Q3 2020 Tufin Software Technologies Ltd Earnings Call
Ladies and gentlemen.
Thank you for standing by and welcome to the two since third quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
But the speaker's presentation, there will be a question and answer session.
Good question during the session well need to press star one on your telephone. Please be advised today's conference is being recorded.
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I would now like to hand, the conference over to your Speaker today, Brian Burkart Director of Investor Relations. Please go ahead.
Thanks, operator, good morning, everyone and thank you for joining <unk> third quarter 2020 financial results conference call with.
With me on the call days, Jack Ricky Lee, our Chief Financial Officer.
And Ruby keyed off our Chief Executive Officer before.
Before we begin I would like to remind everyone that any statements made in today's conference call that express a belief expectation projection forecast anticipation or intent regarding future events and the company's future performance may be considered forward looking statements as defined by the private Securities Litigation Reform Act.
These forward looking statements are based on information available to funds management team as of today and involve risks and uncertainties, including those noted in this mornings press release in Twoq as 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 fund specifically disclaims any intent 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 at <unk>.
California.
Play of this call will be available shortly after its completion, you'll find the dial in information today's press release, the archived webcast will be available for one year on the company's website at two fund dotcom.
I would also like to inform you that we will be participating in the Barclays Global TMT conference coming up in early December please.
Please reach out.
To me if you're interested in joining our schedule.
With that I'd like to turn the call over to Tufan, CEO and co founder Ruby key tough.
Thanks, Ryan and good morning, everyone. Thank you for joining us today.
I hope that all of you and your families are safe and healthy.
I'm happy to share that our business continued to improve in Q3 sequentially.
Q3 revenues were $25.6 million flat compared to revenues in Q3 of point 19, but up from Q2 of 2020 by 11%.
Product revenue in Q3 were $10 million up 27% sequentially and down 13% year over year.
Predator revenues have improved significantly from the cobot impacted results.
So that we had earlier in the year.
We are particularly encouraged to see moderate growth and proud of revenues from new logos, which has been under some pressure in the first half.
We continue to see strong renewals and total revenue is are now back at pretty good levels from Q3 of point 19, which is an important milestone on our path to sustainable long term growth.
Operating expenses were lower year over year in Q3 due to actions that we took earlier this year and an overall lower cost environment related to the pandemic.
Our balance sheet remains strong and we ended Q3 with $104 million in cash and marketable securities.
Throughout the quarter, we continue to refine.
Improve our sales processes as we discussed in recent quarters to enable the business to scale up over the next few years.
Overall I'm pleased with our Q3 results in light of the challenging environment.
Moving on I want to talk about two trends that are helping drive demand for our products and are becoming increasingly powerful in the wake of coal.
19 automation and the move towards Zero Trust.
Few years ago, you could get by without automation underwriting processes and most people did but not anymore networks are getting more complex and the pace of business change continues to rise.
The increased speed that automation delivers is more important than ever.
And on top of this Copel has ushered in more focus on costs as budgets are constrained and security head count is flat or even down in some cases in fact lowering costs was one of the drivers behind a seven figure automation deal that we closed this quarter with a large global bank.
The customer was an existing secure trunk subscription cost.
They made 1500 network policy changes per week, using a manual process, which was very time consuming and expensive in terms of labor hours and.
In response to the covenant environment, the company needed to reduce costs. So we decided to add secure change with a goal of reducing labor hours.
They are not implementing zero touch auto.
Emission based on the tooth and unified security policy.
They are never change process will be much faster and at a much lower cost as a result of automation with secure change. So automation continues to be a strong driver of our business and it's becoming more important for large enterprises as a means of both increasing speed and reducing costs.
The next.
Does that has recently gained traction is implementing zero trust architectures as many of you know zero trust as a concept that's been around for a decade, but it's becoming a greater focus in the wake of COVID-19.
