Q2 2020 Tufin Software Technologies Ltd Earnings Call
Good morning, Ladies and gentlemen, this is the conference operator today's conference call is scheduled to begin momentarily until that time your lines will again be placed on music cool. Thank you for your patience.
[music].
Good morning, Thank you for standing by who like to welcome everyone to the two since second quarter 2020, <unk> earnings Conference call.
All lines have been placed on mute to prevent any background noise.
The speakers remarks, there will be a question and answer session. If you would like to asking question. During this time superstar. They didn't number one on your telephone keypad. If he would like to withdraw your question press. The pound key. Thank you I would now with the trying to call over to your host Brian Burkart director.
Other Investor Relations. Please go ahead Sir.
Thanks, operator, good morning, everyone and thank you for joining toupin second quarter 2020 financial results Conference call.
Me on the call today is Jackie like our Chief Financial Officer in rupee kicked off our Chief Executive Officer.
Before we begin I'd like to remind everyone that any statements made in today's conference call Express a belief expectation projection forecast 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.
Tubings management team as of today and involve risks and uncertainties.
He knows noted in this mornings press release in Twoq and 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 toupin, specifically disclaims any intention or obligation to update these forward looking statements except as required by law.
Please note that a reconciliation of 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.
You'll find the dial in information in today's press release, the archived webcast will be available for one year on the company's website I to fund dotcom.
I would also like to inform you that will be participating in the Oppenheimer D.A. Davidson Colliers and Jefferies virtual conferences in the coming days and weeks. Please reach out to me if you're interested in joining or schedule at any of these with that I'd like to turn the call Liberty to fund CEO and co founder Ruby cut off.
Thanks, Ryan and good morning, everyone. Thank you for joining us today.
All of you and your families are safe and healthy.
I'm happy to report their business improved in Q2 compared to the acute disruptions due to Copenhagen team that we experienced at the end of the first quarter.
We feel that our business is now on the path to recovery along with the overall economy.
However, general business conditions remain challenging and uncertainties high due to the ongoing impact of the pandemic on our customers and the economy generally.
Revenues were $23 million in the quarter down 8% year over year, but up 8% sequentially.
A product revenues improved 36% from Q1 levels and we continue to see good renewal trends.
On the cost side, we've already seen a meaningful impact from the cost reduction actions. We took earlier in Q2, and we ended the quarter with a strong cash position of $109 million.
On the product side, we announced the launch of the to fund marketplace and our new vulnerability mitigation app.
Both exciting developments that will help our customers capture more value from the two for an arbitration suite and strengthen our competitive advantage as.
While we still have work to do as we move forward on the path recovery and journal business uncertainty remains elevated I'm pleased with the progress we made in the second quarter.
Most importantly, we remain committed to this important satisfaction of our clients as well as the health and wellbeing of our employees and partners.
We are continuing to operate on a nearly fully remote basis and I'm happy to report that we've been able to serve our customers effectively and execute our sales processes as well.
We expect this operating model to remain in effect for some time as we continue to follow government regulations to mitigate the spread of Copel 19.
The second quarter got off to slow start as people adjusted to working from home.
But as I've told you in mid May customer interactions return quickly and we were back to pre corporate levels of engagement.
The back half of the quarter progress more normally than in recent quarters.
In addition throughout the quarter, we continue to refine and improve our sales processes as we discussed earlier this year to enable the business to scale up over the next few years.
This included adding several roles and responsibilities as we expand our sales and marketing initiatives and adjust to the no more virtual world.
Automation continues to be in focus for customers and we believe that our automation solutions are becoming more valuable and the new normal environment.
We continue to hear that our customers security professionals remains stress very thin with additional responsibilities.
In addition to the regular workload there now test with securing a much larger attack surface as huge swath of the global workforce continue to work from home.
Today's cost conscious environment, increasing security head count to have extra work is often not an auction.
Security professionals and companies are instead required to do much more with the same number of people or even less.
This is where our automation solutions come and.
We hope companies achieved mission critical security objectives with far fewer resources resources, which are especially scarce. These days.
This is why companies even in some of the hardest hit industries like offline retail are looking into fun today.
