Q4 2020 Allot Ltd Earnings Call
Ladies and gentlemen, thank you for standing by the conference will begin shortly.
[music].
Good day.
Moving on.
Good day.
Ladies and gentlemen, thank you for standing by.
Welcome to allot fourth quarter and full year 2020 results conference call.
All participants are at present in a listen only mode.
Following managements formal presentation instructions will be given for the question and answer session.
As a reminder, this conference is being recorded.
You'd have all received by now the Companys press release, if you have not received it please contact <unk>.
Investor Relations team at GK, Investor and public relations at one six for 66883559 or view on a new section of the company's website at www Dot a lot dot com I would now like to hand over the call to Mr. Who'd Helft GK Investor Relations.
[noise] helped will you begin please.
Thank you operator, welcome travels from Florida in 2020 conference call.
I'd like to welcome all of you to the conference call and thank Allots management for hosting this call.
On the call today are Mr. Arizona credit.
And he says he's an excellent CFO.
Erez will summarize the key highlights followed by Ziv, who will review on our financial performance of the quarter.
Well then open the call for the question and answer session.
Before we start I'd like to point out a day.
This conference call may contain projections or other forward looking statements regarding future events or the future behind for the company.
These statements are only predictions and are not cannot guarantee that day.
Although it does not assume any obligation to update that information.
Actual events or results may differ.
Duties from those projected income.
As a result of impact due to the COVID-19, pandemic changing market trends reduced demand.
And the competitive nature of the security systems industry as well as other risks identified you gentlemen signed by a company with the Securities and Exchange Commission.
And with that I would now like to hand over the call to Eric Eric Go ahead. Please.
Thank you <unk> I'd like to work on all of you to our conference call and thank you for joining us today.
Our fourth quarter was another quarter of solid gross revenues grew 28% year over year for the fourth quarter and reached $39 1 million.
Revenues for the full year 2020 grew 23% compared to 2019 and reached $135 9 million.
Our revenue gross in 2020 accelerated compared to our revenue growth rate in previous years.
In the fourth quarter, we also achieved non-GAAP operating profit of half a million dollars.
This is our 12th straight quarter of double digit revenue growth year over year and I am very pleased with the results we achieved during the fourth quarter.
During 2020, we succeeded in signing recurring security revenue deals with an aggregate.
<unk> of $192 million, 37% above our original goal for the year, our goal, which we declared prior to the onset of the global pandemic on them.
I'm very pleased with these results and I believe it shows we are on track on successfully executing on our plan.
Our business is expanding across our product lines and markets and we are increasing our market share, especially in the cyber security business as I will describe in more detail.
As we see our opportunities grow we increased our investments to capitalize on the significant number of opportunities that we see.
Ziv will provide more details on our financials and forecast later.
For the fourth quarter was clearly a very strong finish for a very successful 2020.
2020 was a different year not under leased as a result of COVID-19 on its impact on business reduced travel and significant changes in our mode of operation.
I think we can all get a clearer picture if we summarize 2020.
As a whole at this point rather than focus on the fourth quarter.
I want to start by describing what we see in our cyber security business and how the market is changing favorably for allot.
A lot is rapidly transforming into a cyber security company and this is where we see most of our future gross coming from.
Looking at the market I see what I would call a quote unquote perfect storm.
Consumers are under attack and this notion is accelerating during COVID-19.
<unk> for example has become more prevalent than ever.
In a recent study by Deloitte, we see that nearly half of individuals' falls for phishing scams while at home.
In a large study we found that phishing attacks on more than half of all the cyber threats targeting consumers and smbs.
On the other hand, csp's or communication service providers are looking to monetize their networks. They are looking for subscriber services that drive revenues loyalty and brand differentiation.
To quote our senior VP for wireless products and our major North American operator, I recently talked to quote we are hungry for our for generating services.
And of course, you are showing us as true. This is a real ARPA growth for generator on quotes.
And discussions we have with many csp's, we see this drive becoming accelerated by their <unk> deployments.
The design of <unk> networks for higher bandwidth and multiple internet connection points makes it makes them more open to strength.
In addition, the investment required is very large.
All of these make five gene networks in my view, a catalyst for cyber security solutions.
End users consumers and Smbs are looking for a simple zero touch cyber security service day.
Prefer a simple security service.
And not have to do anything technical like downloading, an app to each device and configuring it.
A network based cyber security solution is the only way to deliver all of this.
A growing number of Csp's want to launch our cyber security service for their customers for their consumer and SMB customers.
Previously, even a year ago, many csp's thought that reselling our security App was sufficient for their customers.
This in my view has changed significantly in 2020.
And now we see that most csp's, we talked to understand that they need to provide a network based cyber security service.
North American operators have based on our interaction with them.
Quote turned the corner and quote on cyber security services for our consumers.
We are closely interacting with multiple north American operators that are now seriously looking into launching network based security services for the mass market.
This was not the case a year ago.
While we cannot be assured of course of any success the requirement from the operators is now clearly there.
Operators worldwide can typically charge for network based security services anywhere from 5% to 7% of the consumers our pool and around 15% of the Smbs Arco.
The preferred business model that most but not all operators worldwide are accepting off as a monthly fee.
Whether a revenue share or monthly per subscriber fee.
30% to 50% of the perceived end user value is considered a reasonable range for all for an all inclusive security service package.
As a result of all of the above our deal pipeline is very robust and it has grown significantly.
Total MAA are of all the opportunities we are actively engaged with is higher than in any previous time.
I would now like to look at Allot and how we are uniquely positioned to turn these exciting market developments into accelerated growth.
I will start with our platform and product.
The allot secure 360 platform is a clear differentiator.
To remind us all a lot offers a unified management threat database policies user experience reporting and user control protecting families across all devices.
This can be done regardless, if the connectivity as mobile fixed or even off network.
A lot provides enforcement points for the security and the mobile network for <unk> or <unk> and.
In the home router and the business router and even security apps on the devices for off network protection.