Implementing zero trust at the network level is not easy the requires granular segmentation, which in turn increases network complexity.
Trend sustainably managing granular segmentation at scale requires constant visibility and automation, which is what to fund provides to maintaining tight security posture and keep the business agile.
Our products are designed precisely to address automation and zero Trust, which helped drive demand for us this quarter and I believe we will continue to drive demand for our profit.
Products and years to come.
In addition to the demand driven by these trends some of our new products and services are getting traction in the market as well.
Most significant one and secure cloud, which launched late in Q1 this year and started to hit its stride in Q3.
As we've heard over and over in recent months.
The cobot pandemic.
So the way to the shift to the cloud and this is translating into increased interest and secure cloud alongside our core compliance and automation products.
Secure cloud with a significant part of another seven figure deal in the third quarter with a global Fintech company.
This deal span across their network on Prem and in the cloud in a single transaction that.
'cause it's of its kind for us.
This customer has recently gone through a large merger the merged network with complex and one of the entities was using a tooth and competitor but.
The net or change process was very slow taken up to 30 days to implement in that or change request, but.
The customer wanted to standardize on one vendor and reduced the network change processing.
Im from 30 days to one day.
We recommended secure change on top of their secure tech installation and standardizing and to fund across the entire network.
In addition in the cloud the customer was moving to a micro service based architecture running kubernetes and the public cloud they evaluated secure cloud and appreciated its ability.
First automatically generate policies for cloud native security controls, which will allow them to manage their security policies in the cloud without having to buy additional security software from other vendors to enforce the policy.
The total cost of the overall cloud deployment will be much lower as a result.
This deal is a great example of how large enterprise.
Enterprises need to fund not only to dramatically improve efficiency and security on their on Prem networks, but also on the cloud at the same time.
We're excited about our progress with secure cloud. Although we are very early in the product lifecycle and we don't expect it to become a meaningful part of our revenue base in the near term but.
But as we ramp up marketing in a way.
Awareness around secure cloud it is encouraging to see transactions like this take shape and to see more of our global 2000 customers looking at adding secure cloud as part of their cloud strategy.
Finally on the product front as you may have seen earlier today, we announced the launch of the truth and I Pam security policy after the tooth and marketplace.
This is the second home grown revenue generating app in the marketplace alongside our vulnerability mitigation App, which we launched in July and has resonated well so far with customers.
But to an IP security policy App integrates with leading IP and solutions like info blocks efficient IP and blue cat to dynamically adjust security zones.
And two funds unified security policy as changes in the network configuration take place in real time.
And that will change implemented by the network team through info blocks for example that might have previously gone unnoticed by the security team is now automatically added to it and security zone and the relevant policies are automatically applied.
This is another way.
For customers to automate their network management and this app is unique in the market.
Keep in mind that both the new IP security policy, App, and the vulnerability mitigation app or subscription based products and along with secure cloud will increase our mix of subscription revenue as they grow over time.
While 2020 is provided.
Provided more than its share of challenges we are seeing positive signs in the marketplace.
Our core business is recovering from the impact of the pandemic driven by the accelerating trends of automation and the shift towards zero Trust.
At the same time secure cloud is starting to gain traction as large enterprises movement to the cloud even more aggressively than before.
Yeah.
That said uncertainty remains higher than normal due to the ongoing pandemic in.
In addition, as I mentioned earlier, we continue to refine and improve our sales processes to enable the business to scale up over the next few years.
But I'm more optimistic now and confident in our ability to meet these challenges overtime.
And take advantage of the large market opportunities ahead of us and the cloud with secure cloud with our core products and with our new marketplace apps.
With that I'll hand, the call over to our CFO, Jack what Kelly to review our results in more detail and share our outlook.
Jack.
Thanks Harvey.
Good.
Afternoon, everyone and thanks for joining us with me.
We had a good third quarter, our business continues to recover from the depressed levels. We saw in the first half of this year and realize the benefits of lower cost due to both environment and actions, we took to reduce costs earlier in the year.