Automation has become a big driver for our business in recent years, and we expect it to become even more important and valuable to our customers and the coven 19 era and beyond.
The customers, who know end user product see this value today and in some cases are doubling down under two planned besson, specifically to increase the security and efficiency gains we've achieved with the products.
One such existing customer is a large U.S. federal government agency that significantly expanded their use of two from this quarter with a seven figure deal.
They had been using secure truck and secure change for a few years and in doing so they were able to reduce their network t. process time from 20 days in some cases to just a few hours.
To further extend this valuable time savings the purchase secure route to increase the efficiency of the rest of the process reduce errors and increased compliance with their internal requirements.
It's a great example of our land and expand strategy of work as this customer experience the value of secure track and secure change and is ready to move up our maturity model we're secure.
It is also nice milestone for us federal government business.
Recall that we've invested in growing the federal team over the past couple of years and I'm encouraged that this investment is starting to bear fruit with plenty of opportunity ahead, given the baskerville of the U.S. federal market.
Another customer that expanded their footprint with us and the second quarter.
With a large financial institution in APAC, where to find is not only used for compliance and automation, but it's also seen is a key component and their digital transformation and SDN related initiatives.
This seven figure deal consisted of a subscription renewal and an expansion into a larger part of the network, including SDN capabilities.
Our product breadth and SDN, including comprehensive support for B, where NSX and Cisco ACI.
Positions us well help many of the customers that are increasingly adopting SDN and their next generation networks in data centers.
We are uniquely position to enable organizations to manage their SDN and traditional environments as one.
Moving on I want to talk about two exciting product announcements that we made a few weeks ago.
First we launched the two fun marketplace digital platform, where customers can find and deploy absent extensions that enhance the overall value of their took an implementation.
The marketplace provides apps developed by both too thin and other software vendors to maximize returns investment into fun and in the overall security investment by integrating security policy data with other security technologies and practices.
From effectively prioritizing vulnerability remediation efforts to automatically investigating a blocking suspicious network activity.
Super marketplace offers apps that help users enhanced protection enable faster detection and deliver intelligent responses across a wide range of security an IP domains.
These apps have the potential to significantly increase the value that we delivered to customers with the to fund orchestration suite and in turn drive higher customer satisfaction and mutation overtime.
Second in conjunction with a marketplace, we launched a new half of our own the vulnerability mitigation up which targets an immediate and critical need for our customers.
Integrated with leading vulnerability management solutions Turnbridge vulnerability intelligence with real time metric insights. The app allows organizations to ensure effective remediation and automated mitigation using a risk based approach.
The vulnerability mitigation app helps customers prioritize radiation efforts prevent expectations and accelerate the speed and efficiency of critical security processes, all in an automated fashion.
The Atlas integrated out of the box for the most widely used vulnerability management solutions, including Rapidseven quality untenable.
This is a significant development for us and one that quickly indirectly response to customers requests.
It is available now as a subscription based service on the to fund marketplace.
I'm very excited about both the marketplace and the Bolden building mitigation up as they will enable our customers to extract even more value for the two for an arbitration sweep at a time when customers are being asked to do more with less.
Ultimately this added functionality to drive higher customer satisfaction.
And improved competitive positioning for us and our partners in the long term.
With that I would like to turn the call over to Jack what key Lee our CFO to discuss our financials.
Jack.
Thanks.
Total revenue was 23 million Q2 down 8% compared to Q2 last year.
Total revenue decreased 27% year over year to 7.9 billion, one or maintenance and professional services revenue grew 7% 15.1 billion.
Looking at the geographical mix of Q2 revenue, we have a little diversified geographical distribution. The Democrats are presenting 54% ICL revenue, you look representing 38% and the remaining get Kristen coming from Asia Pacific.
Moving to margins and expenses I will discuss the results based on Nongaap financial measures.
Non-GAAP numbers exclude stock based compensation expense of 3.5 million for Q2 of Twentytwenty and $2.6 billion for Q2 will Squinty 19.
Non-GAAP numbers also exclude SCC registration costs related to also filing in Q2 of Twentytwenty.