These holistic capabilities are unique in the industry and are very appealing to many operators.
I believe we have two days of widest range of security enforcement points available from any competitor.
I am not familiar with other technology companies that can provide such a unified experience across access means devices and threats.
Recently, we announced an agreement to develop together was powered DNS.
DNS security enforcement product DNS secure that will be an integral part of the allot secure platform.
I explained in the past the DNS security is inherently inferior to network secure and cannot provide the same level of protection.
This is true for our DNS secure solution as well however.
<unk> based security is a much lighter touch on the network and requires less hardware.
We believe our DNS security solution will expand our addressable market to include fixed networks, especially in low are two countries, where the perceived dollar value of our security solution is lower.
When we look at our recurring security revenue growth path.
We see our revenues growing in three dimensions.
One signing up on launching cyber security services with additional Csp's.
Two and a csp's at launch this service having more end users signed up for the security service.
And three <unk>.
<unk> is expanding the security offering to the market from an initial market segment, such as mobile two additional segments, such as the home or off net protection or the SMB market.
I believe this threefold growth opportunity is what can make our recurring security revenues grow very rapidly.
I would like now to turn our attention.
To the deals we signed in 2020 and the results and the services the operators launched.
In 2020, we signed multiple new security deals with operators, who intend to launch the security service in 2021.
Most of these deals primarily due to COVID-19 related delays were signed in the fourth quarter of 2020.
These deals were with Csp's in EMEA, APAC and Latin America.
They include network secure home secure and endpoint secure.
In 2020, several operators, who started with one product typically network secure for mobile decided to expand the service to include endpoint secure for off net protection and whole secure for fixed network protection.
Another interesting area, we see as the SMB segment.
A growing number of operators see SMB is a lucrative segment.
Several of the deals we signed in 2020 are either focused exclusively on SMB or have specific plans to service. This specific segment.
Yes.
During 2020.
Several operators in Europe, and Asia Pacific, who previously signed deals with US launch the services to their customers.
The take up rates, we see in these operations are very encouraging.
I will note that the actual rates depends significantly on the go to market strategy of the operator takes.
More aggressive the go to market the higher the rate of customers signing up.
We see that selling in shops is a very effective means of adding new customers.
When offered as a paid value add.
Excuse me when offered as a paid value added service.
One operator is seeing that over 80% of new customers, who joined our networks in shops choose to add the security service option.
Moreover, a year after they purchased the service two out of three customers keep it.
These are very high conversion and low and longevity numbers.
Another operator, who launched the service is it paid on service offered to customer with every operator interaction.
Managed to get 10% penetration in less than six months.
This is a truly outstanding penetration rate that we should not expect to replicate in many operators. It shows the appeal and potential of the service to consumers.
On the other half operators, who launched the service with less aggressive go to market plans such as digital means only achieved significantly lower take up rates our.
Our marketing team is heavily engaged with these operators marketing teams to show them, how they can improve the results.
On average the penetration rates, we are seeing in the service is launched are very encouraging.
We also continue to see take up rates from SMB typically higher than the average rate for consumers.
One SMB service reached more than 44 zero percent penetration in 18 months.
I will note, though that there are much fewer smbs than consumers. So the potential value of SMB deals is typically lower than that for consumers.
As I mentioned on previous calls a lot not only enables the CSP to protect consumers and smbs, but we also protect the CSP network itself from attack.
In the <unk> World, we protect the network with our Ddos secure product.
As <unk> networks are rolling out they are more susceptible to volumetric ddos attacks.
As a result, we are seeing significant traction for our net protect product.
As I discussed in our previous call low it has a unique position to play in securing the user play and <unk> networks.
Our combination of being able to analyze in real time, the full traffic flow ability to mitigate ddos attacks in line very quickly and protecting the network from Rogue Iot devices puts us in a unique position to help operators secure their <unk> network.
A lot comes through the <unk> World was a very strong telco grade technology Prada.
Products that scale easily to the <unk> bandwidth requirements and for multi tenancy support to enable differentiated services.
These abilities are key differentiators for us in the future <unk> deployments.
We are currently working on several <unk> net protected deals and while we cannot ensure we will win I hope we will be able to close one of these deals in the coming months.
To summarize I believe the market for cyber security services by Isp's to consumers and Smbs is taking off on our pipeline is stronger than ever.
I believe a lot is uniquely on very well positioned to take advantage of this.
And grow significantly.
New deals with Csp's still take time, usually between 12 and 18 months and was Covid, some even take 24 months.
One sign it takes nine months to launch the service and start gradually building our revenue base.
COVID-19 may cause even several months further delays in launch of services. After the deal is signed.
Factoring in all of this.
We expect recurring security revenues in 2021 to be between six and $8 million.
Looking farther ahead, we expect recurring revenues from security deals in 2000 $22 million to $25 million and to keep accelerated growth year after year after that.
We also expect to sign in 2021, new recurring security revenue deals totaling at least $180 million of MSR.
Yes.
Before turning to the DPI for Allot smart market I would like to say a few words on the changes we went through in 2020 and their impact on the company.
As with many companies COVID-19 dramatically restricted our international travel and ability to be physically present at customer sites and meet customers face to face.
As a result, we made a series of changes to adapt our mode of operations.
Our sales team transformed the way, we initiate interaction and generate leads.
From mostly physical meetings conferences customer gatherings et cetera, we partially adopted targeted digital means to approach the relevant decision makers and potential customers.
This has been successful for us and opened up quite a few interesting opportunities for recurring revenue security deals both for consumers and for Smbs.
Implementation was harder this year as we cannot sit we could not send engineers to install systems on site.
Work was done mostly by remote connection.
In one case, we had to install a complete network in a country. We had never worked in before and we're not even familiar with local integrators.
Everything was built on pre installed and racks in Israel and shipped to the country hole.
We identified a local integrator trained on remotely was video clips on how to install and turn on on the service and succeeded to pass acceptance without stepping into the country.