At the same time, we're maintaining a prudent level of investments to prepare the company to scale up over the next few years and.
After the large greenfield opportunities in our markets.
With that let's discuss the quarter.
Total revenue was $25.6 million in Q3 of Twentytwenty flat compared to Q3 of 2019, but up 11% sequentially.
Product revenue decreased 13% year over year to.
$10 million, while our maintenance and professional services revenue grew 11% to $15.6 million.
Looking at the geographic mix of Q3 revenue the Americas represented 56% of revenue Europe represented 40% and the remaining 4% came from Asia Pacific.
Moving to margins annexed.
Expenses I will discuss our results based on non-GAAP financial measures.
Non-GAAP numbers exclude stock based compensation expense of $4 million for Q3, Twentytwenty and $2.6 million for Q3 of last year.
Please note that the GAAP to non-GAAP reconciliation can be found in the tables of our earnings press release located in the Investor Relations section of our website.
Gross profit for the third quarter was $21.6 million or 84% of revenue compared to $21 million or 82% of revenue in Q3 of last year.
Total operating expenses for Q3 were $22.6 million down from $26.1 billion in Q3 of last year.
Overall operating costs.
Were lower as we benefited from certain covered related savings like no travel and more virtual events. In addition, we saw the impact of the cost reduction actions. We took earlier in this year.
Breaking out expenses in two line items R&D expense for Q3, Twentytwenty was $6.8 million or 27% of revenue compared to seven.
Point $8 billion and 31% of revenue in Q3 of last year.
Sales and marketing expense for Q3 was $11.9 million or 46% of revenue compared to $15.1 million or 59% of revenue in Q3 of last year.
DNA expense for Q3 or $3.9 million or 15%.
Seven revenue compared to $3.2 million and 12% of revenue in Q3 of last year.
Operating loss for Q3 was $1 million compared to an operating loss of $5.1 million in Q3 of 2019.
Net loss for this quarter was $1.2 million compared to a net loss of $5.7 million in Q3 of last.
Last year and net loss per share basic and diluted was three cents for Q3 this year compared to 17 cents in Q3 of last year.
Turning now to our balance sheet.
As of September Thirtyth, we had cash cash equivalents restricted cash and marketable securities of $103.6 million compared with 108.
$8.5 million as of the end of Q2 of this year.
We continue to be pleased with our strong cash position and we see it as an important asset to achieving our long term goals.
Deferred revenue on our balance sheet as of September Thirtyth, Twentytwenty was $36.8 million compared to $40.6 million as of the end of.
Two of this year.
In the third quarter of 2020, we used $4.5 million of cash from operating activities. The same as in the third quarter of last year.
Turning to the outlook as Ravi mentioned the environment remains somewhat uncertain as we continue to work through challenges related to the pandemic.
That said our visibility has improved sufficiently to allow us to provide guidance.
Cadence, albeit with a wider range than usual.
For the fourth quarter of Twentytwenty, we expect total revenue of $24 million to $29 million.
We expect non-GAAP operating loss to range between 5.9 and $1.6 million.
For the full year Twentytwenty, we expect total revenue of 93.9 million.
Close to $98.9 million, and we expect non-GAAP operating loss to range between 24.7 and $20.4 million.
Please keep in mind, our guidance does not contemplate a further deterioration in global economic conditions related to the COVID-19 pandemic should.
Should macroeconomic conditions deteriorate significantly during the.
The remainder of the quarter, either due to government imposed slowdowns or otherwise our results could be impacted.
With that I'll turn the call back to Ruby for his closing comments groovy.
Thanks, Jack I'd like to wrap up by saying that I'm pleased with the progress we've made in the third quarter, especially in the new product front.
The business has now stabilized and we continue to make improvements in our sales processes.