Please note that the gap a non-GAAP reconciliation can be found in the table support earnings press release located in the Investor Relations section of website.
Gross profit for the second quarter was $18.7 million or 81% of revenue compared to $20.5 million or 82% of revenue in Q2 of last year.
Total operating expenses from Q2 worked into $3.3 million down from 25.6 million in Q2 of 2019.
Overall operating costs were lower as we benefited from certain corporate related savings like no travel and no interest in marketing given.
In addition, as Julie mentioned, we have already seen the benefits of the cost reduction actions, we took earlier in the second quarter.
Breaking out expenses into line items R&D expense for Q2 was 6.9 million or 30% of revenue compared to 7 million at 28% of revenue in Q2 last year.
As a marketing expense for Q2 was $12.6 million or 55% of revenue compared to $15.6 million or 62% of revenue in Q2 will squinty 19.
Ginnie expense for Q2 was $3.7 million or 16% of revenue compared to 2.9 million and 12% of revenue in Q2 as Quintin 19.
Operating loss for Q2 was $4.5 billion compared to an operating loss of $5.1 billion in Q2 of Matthew.
Net loss for this quarter was $5.2 million compared to an it looks to $5.6 million in Q2, Ftwenty 19, and Nicholas this year basic and diluted was 15 cents for Q2 of Twentytwenty compared to 80 pins in Q2 last year.
Turning now to our balance sheet.
As of end of June we had cash cash equivalents restricted cash and marketable securities of 100, an $8.5 million.
Compared with $120.5 million as of end of Q1.
We continue to be pleased with it was strong cash position and we see it doesnt important advantage in the current environment.
Deferred revenue on our balance sheet as of June was $40.6 million compared to $43.4 million as at the end of Q1.
In the second quarter of Twentytwenty, we use the $11.7 million of cash from operating activities compared with using $10.4 million in the same period Squinty 19.
Turning to the outlook as we mentioned the environment remains uncertain due to the ongoing impact of depend delinquent or customers and the economy generally.
Given this oh visibility remains lower than normal unlike last quarter, we will not be providing financial guidance for Q3 or the full year at this time.
We intend to review providing guidance as soon as we have enough visibility to do so and we would reevaluate this on a quarter to quarter basis.
You have guidance I do want to provide you with some qualitative commentary to hope you framed the remodels.
To be clear, we do not intend to provide commentary such as this on a quarterly basis in the future, but would do so at this point when we're not providing specific quantitative guidance.
Last quarter, Ruby broke down over three sources of revenue maintenance professional services and product revenue.
I will revisit each of these today.
On maintenance revenue as you know this part of the revenue base is recurring in nature, and our renewal rate on maintenance contracts remain greater than 90% in the second quarter as it has been consistently over the past two years.
I'm pleased with the resilience for renewals in the current environment and they have confidence that this will continue.
Next all professional services team continues to be very busy with a healthy backlog of deployment projects.
Officials services revenues were down low single digits year over year in the second quarter after having increased year over year by over 100% into first quarter over this year.
Revenue recognition on professional services contracts or Kirazli project milestones or deployments are complete and timing of these is not only the years throughout the year, resulting from quarter to quarter very busy overall, we continue to expect professional services revenue to remain relatively stable twentytwenty on an annual basis.
Lastly, we recognize revenue of the physical products, which as you know are still mostly on a perpetual license model.
We're seeing elongated sales cycles enlarged you would you attribute to increased scrutiny from customers due to the current uncertain environment.
Oh pipeline remains healthy and is higher year over year. However, as we said last quarter timing on the monetization of the pipeline remains uncertain given the environment.
Looking forward, we expect sales cycles, the large transactions to normalize over time.
With that I'll turn the call back to really for his closing comments movie.
Thanks Jack.
I'd like to wrap up by saying that I'm pleased with the progress we made in the second quarter as we began to recover from the significant impact the Kopanang team has had on our business.
We believe that the overall economic environment remains fragile in the near term and we're cautious as to whether the spread of Copel 19 may lead to additional disruptions.
