Q2 2020 Allot Ltd Earnings Call
[laughter].
[laughter] [noise].
[music].
Ladies and gentlemen, thank you for standing by welcome to a lot second quarter 2020 results conference call. All participants are present in listen only mode. Following managements formal presentation instructions will be given kind of question answer session. As a reminder, at this conference is being recorded you should always change by now.
The company's press release, if you've not received it please contact I love to Investor Relations team GK Investor and public relations at once exports X 68, 3559 or view it in the news section of the company's website at Www Dot Dot com I'd now like to hand, the call over to Mr., Kenny Green GK investor relation.
Mr. Green would you like to begin piece.
Yup.
Welcome.
Second quarter.
School lunch welcome aboard conference call.
Management for hosting this call.
Well that's on the call today and isn't heavy president and CEO.
Like most yes.
And that will summarize the key highlights for advice and who will review financial fourth quarter.
Well then open the call for the question at all session.
Before we start likes to point out at this conference call may contain projections or forward looking statements regarding future events.
The performance of the company.
So any prediction.
I cannot guarantee that they will in fact.
Does not assume any applications based on information.
Sure offense Oracle.
Yeah.
Projecting leading the results of the impact due to the code at 19 pounds any changing market trends reduced demand on the competitive nature security systems industry as well and other risks identified in the documents filed by the company with the Securities and Exchange Commission on with a lot to happen.
And I went to Eric Eric. Please go ahead.
Thank you.
I'd like to walk from all of you to our conference call I'm, sorry, two for joining us today.
Our second quarter was another quarter of solid gross revenues grew 23% year over year for the second quarter.
Page $32.8 million.
This is our test straight quarter of double digit revenue growth year over year and I'm very pleased with the results. We achieved during the second quarter I believe that shows we are on track successfully executing on our plans.
The number of opportunities we see continues to grow and we continue to close new deals when against competition bring more business and to grow our our revenues.
We expect revenue growth and plucky 20 to accelerate compared to our revenue growth rate in 2019.
As we as we see our opportunities grow we are continuing to increase our investment to capitalize on the significant number of opportunities that we see ziv will provide more details on our financials and forecast later.
Like most everyone else over the last five to six months, our customers our employees and our way of working has been affected by cobot 19 epidemic.
I can discuss how this is changing the way we operate and then turn to see how we see our customers reacting.
At the pandemic on restriction started we set for ourselves to primary goals with equal importance that have remained our goals through out.
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 achieves the goals we set for ourselves.
Most of our employees worldwide are continuing to work from home.
While the numbers change from country to country as rules on conditions differ in Israel. For example, approximately 25% of employees work from the office and the rest work from home.
Me too even those in the office are held by video conference to minimize physical contact.
We continue to see high productivity across all departments. For example on July 31st Arent you released several product releases in both a lot smart and a lot secure product lines. They were released on time was the required content and quality.
Our customer success group continues to deliver install and pass acceptance on new installations.
Our global service organization is constantly lowering the number of open customer troubled tickets.
Our ability to continue to sell deliver on service. According to plan is a testament to the spirit and indication of all a lot employees worldwide.
Takes this opportunity to sign because I'm all for their efforts and fantastic work.
We do however here from our employees that the current situation is stressful for them.
This is the result of working from home lack of physical interaction and also due to the fact that communications are very structured in video conference meetings.
The lack of the informal.
Coffee room quote unquote in court or type interactions starting to show.
This is an issue we plan to address over the next few weeks as the holiday season will come to an AD.
As I mentioned that the previous call a lot has not laid off people as result of covert 19, nor have we forced any of our employees to go on vacation with or without pay.
In fact, we're continuing to invest in our products and capabilities and we are taking advantage of opportunities to hire talent they were as they present themselves.
It is worthwhile to know the while some companies are laying people off voluntary attrition is lower these days both in a lot and for what we can see in other companies as well.
Walter voluntary resignation and I look during the second quarter, we're about half of those in the first quarter and were also lower compared to 2019.
I would now like to turn our attention to our interactions with our customers worldwide and share with you a few brought observations.
Csps are continuing to provide services to their customers, even though many of their employees are working from home.
While initially we saw significant traffic growth in the network traffic has now stabilized and even come down somewhat.