Due to the actions taken earlier in the year, our costs are lower and our balance sheet remains strong and as we benefit from the acceleration and the underlying trends of automation in zero Trust that I mentioned.
I'm confident that Tufan is well positioned to achieve its long term growth objectives.
Addressing a large and expanding market.
I'd like to thank our customers our partners and our investors for their support and all the tooth and employees for their hard work.
Now, let's open the line for questions operator.
Operator.
As a reminder, if you'd like.
You asked a question simply press Star one.
On your telephone keypad.
As for just a moment to compound.
Okay.
Our first question comes from the line of Sterling Auty with JP Morgan.
Hi, guys. This is Matt on for Sterling. Thanks for taking the question.
The first question I had was.
You guys.
Launch the free.
Offering.
[music].
I was just wondering what have you seen any conversion.
From those from those users that are using it and you know what we want.
Update I guess on that front from users that are.
That are using the free tool. Thanks.
Hey, Thanks for the question. This is really a can you clarify which app you're talking about.
I think you guys launched the screen policy.
Changing tool.
In the middle.
I think he was in the middle.
Pandemic right.
Just wondering if you guys could give us an update on that.
All right yeah.
And I think you're talking about the the firewall chain tracker. So that's gone well right. The is that when you mean.
Exactly.
Right. So we've had we have quite a few people that.
Loaded it using it weve had.
The sum of those turn into opportunities so people like it.
It provides some of the functionality that people use on the low end and secure track entry.
And for people that can afford actually buying secure tracker. So great initial tool so for us it's a great feeling product.
We're seeing customers.
Get exposed to two for the first time so.
It's part of our city strategy from this point moving forward.
Great. That's very helpful. And then just a quick follow up so using some of those breakouts from the geographical revenue looks like EMEA growth rebounded this quarter I was wondering.
If you could give any more color on that and how you're thinking about the different geography is going forwards. Thanks.
Thank you we'll take that.
Okay.
Yes, I'm going to take that so turning it.
Nicole distribution has not changed.
Revenue for the past.
April nine quarters, we will look at it.
Cumulative as you already know.
We can't have fluctuations between between the quarters, but but so far we haven't been seeing significant fluctuations that would change that.
That would be drilling.
Yes, Matt My question was more in terms of the growth.
So it looks like EMEA growth.
Was actually positive this quarter.
So its just wondering what are you guys seeing there relative to other geographies.
And.
How that kind of informs you going forwards.
Okay. So yes, there is a slight growth in EMEA as.
Do you observe.
It goes back to the.
Large deal and the.
Average sized deal so specifically for this quarter.
We talked about large units and we mentioned earlier.
This is one of the.
I mean, a slowdown that we've seen in that business.
But those that we disclosed tappan zee.
April you may.
Very helpful. Thanks, Craig.
Our next question comes from the line of Shaw with Oppenheimer.
Your line is open.
Your line is on mute please UN mute.
Okay with no response from that question well go to say keep kalia with Barclays.
Okay, Hey can you hear me guys.
Yes, Hi, second awesome.
Awesome, Hey, good morning, guys. Thanks for taking my questions here.
Maybe maybe first for you.
Can you just talk about the competitive environment a little bit.
I think your competitors here are largely private equity backed so I'm curious if you're seeing this is.
Chance at making the tough environment created by the pandemic, if you're seeing this as a chance to grab more market share or if anything if anything has changed from a competitive perspective.
Alright, so the market has always been competitive for us are the hasn't really changed.
We continue to see the usual suspects.
Is it.
In competitive deals.
Our win rates continue to be very good that hasn't really changed now relative to 2019.
And.
From a.
Overall environment I think.
The cost factors are impacting us and I think they are impacting some of our competitors as well one working.
Doctors raised.
Debt recently.
If you look at the.
On opportunity grow market share I think the opportunities there.
And we're doing well.
Okay got it that's helpful. Maybe for my follow up for you Jack.