With that said looking at our own business. We're focused on the work we need to do to propel tufan along the path to recovery and I remain confident in the long term opportunity ahead of us.
The two focus ration sweet helps organizations increase agility by automating network change policies, while improving security posture at the same time.
And now we're hearing directly from customers that the increased efficiency and security that we deliver has only become more important and the covert 19 error.
Our competitive advantages strong balance sheet and experienced management team put us in a better position to capitalize on the long term opportunity that we see ahead.
I'd like to thank our customers our partners and our investors for their support and I'd like to thank all the toughen employees for their hard work at this time.
Now, let's open the line for questions.
Operator.
Thank you as reminder, if you will like to ask a question Press Star then it number one that is star one for question. The first question comes from the line of Sterling Auty JP.
Yes, Thanks, Hi, guys. So what.
[music].
Hi.
All of the personnel changes that you want it to make our complete so do you have all of the people in the positions that you want and how they started to ramp.
Hi, Carolyn this is really so thanks for the question.
Yes, so weve completed the personal changes from a cost reduction perspective that was completed in Q2 and as mentioned on the call. We're seeing the effect of that already Q2 from a cost perspective.
At this point, we're not planning to make anymore reductions and stuff.
Great and then you talked about the pipeline in sales cycle.
Can you give us a sense of what the tone of business through the month of July.
And how would you characterize.
Quality of the pipeline.
You mentioned, it's bigger, but how would you talked to the quality the pipeline versus a quarter ago.
So July July was a good month.
And we're starting in the quarter well the pipeline is healthy it's been scrub a lot and the past six months. So we feel that it's been well, but and it's up year over year compared to second half of 2019, if you compare at this point.
Challenges is from our perspective, the timing of the monetization of the pipeline given the general business certainty and the pressures on the budgets that we're seeing so we feel good about the pipeline, but we're cautious on the timing.
As a nation.
Got it thank you.
The next question comes from the Sucky, probably with Barclays.
Okay, Great Hey, guys. Thanks for taking my questions here.
Ruby maybe maybe for you can you just refresh us a little bit on the competitive environment and how that's changed if at all.
You know kind of post cobot 19 fuel.
Sure Hi, socket. Thanks for the question.
You know our market has always been competitive and that hasn't really changed we continue to see the same companies and competitive deals.
But our win rates continue to be very good. So the competitive challenges really haven't changed it's more coven 19 factors that we talked about from our perspective that have impacted the business.
Our respective that's a temporary impact, but it's not due to competitive change.
Got it that makes a lot of sense, Jack maybe maybe try follow up for you I'm good to see the expense control.
Maybe maybe you can just talk a little bit about how much the expense savings this quarter are temporary in your view.
Meaning items that might come back after after covered and how much of it as sort or as a result of the cost reduction actions that were done in Q2.
Sure.
So we start with the fact that after the close.
We ran a relationship.
For the cost savings.
And we took actions pretty quickly for mix changes effective at the beginning with me.
It is actually see the benefits already in Q.
Even if it already in Q2.
Going forward.
A significant part it maybe the bigger part.
Moving to continue with the.
Next month.
You have to keep in mind that Theres still a few things that we will continue investing and especially things that we already talked about and mentioned in the past like celebration.
So did that doesn't they're going to continue and offset some of those savings.
Hello.
[music].
We shouldn't expect Q3 expenses to be in the ballpark as Q2, we like this.
Pretty much consistent.
In.
Your next years Q on Q3, getting what similar in expenses.
This year.
And obviously, it's going to be.
Subject to that.
Right Okay.
Well commission and bookings and up.
If it's weather.
If you like.
Normally.
He's only begun a quarter and there's going to drive expenses higher than previous quarters. So looking forward, we're going to be less than Q1, before we make those changes but higher than Q3.
That's very helpful. Thanks, a lot guys.
[music].
The next question comes from the line of Andrew keen whats called.
I'd.
Hey, guys. Thanks for taking my question I, just wanted to dig in a little bit demand trends that you've been seeing specifically from the finance and the government verticals that.
Continued and serve what you expect to see especially if there's a second wave coming forward and this fall. Thanks.