However, we now sees the networks experience higher than normal traffic searches as conditions in the countries change.
Overall operators are adjusting welcome the situation for the most part have managed to handle the change in traffic patterns. Most csps are continuing not only with the regular business, but was new projects as well.
While delays and processes and decisions continue we do see accelerated effort spicy a speech to get back to business as usual despite not physically returning to their offices.
Interactions with existing customers and people, we know is continuing and I think to a very large degree we are all adjusting well to virtual meetings, replacing physical meetings.
This is going very well and we are able to actually do more than we used to as we are saving significant travel time.
The more challenging part is establishing new relationships on generating new leads with operators, we're not familiar with.
To this end, we're modifying our sales approach to increase our demand at lead generation.
We're also increasingly transitioning our demo and proof of concept capabilities to the cloud to enable us to show our customer our customers more with less physical presence.
This approach is evolving, but we're already seeing new opportunities coming from it.
I will now tried to briefly address each of the different market segments. We are active in that provide a bit more granular color on what we see in the markets.
I look smart traffic management is used to provide operators visibility on their networks and manage their traffic.
We are seeing growing interest by csps to gain visibility on the network as well as managed traffic surges and congestion on both mobile and fixed networks I.
I believe a lot smarter as well designed to address these needs and this gives us an advantage.
Given the increase in time spent on the Internet, we are 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 digital enforcement use case for example, the department of internal Affairs in New Zealand recently awarded US a bit to enforce the prevention of trials exploitation by blocking sites that contain.
Boy tentative content.
The growth we see this use case is worldwide.
And the enterprise market larger enterprises would try the focus of our business do not seem to be significantly affected by the covert 19 pandemic, however, and smaller businesses, we do see larger delays in projects and hesitancy to spend money now.
We are seeing very positive signs from the agreement, we signed with broad comp to serve packet shape for customers.
And the few months since signing the agreement.
Our enterprise pipeline has seen a strong double digit growth.
As a result of the agreement I am very optimistic about the gross in this do you sorry, I'm very optimistic about the growth. This deal may bring to our enterprise business.
While some deals take longer to materialize and it is a bit more challenging to bring new deals into the pipeline.
I'm used cases are showing are showing strong strong demand growth.
So overall on balance I think the market demand for a lot smart product family is similar to pre covert 19 demand.
To summarize I believe demand for the I look smart product line, including congestion management traffic management steering visibility.
Digital enforcement and enterprise use cases will remain solid for a lot in 2020 and beyond.
I would now like to turn our attention to the security segment.
We see a significant increase of cyber attacks, most notably phishing attacks on both consumers and SMB small medium businesses.
This is giving rise to growing awareness is on behalf of consumers and SMB up as a 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.
Since the previous conference call, we signed several security expansion deals two of which are recurring security revenue deals with operators in a APAC and EMEA.
That already had recurring security revenue deals with us and decided to expand that.
These operator saw the commercial benefit from providing security services to their customers and decided to go ahead and provide additional services to an additional customer base.
This is very encouraging indeed.
We're also seeing new projects initiated a new RF piece published during the pandemic and even after locked down started.
Interest by Csps to deliver secure broadband connectivity to their customers looks to be growing worldwide.
We see new opportunities in email and eight bar in North America, and even in Latin America, Despite to covert 19 situation there.
Our pipeline for recurring security revenue deals is growing and I'm very encouraged from it.
However at the same time, we are seeing some projects getting delayed as operators are more focused on delivering existing services, rather than new services I remind everyone again that working with Csps takes time with sales cycles, typically exceeding 12 months and the time from signature.
To launch as a service around nine months.
The current cobot 19, Pandemics may delay some sales cycles, but even a few months more and even to the delayed the launch of some of the deals we already signed.
As I 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.
Our goal there are forced to build the substantial base of Csps well, except the recurring security services model, which will watch security services to their customers. We will work with them to help a large number of end users sign up for the security service.
These are the types of deals that will ensure the long term growth and success of adult.
It is still challenging to accurately assess the impact of the epidemic and behavioral changes on a recurring security services. Both in terms of number of operators and in terms of take up rate of <unk> of customers.
Certainly well see a growth in our pipeline of operators looking to launch security services and while there are delays in decisions and implementation attributed mainly to covert 19, the pipeline growth is very encouraging.