You know the cost actions earlier this year I think had been very helpful. In.
In narrowing the operating loss can you just talk about whether there is there is any more expense reductions that we should see related to those actions just as we model out and maybe as part of that can you just touch on highly.
High level, how you're thinking about opex in the fourth quarter.
Okay. So maybe I'll start with the latter.
That opex for Q4 generally for duking. It is typically higher and this would be the case for this year as well.
When we're looking at the cost reductions that we did.
Part of it was.
Related to the fact that we reduced costs proactively some of it was come.
Coming from.
From the environment right will travel multi any set of accounts it was proactively and we said that before.
One factor is.
Induction the compensation that we absorb earlier in this year and as we've seen that Q3, improving the actually was reversed initially this was intended to be reversed.
To begin with we just waited.
Monte and get more confidence in the in the covenants our business. So once this occurs reversed Q4 is going to absorb higher expenses from that aspect.
And then typically Q4 is higher as I said before there are other expenses.
Commissions and the view or stuff that go in there so when you're looking at Q4.
Just in general for Opex.
You should be expecting it to be higher than Q3, and Q2, but still meaningfully smaller than Q1 Q1, probably was that our peak.
Level of Opex.
History, so thats not going to be there but.
A bit higher than that.
Orders.
Got it that's really helpful. Thanks, guys.
Your next question comes on line of Andrew King with call Your Securities.
Hey, guys can you hear me.
Yes, hi.
Andrew Thanks for taking my question. So just around this quarter we've been.
A lot of.
Federal vertical can you build up.
Two.
The federal opportunity and any timeline update that.
Better aggregate fed ramp certified.
Alright, so what.
We did some federal business.
In the quarter.
I think there is still.
Still a large opportunity in the federal market and.
It's.
That hasn't really changed in terms of fed ramp.
We're evaluating whether that's actually something that we need currently fed ramp it's not really.
Hampering our growth we don't have major opportunities that are waiting for it.
But it's something that we're considering.
Great and then can you give us an update to the SDN opportunity with.
Well with the Vmware and Cisco ACI, and just take trends you're seeing around there.
Sure. So we're seeing a lot more customers.
Moving to SDN and Thats part of what I mentioned on your trust right I mean zero Trust as essentially if you think of it. It's the least privilege security principle. So in zero Trust you can't Trust anything and therefore, you really need to segment and even micro segment, both on premise and the cloud network.
So this.
Much more granular segmentation can actually be achieved with SDN solutions right exactly what you mentioned Vmware NSX fiscally Cie in combination with firewall vendors and cloud native security controls the challenge when you do that is.
More segmentation technology do you actually have a negative immediate impact on security management, because you are adding.
Adding complexity and management overhead.
So the move to zero trust architectures, and moving to SDN technologies like NSX Sci actually increases the need for visibility and automation. So we're seeing more and more customers deployed NSX and Sci and I think and it takes a little bit more mature.
Then AC ISO NSX is kind of stay.
Standardized data center.
SDN with a firewall built into it.
And Cisco ACI I think people are deploying it now more than before and figuring out how to manage it.
And how to use it with other firewalls.
For us, we're seeing more and more business coming.
And the second Asia.
Great. Thank you.
Your next question comes from the line of Brent dealt with Jefferies.
Hey, guys. This is Joe on for Brent appreciate the question and really appreciate the returned to guidance and it makes sense the wider range than typical especially at the back end loaded fourth quarter.
I guess, what's your level of visibility and confidence in that guidance. We're about halfway through so just any sense of how the quarter is tracking so far thanks.
So far.
So for the quarter checking well.
We guided based on our forecast process.
So.
I don't have any other comments.
Rents on that we have a healthy pipeline compared to last year and we are comfortable with the guidance that we gave.
Okay, Great here and then I believe you had to send a date Americas and September Ruby any any top takeaways or surprises or requests from customers.
So first we were.