Hi, Thanks for the question. So you know demand is a we're seeing good demand and like we said the the pipeline is healthy.
In terms of finance and government.
Finance and also telco have been resilient strong verticals for us we're seeing strong demand in both of those.
You asked federal government, we closed the major deal that we we mentioned and we're seeing a lot of interest I think government specifically state local.
Being stressed with cold 19, so that might be impacted.
Great and can you just digging.
With the surgeon.
All I can pot.
The number bankruptcies that they're seeing and small medium business that which could then caused them to flourish budget just talk about impact.
That would have directly on you.
Sure so.
From our perspective, if you think of our target market, we're primarily focused on the global 2000, So we reduced the complexity of large networks for large customers. So SMB, while we sell song and the small medium business space. The vast majority of our customers and our revenues actually come from global 2000 company.
And those have been very resilient the vast majority have a strong cash balance.
So we don't think that will actually have a significant impact from that perspective.
Thank you.
The next question comes from the line of Brent deal with Jefferies.
Hey, guys. This is Joe on for Brian really appreciate the question.
And Jack really appreciate the breakout revenue components is pretty close that's on the specifically asked did maintenance declined sequentially.
Or was it up.
Maintenance was up.
Sure services, you're talking about services.
Generally.
The next and then you will.
This was up you can see number that we published.
It was up 16%.
And that's what's the.
The revenue.
Yeah, I, just not even maintenance without professional services.
And that number.
Okay.
Okay. Thank you and then just could you remind us arm I appreciate the no guidance, but could you just remind us how much of license is recurring or term in threeq and Fourq you if any and then your highest secure cloud become more meaningful.
Yes, I mean.
<unk>.
You can ticket for the cloud.
So we havent been reporting.
It's a business in the basket, we had been saying that this.
Right.
A portion of our business and it's still there it's not changing much as long as we have not yet decided strategically.
Strictly to change.
It's there.
It's a lot of it.
Well look at it.
Yeah.
Like.
Mostly.
So you see.
A large customers buying term licenses.
It's more customers.
There's no specific segment.
That makes up.
Across the board.
And we're seeing and we're seeing more.
Interest in the market.
I would say, but the fact that it's a small portion did not change.
Thanks, Jack I'll take the cloud question I think.
Sure. So the question is around secure cloud.
So there's a lot of interest and secure cloud our team is very busy.
They're doing a lot of demos, there's a lot of customers in the trial program demand is building. We've said in the past we don't expect it to be a meaningful from a revenue standpoint this year.
So there's not much more to report at this point.
Okay. Thanks, guys.
The next question comes from the line of Jonathan Ho with William Blair.
Hi, Good morning, I, just wanted to maybe talk about your new products. When we look at sort of the marketplace. How do we think about the monetization model it.
Thanks.
Jonathan So.
When we look at marketplace in general.
You know, we're looking at as part of our partnering strategy of to finish the hub. It's primarily you know it's aimed at increasing the to find value in terms of long term stickiness and cross functionally utilization.
Most of the apps will not be directly revenue generating.
Notable exception exception of the vulnerability mitigation now which is a paid for subscription service.
But if you think of why we're doing it in general customers are looking to have tighter integration between different security solutions that they bought or they have different systems.
Broadly they often complain about the divergence of the security market. So a lot of customers want to reduce the number of vendors and they want all these systems actually talk to each other.
So they would like to actually cross-pollinate disparate data that exist in separate systems. So they can get a more holistic and comprehensive view of infrastructure from security perspective.
So what we've done is.
Partnered with some of our existing partners added new partners. We have a great initial group of partners that represented in the marketplace. So with Palo Alto networks cortex, just perpetration I'd be a resilient and for blocks and others.
So you know some of those apps are developed by themselves is that sort of all by us.
It's the important thing in the market places for customers to be able to use much more of the security solutions and cross functional away and gain insights from the data they haven't very systems.
That makes sense and then you're maybe ensure that the vulnerability management product can you talk a little bit more about how this differs from some of the partners like the Standalone vulnerability management vendors you are referencing.
What do you do that's different than traditional damn does thank you.
Sure so.