Internally, we modified our structure this year to fit the changing needs.
As we discussed in our previous call, we created two separate product business units.
One for allot secure and one for allot smart.
And the short months that passed since the change I can see the value that focusing on each product line is already bringing to product development and to new deals.
In our global support services, we moved head count on resources from expensive region to lower cost geographies, mostly to India and Colombia.
This transition and transfer of knowledge was not easy.
We succeeded to complete the task because this year, while reducing the number of open trouble tickets. Despite the growth in revenues and the gross on our installed base.
In addition, we strengthened significantly the number of salespeople focusing solely on security deals worldwide.
But I think perhaps the biggest change for us resulted from a political change.
The Abrahamic courts at peace treaties that Israel signed with Arab countries.
These agreements opened up the golf market to allot, especially in the UAE and buffering.
My first and only international trip after Covid started was actually to Dubai in December.
Little could I have guessed that a year ago.
I am very pleased to say the business atmosphere in the Gulf region is a very positive towards working with allot and we are actively engaged in several opportunities and both DPI and security.
I would like to turn now to discuss our visibility on control business addressed by our allot smart product line.
This business grew well for us in 2020.
The main use cases, we see today are in congestion management quality of user experience, especially for video policy on charging control and digital enforcement.
We want several deals this year, where we replaced our direct competitors product that was installed one of them and a tier one in Europe.
We are discussing similar opportunities with other csp's using our competitors' product.
In addition, we are involved in several rfps with operators, who do not have such systems today on their networks.
While we cannot be assured of success.
We are optimistic regarding our chances at some of these opportunities.
Our enterprise business grew and had a record year.
Deal, we signed in the beginning of 2020 with Broadcom to position allot as the replacement for.
Back to your product, which is end of life.
<unk> to show results.
We signed new distributors for our enterprise products in several countries, including the U S and we expect continued growth of the enterprise business in 2021.
To summarize I believe demand for the allot smart product line, including congestion management traffic management analytics digital enforcement and enterprise use cases will remain healthy with growth for allot in the years to come.
I would now like to summarize the overall picture on key messages.
We are proceeding according to our plan and continuing to grow the business.
And the Allot smart product line, we see a strong pipeline multiple use cases, such as congestion management digital enforcement on the enterprise business are growing.
Overall, we see a solid demand for allot smart.
The security area is where we see our long term growth. We are very encouraged by the pipeline growth, we see and by the consumer and SMB take up rates as they sign up for just for the service.
We signed significant deals for our various products and.
And succeeded in exceeding our target for 2020.
While these deals always take time to close.
COVID-19 pushed the closure of several deals a bit more.
It is also postponing services commercial launch and some of the deals that were already signed.
Overall, the pipeline is robust and growing.
Across our product line, we see positive signs from the market.
To take advantage of these growth opportunities, we decided to continue our significant investment in developing the full breadth of allot secure products and our solutions for five G as well as in our sales and support teams.
<unk> will discuss the numbers in more details later.
Looking at our backlog the market demand as we see it now on the pipeline of deals that we are working on our revenue guidance for 2021 is between $145 to $150 million, including between $6 million to $8 million of recurring security revenues.
We further expect to sign additional recurring security revenue deals with an MBR exceeding $180 million.
And now I would like to hand, the call over to Ziv Leitman, our CFO Ziv. Please go ahead. Thank.
Thank you Eric.
Before I begin reviewing the financial results for the quarter and for the year I would like to inform everybody on this call unless otherwise noted I will refer entirely to the non-GAAP financial measurements.
When discussing operational results, which is what we use internally to judge the performance of our business.
Non-GAAP financial measure.
Fairly in certain respect from the generally accepted accounting principles and exclude share based compensation expenses revenue adjustment due to acquisition and restructuring expenses.
Fences related to M&A activities amortization of certain intangible assets.
Change for a different changes.
<unk> related items and changes in deferred taxes now.
Now regarding the financial results.
We are pleased with the revenues for the fourth quarter of 2020, which were $39 1 million growing by 28% compare with dose over the fourth quarter of 2019.
Revenues for the full year.
2020, $135 9 million.
Growing 23% compared to 2019 and in line with our expectations. Despite a.
On much more difficult for you than anyone could have anticipated at this time last year.
Our year end backlog was $110 million total.
You May remember, we said backlog would.
It would be below that of <unk>.
Year end 2019.
Because of the outstanding although that we received in the second half of 2019.
For the year 2019.
2020, together the book to Bill ratio.
117.
Now I'd like to give you some more color regarding the revenue breakdown.
Simplification the geographic breakdown for the fourth quarter of 2020 was as follows America was one 9 million or 5% of revenues EMEA.
EMEA.
$29 6 million.
Or 76% of revenue.
<unk>.
Asia Pac was $7 6 million or 19% of revenue.
For the full year of 2020 geographic breakdown was as follows Americas.
With $8 1 million.
6%.
Revenues.
Yeah.
$104 3 million or 77% of revenues and Asia Pac was $23 5 million for 70% of revenue.
Regarding the breakdown between products and services.
For the fourth quarter it was as follows.
Product revenues were $28 8 million compared to $18 2 million last year for.
Fashion on services revenues.
$2 5 million low compared to $3 3 million.
Last year.
Bolt on maintenance revenues were $7 8 million.
Compared to $9 1 million last year.
For the full year of 2020, the breakdown was as follows.
<unk> revenue accounted for $94 4 million.
<unk> for 67 $4 million last year.
Professional services revenues were $11 4 million compared to $8 5 million last year.
Support and maintenance revenues were $30 1 million compared.
Compared to $34 2 million.
Last year.
Portion of communication service providers revenues out of total revenues were 82% in the fourth quarter compared to 76%.
In Q4 last year.
84% for the full year of 2020 compared to 81% last year.
It is worthwhile mentioning that the enterprise revenue.
All term slightly increased versus 2019 to a level of 21 million.
And we do expect a double digit increase.