And services that were already launched we initially saw some lower growth during the weeks of locking down compared to the period before.
However, as countries open up we see a return to pre covert 19 growth rates.
One of the operators that launched the consumer services to customers that physically enter their stores is reporting that more than 44 zero percent those customers that are offered the service sign up for it.
In another operator launch the service to Smbs small medium business customers more than 33 zero percent of the entire SMB customers signed up for the service within a year of service launch.
A third operator, we launched the service to fixed customers is showing that 17, one 7% of the customers exposed to the service chose to sign up for it. These numbers are very encouraging.
I would like to say a few words.
I would like to a few words about fiveg networks.
And where we fit in.
An increasing number of operators are moving ahead with our Fiveg plans and our rolling out Fiveg services.
We expect this trend to continue and we see a very large opportunity for a lot here.
Fiveg networks have significantly higher bandwidth and we'll have a very large number of aiotv devices on the as well as many breakout points connecting to the internet.
When asked in surveys telecom operators and industry experts overwhelmed welding the agree that security will be a bigger challenge in Fiveg networks, and most would say that core network security is very important.
A lot has a unique position here to play and securing the user plane and Fiveg networks.
Our combination of being able to analyze in real time, the full traffic flow.
Our ability to mitigate dos attacks in line very quickly and to protect the network from Roque Aiotv devices.
Puts us in a unique position to help operator secure their fiveg networks.
I Love comes to the Fiveg World with a very strong telco great technology.
Products that scale easily to the fiveg bandwidth requirements and full multi tenancy support to enable differentiated services.
These abilities are key differentiators for us and future Fiveg deployments.
We are currently active and several major RF fees and technical trials of Fiveg networks, including in several tier one carriers and we view fiveg as a potentially significant growth engine for others.
As I mentioned today, we see significant opportunities in the market across multiple products and use cases.
We believe there is a market opportunity here, we should take advantage off.
Given the strong opportunities we see even in the current environment, we remain committed to leveraging our strong cash position to invest for future growth.
As we work with more tier one operators worldwide, we take upon ourselves additional commitments that span product development delivery and customer support.
In order to take advantage of these opportunities we are temporarily increasing our R&D investments this year by using subcontractors to help us close product gaps quickly.
2021, we expect R&D expenses to be lower than those in twentytwenty.
I would now like to summarize the overall picture and the key messages.
We are proceeding according to our class and continuing to grow the business.
Andy I look smart product line, we see a strong pipeline.
Well some deals take longer to close some use case, such as digital enforcement of growing.
Overall, we see a solid demand for a look smart at similar levels to pre covert 19.
It has in the security area. So we see our long term growth.
We're very encouraged by the pipeline growth, we see and by the consumer in SMB take up rates as they sign up for the service.
While these deals always takes time to close covert 19 has pushed the closure of several deals away by several months.
It is also delaying services launch in a couple of the deals that were already signed.
Despite these delays the pipeline is robust and I'm confident we will meet our goal for occurring security revenue deals this year.
Looking at our backlog the market demands as we see it now and the pipeline of deals that we are working on.
I would like to reiterate our revenue guidance for twentytwenty to be between $135 million to $140 million.
I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2022 in next to exceed and and they are a $140 million.
This will be of course on top of the $85 million M.A.R. 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 have the call over to seems like mine our CFO Xu. Please go ahead. Thank your.
Before I begin reviewing the financial results for the quota unless otherwise noted.
Entirely to the non-GAAP financial measure.
Discussing operation.
Results.
Which is what we use internally to judge the ongoing performance.
Yes.
Non-GAAP financial measure will be failing to open the spectrum to generally accepted accounting principles.
Sure based compensation expenses.
Expenses related to M&A activities I'm, most position filled and then just minutes it.
Exchange or a defensive and changes in the filter.
Now through the financials.
Revenues for the second quartile Twentytwenty, well Sofia 2.8 million dollar, though going by 23% on both of those.
Second quarter 2019.
I would like to give you some more color regarding the revenue breakdown in their justification.
Geographic breakdown.
Second quarter was as follows America.
<unk> point $8 million, 9% before revenue.
EMEA $23.6 million.
72% before revenue in Asia.
$6.4 million, 19%.
