritize.

We're seeing that in many cases to kind of remains a priority.

The strong underlying need for our products and our focus on customer success has helped significantly.

One. Good example of these six figure changed automation deal with a global industrial company that we're working on in the first quarter.

The customer had a manual error prone that were chain process that take weeks or changes to be implemented.

They recently failing that work on it and decided to invest and deeper segmentation and policy control to improve this security posture and automate the change process.

The deal was delayed at the last minute in March due to a company wide budget freeze.

The customers manufacturing plants around the world were shut down and the company understandably wanted to stop and reevaluate orbitz spending.

Confident that we would remain high on the priority list when spending resumed given the increase efficiency it on products deliver.

We went forward with the process of the point too thin as this the customers already purchased.

I'm happy to report the due to these efforts, which the customer greatly appreciated we have since close this deal in Q2 and stayed on the original project schedule.

More recently at potential new logo customer and the consumer discretionary spaces quit taking critical steps to continue to move forward on a seven figure deal with us despite deep cost cuts and cash conservation measures elsewhere in their business.

These examples underlying my confidence that the need for our products remains strong.

Overall 2020 pipeline reflects this trend as well as the remains in a position of healthy growth year over year.

At the same time, despite some signs of recovery a great deal of uncertainty remains in the market.

Well, we have reengage more deeply with many customers at all levels in recent weeks and while our pipelines healthy our visibility on the timing of pipeline conversion to closing business is reduced.

Some companies in the most affected industry will not be able to make laryngitis investments this year and their focus will be shifting to remaining afloat, given how significantly the business have been impacted although these segments represent a small portion of our business.

Others will move forward with IP investments, but on an unpredictable sales cycle, the could require more approvals and more time than before.

As we previously announced given the uncertainty around the impact of Cobot 19 going forward, we have withdrawn our financial guidance for the year and have been diligently reviewing all aspects of operations and cost structure.

We have recently taken some actions to reduce costs in order to preserve our strongest balance and maintain a position of strength when economic conditions recover.

These actions included modest head count reductions temporary compensation reductions.

Spring hiring freeze and cost and non essential spending.

We took a careful and balanced approach the cost reductions to ensure that we extend our technological leadership and high level of customer service to be in a position to reaccelerate growth when conditions improve.

Now I'll turn to our Q on financials, and help frame or financial outlook in lieu of quantitative guidance.

Total revenue was 21.2 million in Q1, 20, twond down 5.4% compared to Q1 of 2019.

Product revenue decreased 45% year over year to 5.8 million, all our maintenance and professional services revenue grew 31% to 15.4 million.

Looking at the geographic mix of Q1 revenue, we have a well diversified geographical distribution with the Americas, representing 54% of our revenue Europe, representing 40% and the remaining 6% coming from Asia Pacific.

Moving to margins and expenses I will discuss the results based on GAAP financial measures and were applicable non-GAAP financial measures.

Non-GAAP numbers exclude stock based compensation expense of 3.7 million for Q1 2020.

And 1 million for Q1 2019.

Non-GAAP numbers also exclude zero point threemillion associated with the reorganization and one of our subsidiaries.

Please note that a GAAP to non-GAAP reconciliation can be found the tables of our earnings press release located in the Investor Relations section of our website.

GAAP gross profit for the first quarter was 50.7 million or 74% of revenue compared to 18.4 million or 82% of revenue in Q1 at 29 team.

Non-GAAP gross profit for the first quarter was 16.2 million or 76% of revenue compared to 18.7 million or 83% of revenue in Q1 2019.

Gross margins compressed primarily due to lower product revenues this quarter and a higher mix of maintenance and professional services revenue, which carries a lower gross margin.

Total GAAP operating expenses for Q1, 2020, or 32.9 million up from 22.7 million in Q1 of 2019.

On a non-GAAP basis operating expenses for Q1, 2020, or 29.5 million up for 21.8 million in Q1 or 2019.

As we spoke about consistently prior to the emergence of Cobot 19, 2019, and 2020 were intended to be investment years for two fun to take advantage of the large market opportunity. We see ahead of us.

Accordingly, we increased spending throughout 2019 and kept hiring through Q1 of 2020.

Much of the increase in expenses you seem to want to 2020 reflects the spending decisions that we made in second half from 29 team.

