Q3 2021 Allot Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by the conference will begin shortly.
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Ladies and gentlemen, thank you for standing by and welcome to our loads third quarter 2021 results Conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session. As a reminder, this conference is being run.
Accordingly, you should 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 to one to 3788040 or view it in the news section of the website at W.
W. W Dot Aloha dotcom.
I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green would you like to begin please.
Thank you operator welcome.
Welcome to <unk>.
Third quarter 2021 conference call.
Like to welcome all due to the Covid skull and I'd like to thank Allots management part in this call.
With us on the line today, almost the Arizona, <unk> President and CEO.
Then CFO.
Erez will provide an opening statement and summarize the key highlights of the quarter. We will then open the call for the question and answer session and both Erez unsafe will be available to answer your questions.
You can always find the financial highlight and the metrics included those we typically discussed in the conference call and today's earnings press release.
Before we start I'd like to point out the safe Harbor statement.
This conference call contains projections or other forward looking statements regarding future events or the future performance of the company.
These statements are only predictions and allot cannot guarantee that they will in fact occur.
Does not assume any obligation to update that information.
So adult may differ materially from those projected including as a result of the impact due to the COVID-19 pandemic changing market trends late in the launch of services by a lot of customers reduced demand and the competitive nature of the security systems industry as well as other risks identified in.
In the documents filed by the company with the Securities and Exchange Commission.
And with that I would now like to hand, the call over to Erez Alright. Please go ahead.
Thank you Kenny I'd like to welcome all of you to our conference call and thank you for joining us today.
Our third quarter was another quarter of solid growth revenues grew 10% year over year for the third quarter and reached $38 2 million.
In the third quarter. We also achieved non-GAAP operating profit of zero point $3 million compared to a loss of $1 million in the third quarter of 2020.
This is our 15th straight quarter of revenue growth year over year and I am very pleased with the results we achieved during the third quarter.
Also during the third quarter, we succeeded in signing several recurring security revenue deals for several of our allot secure product lines.
In addition, we recently signed a security as a service deal with dish in the U S to deliver cyber security to their five <unk> customers.
I am very pleased with these results and I believe it shows we are 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.
As we see our our opportunities grow we continue to invest in order to capitalize on the significant number of opportunities that we are identifying.
I would like to start by discussing our visibility and control business addressed by our allot smart product line.
Revenue from this business is continuing to grow well for us in 2021.
The main use cases, we see today and CSP.
And traffic management congestion management.
Quality of user experience, especially for video.
Policy and charging control and digital enforcement.
During the third quarter of 2021, we were awarded several deals with operators requiring traffic management. In addition to quite a few expansions of existing customers.
And a deal we won in April we will be replacing our direct competitors product that is installed.
In addition to replacing the existing DPI solution with our allot smart product.
That operator also signed a deal with us to launch security as a service using a lot secured to its customer base.
We are discussing multiple other opportunities with other CSP currently using our competitors' products and are working on expanding deals that we won before.
As governments look to fight crime and terrorism, we see growing interest globally to be able keep block illegal activities, such as drug trafficking child pornography or terrorism.
We are seeing growing interest in our products in this area as well.
Our enterprise business is continuing to grow reaching revenue of $6 6 million in the third quarter.
The deal we started at the beginning of 2020 was broadcom positioned a lot as a replacement for their packaged tour product, which is at the end of life is.
Is contributing a significant portion of this growth.
We expect continued double digit growth of the enterprise business and the remainder of this year.
Yeah.
I want to say a few words on the <unk> market and what we believe it holds in store for Allot Smart product line.
Many operators worldwide are deploying <unk> networks.
Most of these are using five G frequencies and radios, but continuing to use a <unk> core.
However, a growing number of operators are deploying fiber G Corp.
Many of them plan to deploy this core in a cloud environment.
AT&T Verizon dish and Rakuten are examples of operator, who chose in whole or in part to deploy their core and the cloud environment.
We believe the growth in traffic volumes that is expected and five gene networks together was the need for high quality control of the traffic creates an opportunity for allot smart in this growing market segment.
Not all the same.
Some work with AWS, <unk>, Azure and sounds like Rakuten use their own version.
We are in the process of deploying our products and networks, we contracted with such as dish and Rakuten and are investing what is required to adapt our products to the various containerized.
Cloud native environment to take advantage of this growing market opportunity.
To summarize I believe.
That's where a lot smart product line, including congestion management traffic management analytics digital enforcement and enterprise use cases will remain healthy with growth in the main use cases I described.
I want to turn our attention to what we see in our cyber security business and how the market is continuing to change favorably.
As I've said in previous calls.
A lot is transforming into a cyber security company and this is where we see most of our future growth coming from.
There is a resolution happening in the consumer cyber security market.
Responsibility on securing the consumer must family small business lies today with the individuals each.
Each person is responsible to protect himself or herself and their families and small businesses.