In 2021 enterprise revenue, mainly because of the healthy pipeline, which will generated due to low deal with broadcom.
<unk> revenue in 2020, $22 8 million or 17% of total revenue.
This is compared to $26 3 million.
For 24% total revenue in 2019.
I would like to see.
We are in the process of shifting from security complex deal.
On a revenue share model of recurring revenue by nature, the outcome of such transition.
Typically a short term reduction in the security revenue.
While the long term ongoing revenue potential from the security as a service deals will be significant.
The new <unk> deals will take time to ramp.
They're typically nine to 12 months before signing with the customer and the commercial launch.
After the launch revenue should start to wind up slowly.
Over many months.
After subscriber sign onto the new server and the penetration gradually increases.
For the them all the cash.
Average 19 pandemic.
For the time it takes to sign new deals and the pandemic is somehow some somewhat delayed the launch.
Of already signed deals.
Also please note that revenue breakdown.
Whether geographically or by product line or any other may fluctuate from quarter to quarter, depending on the specific revenues.
And.
We recognized in the specific quarter.
Our top 10 end customers made up 71% of on.
Our revenue in 2020, compared with 56% 2019.
Looking further down to.
For the income statement.
Gross margin for the quarter.
79% compared to 68, 7% in the fourth quarter flow.
Last year gross.
As for monitoring for 2020 was 71, 2% compared to 72% in 2019.
The variation between the quarter reflects the product mix sold.
And it.
It is not indicative of any specific trend.
Operating expenses.
For the quarter were $27 3 million.
On page $22 8 million.
As reported in the fourth quarter of 2019.
For 2020 operating expenses were 102 million.
Hello.
$102 million.
Compared to $85 3 million low.
In 2019.
Which primarily reflects an increase in headcount mainly an increase in R&D expenses.
To capitalize on the opportunities we see in our markets.
The total worldwide market number.
Full time employees as of December 31, 2020.
676.
This is an increase of 82 full time employees compared.
With that of the end of 2019, which stood at 590 for <unk>.
Operating income for the quarter.
For longer than $75000.
Compared with an operating loss of $1 8 million.
In the fourth quarter of 2019.
Net income for the quarter.
382000 or low.
<unk> early.
Earnings per share versus.
Net loss of $1 7 million <unk> low.
<unk> per share in the fourth quarter of 2019.
Net loss for 2020 was three 6 million.
10% 10 cents per share.
Seven 5 million.
22 cents per share in 2019.
For the three months ended on December.
2020.
The number of basic shares.
Was $35 3 million and the weighted average number of fully diluted shares.
37 6 million.
Turning to the balance sheet, our cash reserve comprised of cash cash equivalents and.
And investments as of December 31, 2020 totaled $99 4 million.
Compared to $107 2 million.
As of September 2020.
And $117 6 million.
As of December 31, 2019.
I know.
Towards the end of 2019.
<unk> large advanced payment from deal.
Signed in 2019.
And the comparative cash decreased between December 31, 2019.
And the year end 2020 was primarily due to that.
We are expecting a negative cash flow in 2021 in the range of $23 million to $25 million.
Our operating loss is expected to be between $6 million to $8 million.
The reason for the gap between the expected loss and the cash flow is mainly due to the following.
First I know that.
Highlight.
In 2019 and 2020.
We had a typical.
Advanced payment.
Okay.
Pickles.
I advance payments from customers, which led to a low level of year end accounts receivables of $21 million.
We are not expecting to receive such a high level of advances in 2021 for the.
Accounts receivable was levered at the end of the year is expected to be significantly higher than the level at the end of 2020.
Second we expect increased revenues.
We expect increased revenues in 2021, which will lead to even a higher payout.
As part of our accelerated growth of security revenue share deals deployment, we will need to invest.
2 million.
Capex.
We expect gross margin for 2021 to average around similar level as in previous year.
On 70%.
It is important to understand that gross margin.
May fluctuate on.
On a quarterly basis.
<unk>.
For deal mix and revenue recognition.
As we continue to invest in sales and marketing and R&D to facilitate the goals for the company.
We expect 2021 operating expenses to be in the range of 110 million to one on with an $11 million.
This increase in expenses.
<unk> to be a combination of increasing headcount.
Negative effect of exchange rates to the U S dollar and others.
Outcome.
Of the above is expected to generated an operating loss in 2021 of $6 million to $8 million.
As I mentioned earlier.
I want to highlight.
We have actively taken the decision to increase our investments in R&D and sales and marketing.
With the balance sheet.
With a significant amount of cash we feel this investment.
To capitalize on the opportunities we see for strong long term growth.
Much more important and Trump.
Short term profitability consideration.
Our view is that it.
Adventure profitability will come via growth and we do not feel it is necessary right now for <unk>.
For a short term profit targets.
In 2020, we signed seek a deal.
With <unk> of $192 million.
Which brings us in.
And the accumulated.
$280 million.
We believe that in 2021, we will sign additional deals with <unk> of $180 million.
I would like to remind everybody.
<unk>, which stand for maximum annual revenue potential.
<unk> concluded transaction.
It was estimated by a lot.
Upon transaction signature.
Constitute.
An approximation of the theoretical annual revenue allot would receive 100% of the customer subscriber.
Estimated via low sign up.
So.
If I've explained takes a lot of time from contract day to commercial launch and then.
Our amp up of penetration.
Therefore in 2020, we booked sekos revenues of only one 9 million.
Since most of 2020, new secret deal.
We signed towards the end of the year.
Expected recurring security revenue in 2021 will be in the range of $6 million to $8 million.
For some sum up my comment we are very pleased with the last 2020 achievements and goals hitting golf targets.
This is even more impressive when we take into account the COVID-19 headwinds for.
<unk> 2020.
We're expecting to continue our growth and investments in 2021.
Hold on to fortify the company Foundation.
And capitalize on the potential given the expected accelerated growth starting 2022 net.
That concludes my remarks.