Were positively surprised with one hundreds of people to show up it was about double the attendance that we have normally in the physical events. So.
Weird sort of way, we reach more people.
People are very excited about some of the things that we're doing with secure cloud with the vulnerability mediation app. So.
Lot of interest in the new things that we're doing and also generally in automation.
Think about it most of our customers are still not automating right. If you look at over 600 customers.
More than half don't have automation yet.
So from our perspective, its not just the new stuff. It's also educating customers that are still doing.
Ill just basic security management on moving into the world of automation and.
Enabling a change process that takes some of that takes five days, enabling people to do things in an hour with much better security and accuracy.
Thanks for the color.
Our next question comes on line of Jonathan Ho with William Blair.
Hi, good morning.
Just wanted to maybe start with your perspective on the pipeline I think you talked about some improvement here around the large deal activity, but im just trying to understand where we are in terms of the large deals returning on.
Yes, it's just starting to thaw is this sort of everything is back but now it's a little bit backlog.
Any color there would definitely be helpful.
Sure.
So if you look at.
Right now pipeline is strong we have increasing demands of automation of good interest and secure cloud.
Cloud we saw these trends solidify in Q3 and that sustain so far in Q4 so.
The continued stability is giving us more confidence.
Also the traction with secure cloud.
If you look at the pipeline.
Pipeline in general and also some of the field precedent.
Is that we've done.
We feel comfortable with where tracking because I think the deals are going through a lot more inspection and things that are forecasted today.
Our good quality and we feel comfortable with them I'm not sure if that answers your question.
It does on but I think the second part of the question.
Uhhuh mound, a large deal activity I think you were saying that yes, we are starting to come back, but I just want to get a sense of maybe what inning. We are in terms of that return on its still at the early stage of it are we in the middle stages or are things pretty much back to normal just just trying to get a sense of that.
Yes, so from that sense.
Right.
I think that what we've seen in Copel is continuing we are seeing some large deals but.
The corporate still has an impact from everything that has to do with purchasing so larger deals, especially seven figure deals get more scrutiny.
There's more signatures, sometimes it goes all the way through the CFO that has two impacts.
Next one is sales cycles that are little bit elongated for large deals and a lot of times those deals actually come in a little bit lower than where we expected them originally there to fit a reduced budget or just because.
Our champion in the account doesn't want to go through yet another signature that might cancel the project. So.
In terms of seven figure deals, we're seeing less than before that still hasn't rebounded, but we're seeing more smaller deals.
And so I think it's a healthy mix once we see an overall business improvement.
Lets say one month's cobot starts of fighting I think we will see a return of more larger deal.
Deals.
Okay.
Great Great and I know this is relatively early and that you just started to guide for the fourth quarter, but as we look at 2021, I mean, I am just trying to.
Maybe get a sense of what you're thinking in terms of potential growth rates or.
And whether we should be modeling much of a return back to prior growth during that time frame or or whether we should be ticking up a bit more of a conservative view. Thank you.
Okay.
Yes. This is Jack.
And so no.
We're providing guidance.
Q2 was the first quarter for us to be able to live at.
Revenue that we were last year.
Providing guidance due to the improvement the business into more confidence, we're having to our business.
But we're looking only at one quarter now.
And when we report Q4 will be in a better position to look at full year 21.
Your next question comes online of Rob Owens with Piper Sandler.
Yes. Thank you for taking my question I guess first of all just unpacking the guidance a little bit and given that Gabi got that you gave around the pandemic or what could drive a result that would be down sequentially in the fourth quarter. I know you gave a wider range and I appreciate that.
But.
Given the lower end of the range is this all big deal related or is there something else that could actually kind of a quarter that's down sequentially from a revenue perspective.
Yes, So hi, Rob there's Ruby.
I will answer your question this way when we're.
We're forecasting now we're being prudent.
We look at large binary deals and if we're not confident in them then we don't forecast them.