You know integrated with the vulnerability management solutions that doesn't compete with them in anyway. So it integrates rapidseven expose rep seven inside.
The quality MDR.
Well I O tenable, let's see.
We actually use the feeds into data from those and couple it with what we have an our systems right. So we combined cbss cores accessibility exposure and the value of assets help customers prioritize remediation efforts and when patching isn't an option, we integrated with secure changed for immediate an auto.
I made it initiation of mitigation by removing access right. So if you think of.
One of the challenges people have is you know at scale you end up actually where the huge number of high end critical vulnerabilities right and with a limit team you need to decide how to prioritize and what the patch first it's nearly impossible to actually patch everything immediately.
So we help prioritized and the other interesting point is that you can actually be integrate with no cost policies. So we can provide key criteria for decisions. For example, if somebody wants to connect like network, even network be should that be allowed maybe you're you know that connection will be a rule that will allow an access from.
Vulnerable server to mission critical assets.
And you don't want to do that so it, especially combining the vulnerability data with the knowledge that we have on in terms of access and policy of what can talk to one who could talk to who so those two things overlaid with each other or much more powerful and to give more insight to the user.
Great that makes a ton of sense. Thank you.
Thanks next question comes from the line of Rob Olson with Piper.
Great. Thank you guys for taking my question could you talk a little bit about how the quarter played out that alinity already perspective, and just looking at those.
Big deals maybe help us out around where the only two of the larger deals in the quarter and maybe are you seeing to return a big deals either this quarter versus the prior or other pipeline shakes out. Thanks.
Sure thing so.
If we're looking at.
The quarter, what we said it started slow and then it bill.
Improve the customer started coming back and if we're looking at large deals.
You know seven figure deals we had a couple of big ones and we mentioned on the call.
They were impacted so.
Well look at large deals, we're seeing customers taking longer to evaluate and improve very large deals for example in the past. We we had instances where the head of network security or the C., So could sign off on a deal.
Now you might need to see AFFO for a long transaction. So naturally that process would take longer in some cases decision makers decided to go for small and transaction actually to ensure that the deal we'll get through the approval chain.
Now if you look at the appeals below 1 million dollar they've been resilience of their strong opportunity. There. Some customers also insulin subscription which has already mentioned on the call. So.
You know those tend to be less than seven figures. Initially so there's plenty of opportunity for that part of the business and normally overtime, we expect that to normalize with a broader environment. When you talk about a seven figure deals.
Thank you.
Thanks again, if he would like to ask a question first on the number one. The next question comes from the line.
Steve.
Okay, great. Thanks for taking my questions I, Ruby you talked about a nice SDN win more broadly can you talk about what you're seeing from NSX and Sci and then why you're well positioned in these areas.
Sure. Thanks score. So if you look at NSX and Sci.
It's interesting it's a it's a slightly different dynamic I think seem run a sex is actually very focused on security.
The more in general you saw that with some other acquisitions lately and Cisco is selling Sci primarily as part of their next generation network strategy. So well Cisco ACI has some security controls I think primarily Cisco is.
You know there they're basing the security on other partners that will get plugged in today's <unk> infrastructure. So.
You know when people buy Cisco ACI lifetimes, and in conjunction with Palo alto or checkpoint or Cisco firepower, and when they're buying them on a sex.
You know, they're using the NSX distributed firewall more than the wood pellets or checkpoint.
Also we are seeing it slightly different because they weren't affects it typically in a data center right. Its were being more plays and just two questions actually.
Because part of the next generation network is prevalent throughout the network not just in the data center.
So.
It's interesting because Cisco had you know huge salesforce is able to push.
Cross border some customers have turned on.
Actually I capability some customers. It's just part of their network. So they they bought it but they're not necessarily using it for SDN yet.
So customers that are looking for security inside their data center and SDN I think the Vmware NSX customers are more advanced from that perspective also because assets came up earlier than Cisco ACI and Cisco ACI customers are now getting more and more interested in what's happening within AC.
On a periphery so you might have.
Enterprise firewall, you know the ingress egress of Cisco ACI.