We are pleased to take your question now operator.
Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using.
Can you speak for equipment can be lift the handset before pressing the numbers.
Your questions will be pulled in the order or the RSV. Please standby, while we poll for your questions.
The first question from Alex Henderson of Needham <unk> Company. Please go ahead.
Alex.
Alright got it on mute.
Thank you very much.
Yes.
You heard a little critical on the line. When you gave the book to Bill comment could you just restate what you said.
Book to Bill for 2020.
Absolutely.
So on for Q1 'twenty it was it on the point.
Eight but for 2019 and 2020 together it was 117.
Thanks, Ed.
I didn't catch it produces critical thanks.
Sure.
So as I'm looking at the numbers here.
Well mechanics associated with them it looks like.
Good day.
Growth in.
2021.
At the low end of the band.
Youre looking at.
Essentially 2% kind of growth excluding the security business.
And with the comments about double digit growth net applause. So.
Just that you would actually see.
Maybe a little bit of shrinkage in the.
And the service provider.
Our traditional business.
Is that mechanically corrected and is that a function of the.
Obviously.
Drawdown in backlog that occurred over the course of 2020.
Which ultimately.
As a reflection on COVID-19.
<unk>.
Doing the math right there.
Yes, the number of the number of okay, but as we said in the past few times, we think that the DPI market, including the enterprise.
Is.
Is supposed to grow single digit each year, but since it's not such a huge market and there might be a big deal. So there might be fluctuations fluctuation one year. It might go mall in another it's might go less and.
And hopefully it will do more than the low.
<unk>.
The low range for guidance.
Yeah look I'm not I'm, not saying that it's about Dan just wanted to make sure I had the compounds correctly.
So the.
On the second question is.
Around the acceleration in investment to drive the security business, which I think is probably the right thing to do is certainly the.
The opportunity here is significant lamar that you've already <unk>.
Deliveries standard.
But can you give us some sense of the.
The mechanics around that have you already started that investment.
In the fourth quarter are you going to ramp up.
From their.
Sequentially into the March quarter or could it be spread out over the course of the year, what's the what's the tempo of that acceleration in investment.
Okay.
As we said.
Total opex for the year will be between 110 to 111 and this includes <unk>.
For everything and it will be spread all over the year, it's not going to be a one time investment in Q1.
So it's fairly evenly distributed.
In terms of the sequential increase.
Is it more in sales and marketing more on R&D.
Split between the growth from those two.
I would say it's more in R&D.
But also in terms of margin.
Moving on R&D.
No.
If you take it even evenly and you'll take.
The 110 divided by fall Youll see that its similar to the expense level of Q4.
Okay.
In terms of the.
Yes.
The ramp of programs that you just signed all obviously very heavily skewed to for Q.
Okay.
One of the obvious question is what kind of.
Programs are the customers putting in place in terms of marketing or the more aggressive programs are they do they tend to be more conservative coming out of the COVID-19 environment.
Can you quantify or qualitatively talk a little bit about.
What youre hearing and seeing from them in terms of their marketing programs against that.
There are large margin number.
We're seeing a mixture.
Some are somewhat looking on it very aggressively some they are looking at it less aggressively.
But this is the.
This is still in discussions.
Between us and them and for the operators also internally so until they actually launch.
These plants can change hopefully will help convince them to change for the more aggressive route but I think that from the get go it's really there is a mix.
Each operator has his own view on what he wants to achieve with this those that are more skewed towards let's get let's get revenues and get revenues quickly are taking aggressive go to market. Those that are looking more at on overall brand recognition and that's there and after beginning may be a bit more hesitant on <unk>.
How aggressive to go but we're working very very tightly with them to show them. The advantages what they can do on how they could go more aggressively.
Got it great.
I'll cede the floor. Thank you.
The next question is from Paul.
<unk> of Bank of America Merrill Lynch. Please go ahead.
Paul.
The next question is from Marc Silk from Silk investment Advisors. Please go ahead.
Thanks for taking my questions excuse me.
A lot of information there.
So the first question is on your 10 million.
And on the European tier one customer 10 million users.
Initially, how many companies where you're competing with.
Not quite sure, which customer I mentioned was 10 million users. So maybe you want to refresh me.
And Jim in January.
For two deals you mentioned in Europe.
Okay.
On name yes.
We didn't name because the customer we were complete you can tell us if you want.
Now I will.
Want to it's not like it is.
My lack of water.
We were competing with at least two competitors on that deal.
At least two and then it was that the same for the other deal on Europe as well.
Yes.
That's I'd say, that's a typical number I mean, I don't want to non I'll tell you for somebody else has a third or one less but that's a typical number.
So that's pretty small so basically does that mean that theres not that many people that can kind of do what you can do is that a good assessment of that.
There are not many there are not many.
Companies that do what we can do.
I will tell you there are not many companies at all in the.
The network security.
For csp's to enable them to sell to the mass market, which is where we are in.
Most of the security companies that are out there are focusing on the enterprise market, where we are paying I would say more unique on where we think that.
Is that there is a there is an interesting place in the market is to enable telecom operators to provide security as a service precisely to the mass market to consumers to Smbs and saw there are few companies like us that are targeting this exact segment.
I believe that this segment is growing significantly now.
Like I said on the call then I think that many operators are understanding that they need to provide this service.
There arent a whole lot of companies that they can go to to get technology and products to enable that.
Which is good for us of course.
That's great information.
Can you tell us kind of what why that why you would take for those let's just say those two recent deals why you chose it.
Again, it just gives us more light.
As far as how.
And important you are or how different you are.
Look I think it's it's it's always a combination of several factors right.
I think one is the fact that.
We're really the only ones there today that offer a 360 holistic approach so for an operator works with us.
He can see his past.
Not only was he wants to day say, an operator today says I wanted to launch a security as a service to a consumer to the mobile customers, but if you worked with a lot. He can see his past two.
To now expand that service also to the fixed access market.