Looking forward as I mentioned, we have reduced overall expenses to better align spending with the current uncertainty and lack of visibility to preserve our strong cash position.

Breaking out non-GAAP expenses into line items R&D expense for Q1 of 2020 was 8.8 million or 41% of revenue compared to 6.4 million in 28% of revenue in Q1 at 29 team.

Sales and marketing expense for Q1 to 2020.

Was 16.6 million or 78% of revenue compared to 13.1 million or 50% of revenue in Q1 of 2019.

DNA expense for Q1, and 2020 was 4 million or 19% of revenue compared to 2.4 million in 11% of revenue.

Q1 at 29 team.

The increase in Janney expenses is primarily driven by expenses related to becoming a public company.

GAAP operating loss for Q1, or 2020 was 17.3 million compared to an operating loss of 4.3 million in Q1 at 29 team.

On a non-GAAP basis operating loss for Q1, or 2020 was 13.3 million compared to an operating loss of 3.2 million in Q1 of 2019.

GAAP net loss was 17 million compared to a net loss of 4.4 million.

In Q1 or 2019.

Net loss per share basic and diluted was 48 cents for Q1 or 2020 compared to a net loss per share. A 54 cents you want to 2019, and that's based on 35.5 million and 8.3 million weighted average ordinary shares outstanding respectively.

On a non-GAAP basis net loss for this quarter was 13.2 million compared to a net loss of 3.4 million in Q1 at 29 team.

Net loss per share basic and diluted was 37 cents for Q1 in 2020 compared to 41 cents in Q1 2019.

Turning now to our balance sheet.

As of March 31st 2020, we had cash cash equivalents unrestricted cash 120.5 million compared to 121.7 million.

As of December 31st 29 team.

As I noted, we're pleased with our strong cash position and we see it as an important advantage through these challenging circumstances that our industry in the world Phase right now.

Deferred revenue on our balance sheet as of March 31st 2020 was 43.4 million compared to 35.6 million as of December 31st 29 team.

And the first quarter 2020, we generated zero point $5 million of cash from operating activities compared to 11.9 million in the same period of 2019.

Turning to guidance as previously announced we have withdrawn our prior guidance for fiscal year 20, and given our lower visibility at present, we will not be providing financial guidance for the full year or for Q2 at this time.

However, I do want to provide you with some qualitative commentary to help you frame your models and understand how we're moving forward strategically.

To be clear, we did not intend to provide commentary such as this on a quarterly basis going forward, but we'll just so at a point, where we're not providing quantitative guidance.

In addition, please keep in mind that the following forward looking statements are based on information available to fund as of today and involve risks and uncertainties in particular those related to uncertain economic impact of Copel 19.

As many of you know our revenue comes from resources product revenue maintenance revenue and professional services revenue.

First on maintenance revenue. This part of our revenue base is recurring in nature, and our renewal rate on maintenance contracts remain greater than 90% in the first quarter as it has been consistently over the past two years.

Thus far we have not seen indications that coburn 19 will impact our renewal rate.

Next our professional services team is currently working entirely remotely and is very busy as our customers remain highly engaged with our products.

Professional services revenue grew 109% year over year, and the first quarter with a healthy backlog of deployment projects.

We expect professional services revenues remained relatively stable in 2020, the we could see variability from quarter to quarter as timing on completion of the plumbing project is difficult to predict.

The more challenging element of revenue to forecast is the revenue generated from sales of our products, which as you know are sold mostly on a perpetual license model.

Historically product revenues comprised approximately 50% of total revenue on an annual basis with some fluctuation between quarters.

Naturally we have less visibility into the timing of product revenue due to our professional license model in such an uncertain times.

We've looked at several scenarios and the negative scenario as covenant team continues to impact our business significantly over the next six weeks a product revenues could be affected.

As we've mentioned the past our primary focus is large organizations and 68% of our revenue in 2019, and 65% or revenue in Q1 to 2020 came from global 2000 customers.

With all the good work done by our sales and marketing teams, our pipeline remains healthy and higher year over year, though the timing and monetization of this pipeline is very uncertain and the current environment.

Looking at our current 2020 pipeline.

By industry pulling the changes due to covert 19 here are the top five exposures by percentage of overall pipeline.

Financials account for 27% telecommunications accounted for 14% governments account for 10%.

Business services accounted for 9% and manufacturing accounts for 7%.