The breakdown between products and services in the second quarter Twentytwenty.
The conservative quota left.
It was as follows.
Product revenue.
22.3 million doing though bill 16.8 million doing though thus to you.
Professional services.
$3.4 million compared to $2 million left.
And support and maintenance revenues, well $7.1 million compared to $7.8 million left.
The portion.
Indication service providers revenues out of total revenue in the second quarter.
84% compared to 86%.
Comparable quarter last year.
I know that revenue breakdown may fluctuate.
We'll go to another.
Ending.
Revenue.
We recognized.
Oh talk.
And custom now.
The up 71%.
Revenue in the second quarter Twentytwenty.
At the similar 11 walked off second quarter last year.
Gross margin for the quarter was 70.7% compared to 69.8%.
Second.
Total 29 team.
I would like to reiterate our.
Gross margin over do you is expected to have it just around 70%.
However, I am on you.
The variation between the quote to reflect the product mix.
Didnt make sold in that particular quarter not.
And is not indicative.
Okay and specific trends.
Operating expenses for the quota.
$25.4 million compared to $20.6 million in the second well too.
29.
During the calm quarter.
<unk> expense of 1.5 million doing though.
Doubtful debt, which impacted our gen eight operating costs.
Due to a system integrators, so in Latin America.
Financial difficulties.
Through the course 19.
Thank you Leo.
On Twilight, though R&D expenses were 9.9 million doing all 30% of revenues.
Seven point Threemillion go low 28% before revenue in the second quarter will flow.
Given the managing opportunity you know target market.
Decided to accelerate though development plan.
An increase on the faster rate than originally planned when we issue though.
Patients style of DC.
We have taken decision as we believe.
Hey, Bill.
Take better advantage.
The market opportunities.
On our competitive advantage.
Total number of full time employees.
Worldwide.
As of June.
Twentytwenty was 674.
This is an increase of 41.
Full time employees compared with debt by the end of quarter.
The 673.
Non-GAAP operating loss.
Well, if it was $2.3 million.
$2.1 million.
The second quarter.
29.
Non-GAAP.
Net loss for the quarter was $2.4 million.07.
This is $2.1 million.
Thanks and ship in the second quarter, both 29 team.
Three months ended June Thirtyth Twentytwenty, the weighted average number basic share was 34.9 million.
An increase of 7007 and good.
Other than that compare.
Same period last year and the weighted average number of fully diluted show.
7 million.
Turning to the balance sheet okay.
Comprise of cash cash equivalents an investment.
Yes, twentytwenty, well, one I'm going to 9.2 million gullo compared to one on within 10.7 million doing though.
So.
Twentytwenty.
$23.6 million out.
Total cash by them.
Pretty good due to advance payment from customer.
Required for foreign currency hedging activities and other equivalent or Oh.
Oh inventory increased second quarter $2 million 17 billion go low due to equipment waiting is custom of site.
You mentioned.
Before.
Finally in terms of guidance.
As mentioned earlier, we continue to expect revenue to go.
Twentytwenty to between one on within 75.
$140 billion.
Presenting accelerated.
Oh original Planful Twentytwenty was for Opex to be in the range.
$95 million to 98.
However, given both the adult from that.
Our decision to accelerate though development plan, which would increase so R&D.
Coming quarter.
Opex would likely be few million dollars above this range.
We mentioned expectation.
To be profitable in the fourth quarter.
Yes.
Finally, our focus is to sign additional is it going into Q2 revenue.
Why is that pandemic have slowed down business development.
There's been a delay the rate of finding those view.
We remain optimistic.
Mentioned, our expectation that Twentytwenty, we signed views and M&A now one on going in 14.
As he takes some time from Kentucky.
The commercial loans I know that the new do you live.
Uh huh.
So the new deals we have recently signed and expect to sign DCF.
We produce leases.
To know recording revenue in the call and you.
We believe the song foundation for revenue growth in future.
Overall, we continue to extend by all financial plan for Twentytwenty incrementally so financial performance.
Even more so given the unique MCO background.
We will find though.
Okay.
That concludes my remarks.
Happy to.
Take your question, though operate them.
Thank you ladies and gentlemen at this time, we will begin the question answer session. If you have a question. Please press star one if you wish to cancel your question. Please press Star Tim If you are using Peter.