Fixed customers. He can see how he can add to that off network protection. He can see how we can expand that to two small medium businesses and you can see how we can do all that with with fundamentally the same day.
Same user experience the same threat database is the same management system et cetera.
That's something that nobody else provides today.
That's a very key differentiation, even if the operator wants to start with only one specific segment. So that's one reason second reason is.
Specifically on on mobile networks.
What we do today with our with our network secure product.
Is is superior simply provides a much higher.
Say higher security level better functionality, it's safer and so on Zen.
Then what we regularly see as our competitors in that market, which is DNS based security.
So it's also a better product and and.
And third.
We're focusing on this market to a large extent so customers that are that.
Talk to us.
Our commitment our drive.
<unk> that we.
Yes.
We know how to we know how to help for them in their marketing and their marketing endeavors, and we bring our marketing team as part of our value to show them. How they can do better on what will what will work better what will work not as good and so on.
And last but not least today on network based on.
On a network basis.
Security solutions, we're a market leader, so which is also a good reason to choose us now operators choose us for any any kind of combination in different weight of all of these.
Oh, that's great answer.
When you sign a deal, especially smaller companies and you signed deals with like tier one companies. It gives you guys on what legitimacy. So after announcing those last two European deals have you may be seeing some more interest in your technology or maybe.
Somebody who you were talking with is now getting more let's just say aggressive because of those.
Recent announcements.
Yeah.
I can't tie directly to those.
Specific announcements I can tell you and I hope it came across in the tone of what I discussed during this call that we are seeing cigna.
Significant acceleration in the interest on.
On behalf of CSP and the last day in the last year and specifically on the last few months.
Seeing that the the.
Interest in providing these services.
They want to provide them.
Currently much for larger than it was before and we're seeing a lot more engagement from the operators that we didn't see before some of them.
No doubt this is a result of.
Okay.
The eyes or talk to a customer of ours, who is doing this or they heard about it and this creates interest but I think most of it comes from on the fundamental of the market where they see.
The need for to protect their consumers they see the want from side of their customers to get that protection and they see the need to monetize their network. So.
Yes.
Okay.
Okay. So if someone personally who's investing in Israeli companies for I don't know more than that.
25 years.
That that was a nice development as far as the Arab net opening new markets, what the conversations you've had with what products are they kind of interested in.
It's really across our product line I mean, we're talking to them both on PPI products on security as a service products, where it sits across the product line.
Fantastic.
You did mention you had this conversation.
To ask just like every every colleague do.
You talked about an American company, who kind of know CEC a lot as a way to generate additional revenue was that just initial talks or are you on an RFP or anything you can any color you can give us that would be helpful.
Okay.
I can tell you that we're in serious discussions with the operators I do not know what the result of these discussions will be I do not know.
If we will win anything or anything of that sort.
But I can tell you that.
That compared to say, even a year ago. When the discussions were more exploratory now we see multiple American operators that thinks they need to do something from the network.
And.
That's about what I can say.
Stay tuned right okay. So.
It's been a few years ago when your stock for $7.
I said, maybe use some of that cash to buy the stock at $7, but now that it's more than doubled.
From all your hard work.
I think it's nice to see that.
Stirred up artificially I'm not flip flopping, but at these levels I like that you're taking on some of your money and investing in the company to have real earnings per share gains down the line as opposed to just artificially genera.
Generating earnings per share growth and then the other thing is you know a few years ago went on.
I'm not comparing it to Apple, but when Apple was really more of a hardware company and they went to services and the revenue didn't really grow these analyst for rerating it because of that.
More gross margin more higher gross margin business was starting to evolve from kind of I'd say the same thing with you guys is once you continue to be a recurring revenue model.
I think that the street is going to be right you as well down the line. So just great progress I like have you taken a long time and that continued success.
Thank you.
Youre welcome.
The next question is from Jacobs Steven of Lake Street Capital markets. Please go ahead.
Yeah, Hey, guys. Thanks for taking my question here on behalf of Eric Martin Newsy.
Just kind of wanted to drill down on the.
Securities do you see that as a double digit or more of a single digit long term growth.
Okay.
If you want if you are referring to the CCAR for revenues.
We were talking about the accelerated growth. We said that's our guidance for this year is between 6% to 8 million.
And next year, we are expecting at least $25 million.
So it's definitely more than single digit.
And even.
Yes.
We still see accelerated growth.
This is the whole issue of such a Rev share model.
Right Okay.
You guys had mentioned that you had two competitors kind of on net.
The Europe deals.
Are you typically competing with.
More than two competitors or less.
Less than two.
All geographies.
No I mean typically.
Typically we would find another two maybe three competitors in a specific deal.
If theres going to be for it's really very comfortable with a lot of competitors, okay Im talking about security deals.
Yes.
Okay.
Now switching over to the DPI business, where do you see the long term growth rates for <unk>.
<unk>.
I think we continue to see at least.
And the next next few years, we're continuing to see something in the single digit growth rate not more than that for the.
The overall business and I think that day.
That.
We will probably be.
Some some some use cases may grow faster some.
It may grow slower, but overall the whole market, we think that's going to grow single digit.
Okay.
Alright, I'll hop back in line. Thanks, guys. Thank you.
The next question is from John Roy of Water Tower Research. Please go ahead.
Thank you.
When you were describing your perfect storm in 2020.
Really drivers of growth I was curious if you could give us a little color of what elements of that you expect to continue in 2021 and as an adjunct to that is the piece of course going to be substantial.
Contributor in 'twenty, one or is that more of a 2022 events.
Okay.
When I described.
The perfect store I think thats the situation that we're looking at now and I think that that's going to drive.
New new.
Recurring security deal that will be signed in 2021.
And I see those I see those trends continuing.
With regard to <unk> on the Gulf region.
It's really a completely new region for us. This is unlike anywhere else on the world. This is not someplace that we that we were doing business in the past and that we are no no people on individuals and companies and so on we're learning it.
I can say again.
On the atmosphere was extremely positive and very very acceptance.