Looking at the industries that have been hardest hit by Covenant team I can tell you that retail accounts for 5% of our current 2020 pipeline oil and gas is 1% and travel and hospitality is less than 1%.

Moving onto our expense structure as I mentioned, we've taken steps to reduce costs to better align are spending with the current uncertainty and lack of visibility.

We expect that the actions you've taken to date will reduce our operating expenses by approximately 20% in the second half of 2020 compared to our prior spending plans, but importantly, they do not diminish our ability to execute our strategy server customers and a cheaper a long term growth.

Despite our cost reductions, we expect to generate an operating loss in Q2 and for the full year 2020 due to our continued investment in key areas.

We will continue to monitor the situation and May increase investments in key areas, it visibility and economic conditions improve.

In closing these are unprecedented times and uncertainty is widespread including our market.

Like many of you we don't know how long the pandemic will last well worth the shape will be of the economic recovery when it comes but we're confident in a few things.

Soufun orchestration suite helps larger innovations increase agility by automating network change processes, while improving security posture at the same time.

The increase efficiency and security that we deliver have only become more important and the co 19 error and the need for these will not subside with a pandemic.

An economic recovery will come.

Our recent cost reduction actions, along with our longstanding competitive advantages strong balance sheet and experienced management team put us on a better positioned to take advantage of the recovery.

I'd like to thank our customers our partners and our investors for their support and all the Tufan employees for all their hard work.

Now, let's open the line for questions.

Operator.

Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment chicken barbecue and air roster.

Your first question comes from the line of shall we all from Oppenheimer. Your line is open.

Thank you good morning, everybody.

Ruby Thanks for the clarity about you know the current state of affairs I wanted to ask whether I would say an orca have seen any impact from cold at 19, I don't want to smoke chunk of that business.

But just wondering if I always talk or we get it project our sales are seeing delays or actually some acceleration and I have a follow up.

Thanks, Phil and hi, everyone. After the prepared remarks, so Worthing rising interest and secure cloud, which is the combination of or snorkel.

Our pipeline there is growing so we're seeing customers rethinking the way they work.

In larger annotations, we think that the adoption of having applications and public cloud infrastructure as a service is going to accelerate.

So we're seeing customers continue to roll out their cloud project.

And they're getting higher priority compared to other projects.

Interesting because.

Even if you look at a smaller sized companies like coop and when we.

Moved for work from home, we actually fell but some of our applications are located on premise.

So we were required to beef up our wind links to the data center and our VPN licenses.

So the next thing that we ask ourselves internally was why are these applications none of the cloud.

So while were too busy some of these applications to the cloud right now that will be our inclination. The next time, we looked at these applications. We believe that similar discussions of taking place in many companies right now.

Understood.

I had a question I just want to exclude that I got it right.

Hi, good to talk about an operating loss.

The second quarter I understand the fact that you're reducing expenses by approximately 20%.

In the second half.

What about second half.

Operating losses or even operating income.

I'm going to have specifically any at this point or early.

Hey, Joe This is Ryan.

So.

Good morning.

Little bit earlier, it's a little bit early to comment on that.

We do expect an operating loss for the full year in the past we have had small operating profits in the fourth quarter.

But again I think it's a little bit too early to comment specifically on operating loss in the back cast.

You will see the full impact and the cost reductions start to hit in the third quarter of this year and then going forward.

Understood. Thank you that appreciate it.

Your next question comes from a line of Jonathan Ho from William Blair. Your line is open.

Hi, Good morning, I, just wanted to start up by asking you to give Jack our best wishes for a speedy recovery.

Just taking a look at it may be some of the customer behavior that you're seeing out. There is this now more pressured by a bunch of situations or project Reprioritization just wanted to get a sense around how you're thinking about like maybe normalization.

Throughout the course of the year. Thank you.

Hey, Jonathan.

So it's interesting you know.

Corporate isn't impacting customers in various ways.

Generally what we're seeing is secular trends that existed previously are actually getting that celebrated.

So some of these you know the things that impact us.

Managing security policies using automation is one thing that.

Happens to be what we do and shifting workloads to the cloud.

I think also the crisis caused people to think more deeply but how they do things including work obviously.

So the new environment.