And there's a wider range because the first quarter. There were guiding we are in a pandemic and naturally also if you look at our historical guidance, we've always had wind ranges.
Because.
We had multiple very large deals that could swing either way. So in terms of the width of the guidance, that's primarily what's driving it.
Okay.
Fair enough and then you touched on the large deals and sales cycles in size and everything else could you address your run rate business and kind of how thats.
Returned in the end the level you're out there relative to sequentially Ana and also on a year over year to date basis. Thanks.
Sure. So if you do the math you know this quarter.
Q3, similar to same quarter last year, but.
But without some of the bigger deals.
What that means is that we've actually closed more mid sized deals and one of the comments that we made is that.
We have actually growth and in new logos.
In third quarter, we don't know if it's going to trend that will continue, but we're pretty happy with that especially independent Mick.
So we're seeing more growth in general.
The new logos and mid size deals.
Overall, I think it's a good thing for us less reliance on seven figure deals as were building the momentum back.
Thank you for the color.
Your next question comes from the line of Andina Winski with D.A. Davidson.
[music].
Hi, guys congrats on the quarter.
This is Dan on for Andy clearly the pipe on the quarter improved enough for you to guide, but could you.
Hi, Ben you're finding sales process to perform in the quarter and build that pipeline and maybe if you could comment longer term on your comments about looking to scale up thank you.
Sure.
Sure. Thanks, So we've made significant progress on sales execution initiatives. Despite the pandemic.
Executing much better than we were nine months ago, So I'm pleased with that.
But it's an on going process right, it's going to take time as with any significant change. So there is more work to be done.
From my perspective, we're building.
The sales infrastructure and organization that will allow us to scale up to a much bigger company over time.
Great and just one follow up on I remember last quarter, you Didnt expect secure quality, meaning for the revenue this year, but really excellent they are able to call it out such.
A large deal can you maybe give a road map for when you would expect.
Again to drive revenues with a 2021 event maybe 2022. Thank you.
Sure. So secure cloud is a relatively new product we launched in Q1.
So emerging space, it's taking time for customers to understand what a dozen.
Evaluated before they move forward.
But I think enterprise is moving to the cloud is a big trend. We're all aware of it and of the need for a product like secure cloud. So thats been true from day. One has just taken time for customers to test it to get comfortable with it see how it addresses their needs.
But it's still early in the product lifecycle. So we don't expect it to be meaningful.
Contributor in 2020, I think it's a bit too early to talk about 2021, when you won't want to close 2020, and then see how that goes.
Your next question comes from the line of Shaw.
With Oppenheimer.
Thank you.
Hey will be Jack Ryan.
It is stabilizing trends.
From new product introductions.
As we think about it from an ongoing product growth perspective.
Should we be expecting product the products continue to remain a double digit territory. We've just had 10.
10 million, maybe even accelerate given that we are heading into the seasonally strongest quarter of the year.
Hey, Joe This is Jack.
I think the best way to look at the product.
Trying to look at your models and then see what products are going to land.
I still look at this.
Split between product and services. So if you remember before we went into this.
Garment in 2020, we were around 45 55 products to services through the year and Q4 was stronger one we would be the other way round to 50 545.
For product.
And we closed the year typically 50 fifties. This year. If you followed our pinedale muted throughout the year, we see that these ratios have been.
Lets favor.
Towards products will be around 35 to 48.
Each quarter on average throughout the year.
Thanks.
With the products and.
Maybe 60 or 65 services.
And now going into Q4.
We will expect improvement the product in a given up given the midpoint and the guidance and.
Doing these numbers are going to reflect a higher product mix.
We're still not going to see it and.
Levels that we had previous years.
To get to where we were a previous years I think there is.
A little bit more growth to two.
Understood.
And what are some of the internal actions taken already.