It.
Is this something is there something there that we can close already on this year or is that going to wait for 'twenty two.
I am not expecting that to make a material difference in 'twenty one.
Usually working with operators takes time.
So not knowing the Gulf region, not working with these operators in the past I'm going to assume that they are like all other operators in terms of.
In terms of the time it takes to close deals, which means it won't it probably won't have any material effect on 'twenty, one, but I am hopeful for the future.
Yeah, so it sounds like it might even slip into 'twenty three given how long it takes to sign a normal deal.
So thank you for that.
And in the broader geography, if you were to put in 2021, what is the geography, where you expect to see the most gross.
Yes.
Hard to say I think cook.
Our our it depends how you define growth.
EMEA.
As you can see it on our numbers was our strongest area geography this year so.
Sure.
Would certainly hope and expect it to grow net in.
21, and further on but then I look at North America, North America, our revenues are very very small.
So it's easier to have a high it's easier to have a high percentage of growth on the on something.
That small and there is an opportunity in North America, but I don't know to answer you, what we'll actually see I can describe the potential as I did.
And I hope that all of the geographies will grow.
John I think it depends on the definition of gross because there could be gross in terms of revenue.
There could be growth in terms of EMEA out, which you see the revenues starting peak even off maybe a year later on.
You can see growth in terms of bookings that will not be recognized as revenue.
There are a few dimension.
It is not right so not only 11, yes.
Yeah. So if you signed one north American operator, it may take quite a while to get it going but to him IR would be huge.
Yeah, and also as we said in.
Previously in the call.
It takes to close a deal with an offer it always takes more than a year. It can take 18 months it can be even higher.
So.
Great well that answers my question. Thank you so much.
The next question is from Kelly <unk> of Bank of America Merrill Lynch. Please go ahead.
Can you hear me now.
Hopefully I can.
Perfect. Thank you sorry, I don't know how to operate new buses.
I have two questions.
The first one is you mentioned book to Bill.
<unk> eight for the year.
Parts of your prepared remarks, maybe you explained it but can you explain the basics why book to Bill below low one does it has to do with recognized revenues ratably or something but just tell us a.
A little bit the story behind book to Bill.
I have another question not related.
Net.
Last year 2019, the book to Bill for the Coca Cola was 1.63, which was extra ordinary we got.
A lot of bookings.
And this year.
We said in the guidance for D C and we said the book to Bill will be low then one. This is why I mentioned this is a book to bill for 2019.
'twenty 'twenty together it was $1 17 and by the way the book to Bill for the last three years 2018, 19, and 21 16.
So therefore, I know but in between.
One year to another it depends if you get the order sometimes you can get the order in Q4, a big order that relates to.
To the next day for sometime.
<unk>.
Slipped from one year to another.
We are not talking amongst that stocking.
Talking about thousands and thousands of small overdose.
Yes.
The only reason why I'm asking you. This because book to Bill is a reflection or it's a proxy for future business on the question is this.
The book to Bill was <unk> eight and since we're always looking forward does it mean that you are concerned with your visibility for 2021 or does it mean that there is a likelihood of Av.
Having less confidence on I don't know how to phrase it less confidence in the numbers for 2021.
Yes.
For for 2020.
I have confidence in the numbers since the backlog was at a higher.
But when we provided the guidance.
Guidance for revenue between $1 45 to $1 50, we do believe this is a this is achievable. This is all gone.
Even though we don't have 100% visibility.
We believe with those numbers. This is why we provided the guidance.
Todd I think we feel comfortable with the guidance we provided for 'twenty one.
We're entering 'twenty, one with a pretty strong backlog.
100, <unk> was $110 million of backlog.
Most of which or.
<unk>.
Significant enough portion will be what is expected to be recognized in 'twenty, one and we're guiding to $1 45 to $1 50. So now we feel we feel we feel really good with the guidance we gave.
Got it.
Second question is about the DPI business.
<unk> was a good year for DPI in general there were still good quarters.
Now when you look back in retrospect can you explain the reason for the.
Better than expected results for the year kind of throughout the year was it related to COVID-19 by chance.
And then how would five G. When you talk to your customers how would five G impact DPI do you expect.
The relatively solid trends to continue into <unk> or is it still unknown at this point.
And I think that that COVID-19 at the end.
It didn't increase.
As a business.
As I had softer when Covid started when Covid started I thought that there would be okay.
A lot more working from home a lot more bandwidth on operators and so on they would need to buy more DPI systems licenses et cetera, et cetera that turned out to have a relatively negligible effect.
We ended up buying a little bit more but nothing really significant.
So no it didn't.
It didn't contribute much actually covered if anything that contributed to gross.
<unk> deals and delaying them.
More than anything else.
And.
Now, it's a guessing game, but if we didn't have COVID-19 in 'twenty and 2020.
Is it the year might've looked better.
Don't know for sure, but based on how I see the deals we're closing it.
Theres a good channel would have looked better without COVID-19.
With regard to five G. I think <unk> will will generate more.
More interest for what I see it is already generating more interest on I think it will actually generate more business.
Mostly on.
On the security side, both on providing security for the consumers and Smbs and on the network itself as a derivative of the partial derivative of our.
Of our DPI technology on protecting the network itself, when we say protecting the network.
That is protecting.
The use of Iot devices.
Tens of Iot devices connected to the <unk> network use of them as box to attack somebody or something or.
Or the.
The ability to spread.
Spread attacks in this very very broad pipe so that <unk> brings.
Our ability to prevent that is a combination of our DPI capability on our Ddos prevention capability, and I think that theres going to be.
A lot more interest for that we see that already and I think that that's going to generate.
Nice business for us.
<unk> hopefully also in 'twenty, one, but definitely going forward.
Got it.
Last question to Ziv.
And then just housekeeping item how much money did you saving on Opex in.
In 2020 from not traveling not not doing customer engagement activities et cetera.
And then do you expect these expenses to come back in 2021 on what's your what's your plan for the year.