Unshackled, a lot of mid level managers and allow them to implement changes that were unthinkable in some ways a few weeks ago. So in automation, obviously, there there's a lot of efficiency gains from taken network change across to see the two weeks and shrieking them down to minutes and efficiencies more important right now in a resource constrained environment. So.

Security professionals have to do a lot of challenges from work from home that didnt exist before.

But efficiency gains from automation that.

And clear for a long time, so what's happening right now.

Network security professionals are being empowered to think.

About how to implement new and better processes like automation, you know the old hierarchy and processes have been disrupted by cobot, such an opportunity for people to change things.

So while there are large trends that are being celebrated like opening team that helps our business our long term.

In the near term there to challenge of constrained budgets. So what we're seeing is actually two opposing forces with increasing demand on one side due to the trends I've spoken about and limited budget availability on the other hand, so we don't know how exactly it's going to play out in the near term, but the long term I'm confident that the two.

Trends toward automate.

And cloud security policy management are going to win out.

Got it and then just in terms of a follow up on your can you maybe quantify some of the expense control measures that you're taking and the potential impact there.

On the on the piano.

Sure so.

I wouldn't when we face the pandemic and the impact from cobot.

We build multiple scenarios for the future. So you know as you know the perpetual license model.

So with the fact that we have a high concentration or large deals.

They receive more more scrutiny at this point in terms of large deals. They are both impacting the visibility into new business bookings I would say in the short to midterm.

And since 2020 with plan and budgeted investment year, we were increasing hiring and spend through the year and our initial guidance for the year had a 25 million non-GAAP operating loss. So when we were thinking about it we want it to be in a position where under the worst case scenario of having the pandemic last through the end of 2020.

One.

We would still be able to weather the storm and come out strong with the help the healthy balance sheets, so cost cutting we implemented with balance.

And we have the following a month first we want to maintain a strong commitment to customer services and support.

We want to continue the investment and extending our technological lead.

And we want also maintain the ability to reaccelerate quickly when economic conditions improve.

So while we did cut costs, we're continuing to embark on long term given that we still expect.

We're investing a long term and.

Because of that we still expect to generate an operating loss in 2020.

Just to add to that from a quantification standpoint, you mentioned this in his prepared remarks, but we reduced the actions we've taken reduced our overall expenses by 20% relative to our prior spending plans, we haven't broken that down further by by segment.

Got it thank you.

Your next question comes from the line of Rob Owens from Piper Sandler Your line is open.

Great and thanks for taking my question appreciate it maybe just a little bit more color, what you're seeing geographically ever pretty even mix between the us in Europe for North American Europe, and as things start to and saw and you even mentioned some of those budgets are going.

Maybe you could give us some color just relative to what you're seeing.

Yes versus versus ambient thanks.

Hi, Rob.

Right now.

Cobot start impacting it but first I think was impacting Europe sooner than the Americas shutdowns actually started a little bit later in the U.S., but.

For us, but the large deals were all concert in the last two weeks. So the impact being you know ended up being pretty evenly distributed.

We're seeing.

Lot of interest.

Being picked up against that people are our back.

And most customers were having.

Good engagement with the conversation.

And there's interest levels that are that are rising.

In terms of geographic distribution I would say, it's pretty evenly distributed there's no one region that is.

Really behaving differently from the from the rest.

And is your large deal exposure equally weighted then between EMEA and.

Okay.

I think it's no different from the past in general I would say.

We have larger deals historically in the U.S. than in Europe.

Just bigger concentration of at the very top of the global 2000 isn't in the Americas.

But.

That makes it remain the same now into pipeline as it was let's say in the last two years.

Great. Thanks for the color.

Thank you.

Your next question comes from the line of Gur Talpaz from Stifel. Your line is open.

Great. Thanks for taking my question than the first off my best to Jack and wishing her very speedy recovery here at Ruby I know, you're not Nestle thing. It today, but do you see any potential long tailed benefit here from the rapid growth in firewall appliances over the past few months and then I think more broadly what are your views on vendor fragmentation and.

This environment.

Thanks score.

So you know there is growth naturally.

People are deploying VPN.

So much greater extent that they did before.

And you know we might benefit a little bit but from our perspective, when we're thinking about our total addressable market. It is not really it's not related to a local event.

All quarter to where people having to buy more firewalls worse that we're selling into the entire installed base right. So.

The network security.

Platforms that people have bought over the last five years so.

So there might be a short term benefit there but.