The minute that are assisting in stabilizing the business or is the weakness that we have seen early in the year is strictly external now is it just headcount addition, or some additional best practices processes that you've implemented over the course of the past few months.
Hi, Sean so it's.
Yes, two things I think the weakness is first covered.
Covered related right when we spoke about that in Q1.
In the second half of the quarter, especially the last two weeks were very difficult for us.
Because the people that we sell to we're now.
In order to be.
Found and also with US in terms of large deals that really impacted us. So I think it's a combination of covered and also till the skew some challenges on our side.
The corporate overhang I think some of that two people back to work there are some affected industries some budgets have been shrunk.
But mostly.
Customers are back.
Maybe not at the level, where they were before right its not in Q4 2019.
And in terms of our execution issues.
We feel we will fix most of them there's still some work to do we're working on it. So it's a combination of many things as organizational structure.
Its processes this adherence to the process season.
We've done a lot of work and we're continuing to do more work.
Got it congrats good luck.
Thanks Joel.
Your next question comes from the line of Jonathan.
With Baird.
Yes.
Okay.
Hey, Ravi I I've got just one follow up question on.
Secure cloud.
There does seem to be an increasing number of vendors that are offering. This so called cloud security posture management capability, but a lot of that does include it seems automated policy.
Figuration identified Ms configurations in Remediating so.
Curious how do you see the secure cloud differentiating in I know, it's early here, but but who do you see it.
And who you see most often in competitive deals.
Hi, Jonathan So there is.
Content exciting space customers are investing a lot in the cloud. So there is lot of different vendors.
From a competitive market perspective is still developing.
Our emphasis is on network segmentation and policy management right, we're not a cloud firewall vendor, which is an important distinction so.
So some of the differences.
When you look at two point is that we have a very small footprint right and that actually drives a much lower total cost of ownership almost all the other vendors in the space sell security management in order to then sell their cloud firewalls.
Which consultant that consumes a significant amount of compute and ramps up the total cost of ownership so secure cloud.
It enables customers to manage policies for cloud native controls that are built into the platform, which are much cheaper from a computer and total cost of ownership perspective.
Another difference is that were an open platform and we're vendor agnostic. So you don't really have vendor lock in which customers like a lot and we are the only vendor that enables customers to view network changes both in.
On Prem and in the cloud, which trebled essentially all parts of the enterprise network.
Okay. That's very helpful. Thank you.
Thank you.
Your next question comes from the line of Sterling anybody with JP Morgan.
Hi, guys a claim that for on for Sterling against.
I just had one quick question as a follow up to the guidance.
Does the current guidance take into effect some of the recent Lockdowns. We've seen you know in EMEA. Thanks.
I'll take this question so the guidance reflects our forecast.
Guessed right, we have a set number of deals we're working on them they have a certain probability.
We provide our input.
Input on it and then we decide what makes sense.
So we also mentioned that the guidance if you look at the 6K.
We're assuming that there won't be significant business deterioration.
Most businesses has now been working this way right when we have a customer that buys to fund.
Usually people don't even need to walk into the data center they are doing everything remote anyway.
So unless a very significant change takes place.
That should not really changed the guy.
Guidance, but it.
It really depends on how the world will look Jack you want to add to that.
Yes, well, maybe just give more specific color to that.
You've seen the range. So so one way to look at it. If you wish is the fact that the range is large and this is due to this type of uncertainty right. So.
The range is large like we said earlier, mainly as a result of the binary deals either coming or not.
I mean in terms of coming in on time or not so.
To the extent you'd like look at it if we accounted for that I would say we accounted for that through the wider range.
Great. Thank you guys.
Okay.
At this time there are no further questions I will turn it back to management for closing remarks.
Okay.
Alright. Thank you everyone for joining the call today, we really appreciate your time and your interest in 2000, and we look forward to speaking with you again soon.
Also stay healthy and stay safe everyone.
Thank you, ladies and gentlemen that concludes the conference call you may now disconnect.
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