So when we say a few billions of dollars, but we decided to invest this money in.
In other activities.
And also for 2021, and we think that's a.
Part of those expenses.
The level of expense to travel and other things will be higher than two.
2020.
Maybe not the same as for 2019, but more than 2020.
Got it then that's already.
Embedded in your numbers already.
Got it okay perfect.
Perfect. Thank you.
The next question is from Shawn Boyd of next Mark Capital. Please go ahead.
Okay.
Good morning can you hear me okay.
That's totally.
Good morning, gentlemen, I just want to jump in on.
And.
Summarize something off the backlog comment.
And.
You were pointing to the book to Bill.
On the two year average and if I heard the comments correctly, even two or three year average.
Which certainly makes sense.
I've heard all say that.
The pandemic on the reduction in travel and everything else has certainly impacted us a little bit on the allot smart side of the business.
Hence our bookings were down.
2020 as expected.
Can we assume there is some pent up demand there and that as we continue to progress.
Should be able to see bookings growth here in 2020 line.
We don't know I think that.
I think we will have to see how this really progressive.
That there is there is a strong demand as I said, well, we will just translate into booking gross or not I'd, rather not comment on on that at this point.
At the beginning of 2020, we didn't see what Covid was going to do at all.
Right now in 'twenty, one I can tell you that.
We still don't see the.
What the effects are going to be of Covid to what extent, that's going to delay things to what extent, that's going to affect I feel I feel.
Really confident with the revenue guidance I am a bit more hesitant on bookings, so I'd wait and see.
Got it okay on the revenue guidance.
This is not a question on this.
This is more just a comment and appreciation from a shareholder.
Thank you all for being one of the few companies in my portfolio that actually met your revenue guidance for 2020.
Pre COVID-19 so.
As we kind of look forward and think about what you're saying on what you have competition.
That all helps us just a little.
Thank you.
Last question from me is on the January.
Deal that you announced.
There were 10 million subs.
And when we do rough math of 10 million subs.
Perhaps the equivalent of 50 times a month.
Good day, if I'm doing it properly that could be and they are a $60 million on that single win.
Am I looking at that properly and if so is that all in the $180 million that you're targeting here in 2021.
It's already included the deal that we announced in January will signed in in December So it's already.
Of the 100 and.
$92 million may of last year.
Regarding the calculation of the MAA. Unfortunately, we cannot disclose the ml for any individual.
Deal.
You know the formula.
Two related.
So on.
You know it.
For the simple math.
Alright, I cannot disclose the.
The <unk> touch on such a deal.
Okay.
I understand that on a single deal and I appreciate the additional color.
That being part of the 2020 deals.
May be coming out this one other way that lets you get away from specific deals and simply look at the entire $192 million in EMEA are that you just reported for.
Yes on 'twenty.
What's the average monthly revenue share.
The company from that $192 million in EMEA are that you're pointing to.
Like we said.
And in my comments earlier.
I think that.
I don't think I can tell you that.
30% to 50% of the share of.
Sorry, I'll rephrase that of whatever the operator decides that he's going to charges end users roughly 30% to 50% is a reasonable percentage.
What a lot of them will get I will remind you, though that when we take the NAR numbers those are the numbers.
Not a lot should get it should get theoretically if 100% of the.
For the end users of which.
The operator has actually sign up for the service.
Got it okay.
And last question from me and I really mean at this time I apologize for going over on.
On the increases in operating expenses.
You've kind of got a tiger by the tail here in terms of for secure offering and what youre doing on the security side and going after these zone.
I think all of it thoroughly understand you're trying to optimize that and take advantage of that and grow the business as much as you can.
I'm also guessing that you've got an idea.
What you were getting on those incremental operating expenses, so I'm almost thinking about kind of a return on investment.
Alright, maybe that's not the right way to think of it for each incremental dollar that you take operating expenses up right. Now can you give us a feel for what kind of payback youre thinking about it and what you see the market, providing especially on that <unk> side and that's it for me. Thanks, so much.
Unfortunately, we are not.
No we are not the project company, we on a product company. So we invest in R&D, we are investing in sales and marketing.
And then of course.
We can leverage on those expenses, if the revenue will get really.
Gross.
If there will be accelerated growth.
It is not like a project for specific projects that they can tell you I invest.
One on goods all of them they get the return of 50%.
It doesn't it doesn't go this way because the RMB generic.
And the sales and marketing.
Across the board.
It's not on a project for.
It's very difficult to measure it this way.
Okay.
Okay.
I hear you.
Good enough congrats on the continued execution guys great to see.
Thank you.
The next question is from Alex Henderson of Needham <unk> Company. Please go ahead.
Yeah, I'll be very brief since day, one way over here, but I just wanted to ask you as you look at the portfolio for potential transactions from them. They are in.
2021.
How concentrated is that is that a.
Large number of smaller deals is that a.
Handful of very large deals.
Is it a.
Reasonable distribution, what is the distribution looks like in terms of.
The size and scope for the number of deals for looking out.
I think we're looking at a reasonably broad distribution. There are some deals that are very large obviously not a whole lot of those there are some deals of mid size on quite a few that are smaller.
And we will.
We just make some factor analysis of what do we think we could we can close but it's a pretty wide distribution.
I'll cede the floor. Thanks.
Thank you.
Is there any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
There are no further questions at this time, Mr. On <unk> would you like to make your concluding statement.
Yes. Thank you.
So I wanted to on behalf of the management on myself I want to thank you for your for joining US on this call for your interest in the company and your support of our business.
We are unfortunately still not traveling but we will be holding virtual meetings with investors. So for you.
Be happy to meet with you that way please be in touch with our Investor relations team to schedule that beyond that thank you very much and I look forward to talk to you next quarter have a good day.
Thank you. This concludes a lot fourth quarter full year 2020 results conference call. Thank you for your participation you May go ahead and disconnect.
Yeah.
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Moving on.
Good day.
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