You know we get questions that often people ask okay. If outdoor foreigner check we'd have a strong quarter what does that mean for you. It's it's really meaningless because.

Those who are not directly tied to each other I think in terms of vendor fragmentation I think you know we're focused on.

The big four or five network security vendors from a platform perspective in terms of the platforms. We support I think all of them are going to survive and do well.

You know very small vendors, usually or not Evelyn and large enterprises, so they're not a major focus for us.

That's a that's helpful. You touched a bit on this in the prepared remarks, but I wanted to expand on it can you talk about what you're seeing from a policy growth and complexity standpoint as customers transition their workforce.

Sure so.

Customers have.

Well, there's two issues here their cyber threats and complexity as well.

So in terms of cyber threats as you're moving to work from home a lot of time to see.

It's a completely different environment type customers that had to move.

40, 50, 60000 employees all the sudden within a span of two or three day to working from home with those people used to go through an office.

With one customer with tens of thousands of developers in India.

In some of them didn't even have network connectivity or laptops.

So those are significant challenges, but in general.

In some cases.

People are connecting to you know to their office via their personal computers that might not be.

Secure hum.

The laptop issued by the work Theres, writing you know there's rights and phishing attacks around things that are people are anxious about like BPP loans for a little benefit new vaccines et cetera.

Bad actors can infiltrate employees laptop impetus to use the broadband connection.

Vince actions the data center I think that is higher risk.

You know work from home scenario home Wi Fi is not secure you know.

There's a lot of issues.

Better solely popping up or trends that are accelerating.

Now that people are working from home. So that's one challenge on the other hand Theres a lot of network change request driven by this work from home. So all that some people need to access the think they didn't need before because of the work from home scenario.

So people that we work with network security professionals are inundated with no change requests actually much more than before.

So that's driving more strain on the work processes the change orders so people understand that they need to.

Actually hinder handle at least in the short to midterm, a higher volume of change requests so.

That is on one hand and that the backdrop here is that most organizations are not going to invest in actually hiring a lot more people for the security departments. So they need to do more with less people and that's obviously, where we come in.

I think in the mid to long term, that's going to drive more demand for tubing.

That's helpful. Thank you.

Thanks.

Again, if you would like to ask your question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Indian Lewinsky from D.A. Davidson. Your line is open.

Hi, This is hana on for Andy could you provide more detail on the dynamics of the cuts for engagement process. How long has a profit taken from the Reengagement.

Hi, Hannah are you asking about the cost cutting measures.

No I'm speaking to the customers that have had the pod due to budget constraint for a brief research spending and then we're able to kind of re enter your pipeline just curious on how long that process is taken on the successful engagement.

[music].

Okay understood. So from about mid March I'd say, that's where in the problem started on in terms of the impact of cope it and I think that's that was felt.

Throughout the world with the.

Work from home orders for essentially almost all countries.

And.

On our side I think from the.

After the first week of April we've seen some customers reengage and we think that trend.

Pick up I would say.

Ralph April it was just the steady increase.

Now in May we're seeing more engagement now not every single customer has reengage some customers in heavily affected industries.

You know like travel or things that have to do with discretionary spending.

Those deals have been delayed further.

But that was a small part of our pipeline.

So most of the customers that we were speaking with previously.

Simply were not returning our phone calls during the last two weeks in March of now.

Gotten things in shape have work from home moral of sorted.

And are now back I'm working on their projects and Reengaged with us.

That's great color. Thank you just one follow up have you seen any changes in customer payment terms.

[music].

Not really so we've seen some customers that have asked for for better payment terms and we've been happy to oblige.

No. That's from our perspective, you know there's a few request we've approved extended payment terms on a case by case basis.

We're being flexible I think that's important for customers as they are going through very challenges in financing person processes, but it has not been they a major issue because keep in mind that we're working with global customers and not small companies.

There are no further questions at this time I turn the call back to for any closing comments.

Alright, though just wanted to thank everyone for joining the call today and.

Reiterate the fact that you know, although we had a difficult Q1 and I think that's something that.

Everybody felt and everybody's feeling the impact of cobot.

We have some uncertainty in terms of visibility into the next.

Next few quarters, which is why we pulled the guidance, but I'm very confident in the long term.

Yeah, no long term opportunity and our ability to succeed thank you very much.

That concludes today's conference call you may now disconnect.

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