Hi, My name is the handset before pressing that might your questions will be pose any order their received please standby Bali pose your question.
First question is from Alex Henderson of Needham.
Alex Please go ahead.
Thank you very much so I wanted to drill down a little bit on the Opex line commentary you.
Suggesting that you're going to accelerate the R&D spend was the most of that acceleration captured in the near 10 million dollar number that you posted to Q.
Or should I be expecting moderate acceleration again in the September and December quarters, and if that's the case to get to profitability should I be assuming fairly modest spending on sales marketing DNA given the lack of travel.
And then plus.
Constraining those thoughts together as we look out into 21 your comment that opex, So R&D would be.
Down year over year would that imply.
The offset would be a rebound in sales marketing and t. any travel expenses that.
I would offset that decline so your flattening out the overall spend sequentially can you talk a little bit about how does.
Correct.
And so.
The initially O guidance, well, the Opex DCIO would be between $95 million to $98 million.
And now oil, saying that this would be a few million dollar mold and this range.
So you can expect.
Be increasing the Opex in Q3 Q4.
But.
Having said that we still stand.
The guidance that we'd be profitable in Q4.
Shifting to.
2021, we didnt, we found the plan yet.
So we cannot share with you and the number also opex.
We are expecting full twentytwenty one.
Yeah, I just add to that balance.
Now let me as a couple of comments it okay, yes, a like Steve said the.
Opex will still be will still grow.
A little bit in Q3 in Q4, but also look at the revenue line right, where if you. If you look at our first half revenues and we're guiding to total year revenues of 135 to 140 million means our revenues in the second half, we expect them to be higher than those who is the first half so.
That's that's why we believe when we run all the numbers. We believe that we will we will be profitable in the fourth quarter and like Sixtyv said that we pay no I mentioned in the I mentioned in the end in mice in.
In my comments.
What what we're doing in increasing R&D this year and Twentytwenty, because we're using subcontractors on a temporary basis to accelerate some developments and close some gaps.
And we expect dose to go down next year, and hence we believe that year over year 2021, we will have lower R&D expenses as for the rest a we can't comment any further because we didn't really.
Built yet the is the plan the annual operating plan and budget for 21, and we'll be giving guidance on that as usual beginning of February next year.
Okay. So one of the questions I get fairly frequently is.
It was great that you guys came in with such a big backlog increase a into 2020.
I think the book to Bill if I remember correctly was up 1.6, so it was 1.6.
In the prior year and I think that was the second here in the world The building your backlog.
Are you able to sustain that Oh.
Are we filling the backlog pipeline as we go through the year or.
Is part of the growth you're coming from a work down.
Building, the pipeline backlog that Oh, well leave us with less visibility.
Because obviously you had to the year in hand in your backlog coming into this year.
Can you talk a little bit about whether you're in tact able to.
Liver.
No orders to.
Hand to mouth that as opposed to to be working down backlog over the course of the year.
Sure Hey, I believe we even the even guided to that the beginning of the year.
We said that were coming in with a very strong backlog and then bookings you off of 2019 like you mentioned, but we also says that we expect that does this year in 2020, our bookings will be lower than our revenues and we guided to a book to bill of under one for the year, but still maintaining a higher bookings level.
And the in 2020 versus the revenue level of Twentytwenty have plenty 19.
And I still believe that that that's the case.
Great and then one last question, a and then I'll cede the floor.
When you looked at the.
Security transactions that you've done.
It's actually expecting you would be lowering the mark numbers.
Because the inability to to get deals done in the in the coded world.
We find ourselves in.
It sounds like what has happened as you've actually founded a pretty normal to get deals done, but the execution is the primary issue, which means that the timeline from the time, we closed the deal to the time.
Revenue recognized.
And the ramp up existing deals is a little slower is that the right.
Been too to what you're seeing here that you're still able to get it.
Getting pretty hefty attention around closing deals, but it's just an execution issue on ramping them.
And it's it you know.
First of all definitely there is an execution issue on rapidly ramping them, which is a which is pushing out a couple of launches that is that we have already signed and it's pushing out a couple of the launch dates where the execution actually begins and revenue start flowing.