And also plugged into the fabric itself, so theres lover opportunity there for us because.
NSX than a Cie essentially you know you have the network now completely virtualized, but the same challenges exist.
You can talk to whom or what can talk to what.
That extends not just the physical servers also the virtual environments inside the data center, which components will be able to talk to each other so the policy question is still very important and SDN world.
And so we're seeing a lot of growth there both on the Cisco ACI side and the Vmware NSX side.
That's a that's really helpful and speaking of different environments can you talk about how you've read the emergence of cloud delivered network security, especially to move into kind of a more of a postcode enrolled in the future. Thank you.
Sure, it's very interesting because we're seeing actually the cloud vendors themselves.
Focus more and more security I think the in a Microsoft has the new ads are firewall, which is essentially firewall at the service.
We see them investing a lot in it I think that Microsoft Mr. Bill firewall will be in direct competition to Palo Alto and checkpoint and others.
So, they're becoming a stronger player in cloud security and it's going to be built into it.
Into their cloud service, so as a service and maybe that's somewhat of a differentiation for them.
We're hearing about other cloud companies or thinking about similar things. So eventually I believe all the cloud vendors will have.
Hi quality security infrastructure built into their platforms and then customers will have a choice of okay. In the cloud go away by the Palo Alto, a checkpoint or a Microsoft Azure firewall and it won't be.
No it won't be like a second hand firewall will be a series firewall there.
And with that choice I think we'll actually see even more fragmentation.
So if today customers are saying wait I'm going to the cloud if I'm serious about it I need to Palo Alto checkpoint the cloud providers themselves will have shrunk security in the cloud as well so we will see customers the port all sorts of.
Security solutions in terms of segmentation of a cloud if you look at tooth and at the end when you have fragmentation like that you're going to need a policy management solution is gonna be even more important and that's a major opportunity for us.
Many thanks Ravi I appreciate the insight.
Thanks.
Your final question comes from.
Andrew Nowinski.
Okay.
Great. Thank you.
Good morning, everyone. So I just wanted to ask a follow up question on the pipeline. It sounds like Ruby I think you said, it's taking longer to close deals. So I'm wondering if you factor that in when you talk about the pipeline being up year over year relative to 20 or the second half of 2019, which is presumably a time period when sales cycles were shorter.
Sure. So it's.
If we look at the cycles that are longer it's primarily in the large transaction seven figure deal.
They require more signatures today the more complex.
Sometimes that means those deals actually become a little smaller or the cycles take longer it's not something that we're seeing across the board.
In other deals, but from a pipeline perspective.
What we mentioned as it is healthy it's up year over year, and it's been scrub and well vetted.
So we believe that if you look at sales execution issues that we had in the fourth quarter, we've put a lot of focus and effort on making sure that.
We're falling or process diligently.
And Thats, why we feel pretty confident about the pipeline.
Okay, Great and then maybe just one more follow up question on the on the Big U.S. Federal win that you had this quarter sounds like that was with an existing customer.
And given that we're heading into the fiscal year end of the federal government I'm wondering do you think that that when could lead to other perhaps new agencies deploying to open this quarter.
It's a good question.
Federal business can be a very big business for us over time I mentioned this before you know the U.S. government I T budget is $100 billion annually, obviously, it's not all applicable to us, but it's a very big opportunity for us.
And at least within the government. This customer is going be a case study for us. So we're definitely looking to replicate that.
And in general were particularly well suited for govern market. If you think of all the regulation government agencies everything that they need to adhere to would help them ensure their compliant increase their efficiency in security at the same time. So at this deal is a nice validation of the opportunity in federal but also mentioned this previously.
The government not immune from the impact of corporate banking, especially state and local.
So there's no there's a lot of government opportunities are working on and we're hoping to replicate and extend the success that we had with this deal to other government agencies.
That's great. Thanks, a lot.
Thanks.
I'll now turn the call back over to be for closing.
Thank you and thank everyone for joining the call today.
We appreciate your time interest and the company and we look forward to speaking with you again soon.
That's it stay healthy everyone.
This concludes todays sits in second quarter 2020 earnings call you may now disconnect.
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