But it's also pushing out actual closures of the closure of the deals themselves now despite us the pipeline is growing and we're seeing more interest and we're getting more more operators involved and given where we arent looking at what we've signed so far this year and what we expect to sign.
And you know in the coming in the coming months I feel confident was said was meeting or exceeding the 150 million and they are number this year.
One what fortune.
So the different warm sorry, $140 million that may our target for this year.
Well that's the most important thing in my opinion. So thank you very much for the answers and good quarter.
Thank you.
Next question is by as much <unk> Lake Street.
Please go ahead.
Yes, I also wanted to visit the delayed sales cycles in the delayed launches.
Talking about issues, where the because of maybe facility closures customers aren't available to maybe run.
Proof of concepts or aren't available to install equipment and thats whats delaying here or is it something beyond that.
This is that's part of it but I think it's a it it all stems from the fact that the zee.
The operators you know, they're not working it from the offices and from their facilities as usual. So now they prioritize things a bit differently than they would have six or 12 months ago.
So that means that and you know.
Honestly, what they prioritize us as they should.
This is being able to deliver the current services the current products and sought enter the market doing that as as best They can and then new things. While they are they are definitely getting back to new projects, they're signing new deals getting to and they're getting new products out to their customers.
They're getting a slightly lower priority when they have to prioritize some of that means okay. When when they send people to the labs, what the what do the what are the projects that those people deal. It when they how people go and testing is what are the things that they test well et cetera et cetera.
So I think a lot of it has to do with not being physically on site, but I wouldn't say that's 100% the picture.
However, the other side of it I think what we saw in the first months like in the March April we saw really telling US guys were focusing on what we've got now.
And we'll deal with new stuff later, and Howard and we're seeing much less of that now they're trying to get back to business. They understand I think like most of us around the world understand that this covert 19 situation in one flavor or another is here to stay for a long time, it's not going away in the next few weeks.
And we have dust and do things and Hey, we have to do everything we used to do before.
Different way so deals are getting delayed a bit implementation is getting delayed but the interest as their Z necessity to do it is there. So I think we'll be able to adapt to meet our targets and sign up the deals, but it will just take us a bit longer than we expect.
Okay, and then having a layer deeper on your outlook for the third quarter you did.
You spoke in general than you do anticipate sequential growth in the third quarter versus the second quarter curious to know right. Now consensus is 35.1 million that would imply about a 7% sequential growth rate do you view that as realistic.
[noise]. Its you know, we don't give guidance on a quarterly basis.
It seems realistic.
I'm, sorry, I didnt catch it.
Oh, we don't give guidance on a quarterly basis.
But.
Relating to your question it seems clear lipstick.
Okay, and then lastly on the.
On the bad debt issue.
The doubtful account write down.
Just curious to know do we have any other exposure is like that in the accounts receivables if either.
Latin America focused or system integrator focused or do you feel like this housecleaning Doug.
Sure.
Oh of course, the you know we have.
Accounts receivable was open accomplished.
You can do.
In the balance sheet, but I think.
Case was really exceptional towards a combination of the.
Specific company this specific customer the geography.
And I don't think this we have such an exposure.
Okay.
Understood. Thanks for taking my questions.
Thank you.
Next question by Mark Snell.
I'll come back.
Mark. Please go ahead.
Thanks for taking my questions in the two occurring security revenue expansion deals that were signed with existing customers what percentage of the customers were offered the surface. Initially and then that and what percentage are being offered the service now.
I'm not sure I have a percentage number.
And I.
I would you know as a broad comment I would say, it's it's a different sub tens of percent, but I don't know to give you a more accurate number.
Okay.
And the past you've talked a you've talked about having discussions with U.S. based telcos.
The effects of covert 19.
[noise] and they've actually continued I think because they were before.
Obviously, a you know remotely and without the physical meetings and so on because the operators in the U.S. don't don't meet people at Dawn General sense, I'd say, they don't meet people face to face, but beyond that they've just continued as they were before along the same trucks and the and I'm quite positive about them.
Okay. So if there was a new new precedent in the United States in the fall and they once again change the net neutrality laws. How this impact that the de <unk> part of your business.
The depuy part of our business in the U.S. is very small so.
With.
That's all that's one and number two.
Even the fact that the they that the opened up the or rescinded net neutrality and allowed operators to put in deep yard.
Most operators in the U.S. did not change their stance and the and didn't didn't really installed anything as a result of that at least nothing significant so I don't see that the I don't see any any measurable effect on our business. If there's a change on the other.
Net neutrality rules.
That's what I thought I just figured we get it out there just in case you know there's no sell off <unk>. After the election can you talk more about four g. like for instance, like when did you start having discussions with I mean fiveg.
When do you start having discussions with fiveg providers, because obviously, that's such a buzz word now and people want companies that are exposed to fiveg. So maybe if you can talk more of that those opportunities I think that would be interesting.
Well, we started talking to a two operators I think a last year sometime but the you know these.
These things are as a as they accelerate over time right to start discussions in a broad sense and then a then the operator start thinking about it more so so discussions intensify you get more into technical issues.
And more into details and then they issue some artificial island you respond to that and they issued an RFP and you respond to that then they run proof of concepts and you participate in that and all the time the interaction is accelerating and intensifying.
So this is a this is a long process. This is not a.
This is not.
An easy one it doesn't have a very very.
Definitive started and hopefully we'll have a definitive positive event.
We're saying we're talking to operators today really that are launching fiveg networks, either have launched we're planning to launch.
In the U.S. and in Europe, and Asia Pac theirs.
Really there are more and more operators are committing to fiveg now.
Each one has you know very different timelines.
You asked is pretty much ahead of the game here and you're installing faster than most other countries I think that.
That recognizing our value and the in delivering user playing security choose a network and and not necessarily the traditional type of traffic management I think that's a that's been are an important factor and the evolution of our disk.
Russians, what's the various operators.
Around the world of what what does the value that we could bring them because you know fiveg is simply it's not fourg on steroids, it's something different.
Yes, it's much faster than fourg in that sense, you what may saying, okay. It's like Fourg was faster than Threeg. So now fiveg is even faster than fourg, but that's only one element. It's a the architecture of the network is dramatically changing in fiveg.
Where previously in the Fourg networks, all the traffic who are from the the phones devices and so on what went from these devices that are spread all over to have brought into a central core and from that core there were connected to the internet.
And the same obviously back traffic from the Internet went into the core and then was sent over the network to the devices.
In Fiveg is a quarter is going to be distributed its going to be in many many locations. You can have an operator in the U.S. with dozens of locations for the core if not more than that if not many dozens and then many dozens of club breakouts in connection to the internet. So so as of today.
Apology changes on the architecture changes around that the.
As the challenge is also change so many connections to the internet. So many io key devices that could be affected if you remember the as it Mariah so that a couple of years ago, where somebody took control of many aiotv device and created a creative destroyed disruption disruptive.
Cyber attack.
On sites on locations.
This is something that couldn't be significantly intensified with fiveg and it's harder to protect against and I believe that our technology, our ability to sit in the core and it look at traffic at very high volume understand the difference between legitimate traffic and illegitimate traffic.
Manage the illegitimate traffic and suppress it immediately wherever it wherever it hits the network first I saw these kinds of things and enable us to protect the ER is a fiveg networks, probably better than than competitors and I think that's something that is starting to resonate with operators that we talked to.
It sounds like an exciting opportunity and I can't wait to hear more about that I want to go back to my first question on the recurring security revenue. The expansion. So when you said again, you don't really have a number but you're thinking about a 10%. So what you're trying to tell us even more I said pens and plural.
Okay. So am I right to assume that there could be even more opportunities that put us to customers beyond this one extension.
I'm sticking up yeah, there could be.
There could be I don't know still takes them or not but there could be.
Okay continued good luck on forward and thanks for taking my questions.
Thank you.
There are any additional questions. Please press star one.
To answer your question Please press star team.
Please standby Molly from my question.
There are no further questions at this time is James heavy what do you like to making committee.
Ladies statement.
Yes. Thank you.
On behalf of the management up a lot I would like to thank you for your interest and support.
As we are currently not traveling we will be holding virtual meetings with investors. So if you're interested please be in touch with our investor relations team beyond that.
Thank you very much for participating and I look forward to talking to you and the next quarter.
Thank you.
Thank you. This concludes the on that second quarter 2020 results conference call. Thank you for participation you May go ahead I'm just.
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