To do this they need to find the security up by it download it and install it on every one of their devices.
Problem is that regardless of how good or bad or security App is.
More than 90% of consumers don't do what I, just described and are left unprotected.
This means that the current solution with end point security ops is not accessible enough to most people.
End users consumers and Smbs.
Looking for a simple zero touch quote unquote cyber security service there.
They prefer a simple security surface and not have to do anything technical like downloading an app to each device and configuring it.
Over the last few months, we increasingly engaged with tens of CSP and are working closely with our customers that sign security as a service deals with us.
We have learned a lot more about this market and its dynamics and recognize that there are quite a few challenges and translation of signed contracts into short term revenues.
These challenges include technical issues.
Delays in the CSP commercial launches.
CSP initial go to market strategies.
As we look at the market, we clearly see that the direction and momentum are very positive.
We see that the number of engagements.
The level of engagement.
Total addressable market size of our pipeline.
A lot win rate.
And the acceptance in scope of service by consumers and Smbs are all improving and getting stronger.
Evident we see evidence of all of these and the rate and size of the deals we sign.
Today I want to share with you our main observations from customer engagements the dynamics of the market and the lessons, we learned and why our views of the market are very bullish.
We have signed to date 18 security as a service deals.
Seven of which have launched the service.
We were expecting three more CSP to launch their services during the past few months, but these launches were for were delayed further although two of them are currently expected to be launched towards the end of this calendar year.
Our team is working closely with our customers.
And we see there is a strong appetite by the CSP to launch, but there are also challenges and delays.
The reasons for launch delays in this in these CSP and the expected launch of additional Csp's, Barry, but I believe they are a combination of four main reasons.
One COVID-19 related.
This includes many CSP employees working from home and resulting delays in implementations and ability to launch new services in general.
Two six.
CSP related <unk> that are not connected to security as a service.
I T teams in CSP is many times have complex large projects that are also highly dependent on third party companies.
We are working with quite a few CSP to have ongoing unrelated projects, creating a large load on already committed resources and the need to integrate security as a service with their Oss BSS systems.
Lang pending completion of their other it projects.
Great.
Delays due to difficulties in integrating our home security business secure agent on the router.
I want to elaborate on this point of view.
Our home secure product requires installing our security agent on the CSP router.
As we are now working on deploying our first home secure networks, we find that CSP want to launch the service with a larger variety of routers than we originally expected, which we need to integrate west before launch.
While we formed partnerships with some leading router manufacturers not all of our manufacturers are equally forthcoming and their willingness to share technical information required for the integration.
As we progress we are integrating more routers for more manufacturers as well as automating and shortening the integration time and effort.
For now it is taking more time than we originally expected, but we fully expect to enable faster home secure launches in the future.
Yeah.
Four.
CSP integration and training efforts.
Prior to launch the operator needs to design and modify their it systems to deal with the new service and work with a lot to integrate our system into their Oss BSS systems.
This work involves various departments within the CSP.
Despite CSP management attention to do this quickly this may be delayed due to various other internal priorities.
In addition.
There are several other factors that are unfortunately, contributing to delay and a loss generating security as a service revenues.
One.
CSP is are launching or planning to launch security services with long re service periods up to three months as they are used to launching other vas or value added services solutions, such as Netflix or Spotify.
I believe that CSP is launch and see for themselves the higher catch rate and the lower churn rate. This re periods will shorten.
However for now they are causing a delay of revenues to idle.
Too many operators prefer a gradual limited rollout that allows them to test the message and message and refinement.
For example, one operator launched initially only for existing customers, but is not offering the service to new customers, whereas another operator plans to focus on new customers and not offer it to the existing base.
As the service progress.
We expect most operators to expand the reach and offer security service to all customers and fully exploit the revenue potential on customers' high satisfaction.
But for now this introduces delays in our revenues.
Three.
Different operators launch was different go to market service plans.
Some start aggressively by bundling the security service into the plant while other start was try and buy campaigns required the customer to take action twice before paying for the service.
Some operators sell the servicing stores, while others choose to start with only digital means.
We are spending significant effort was marketing departments and executives with the operators to persuade them to go for more aggressive go to market plans that result in higher revenues for both of us.
I can share with you, but one of the operators who already launched the service started was a digital only channel, which did not yield good results. After joint work with US we convinced them to offer this service for sales in stores and customer adoption grew very significantly so the CSP management.
Looking now at the security service is a strategic solution to increase our SKU.
These factors together resulted in a delay of approximately six months and a loaf recognizing recurring security revenues compared to our previous guidance.
The divergence between hot how I'm, sorry, the divergence between how operators launch and market their new services.
Relatively small sample of operators that actually launched the service and what we saw was the more mature Vodafone launches led us to a more optimistic projection on the timeline between signing the deal and actually recognizing revenue, meaning getting paying customers.
During the past few months, we spent considerable efforts with all the operators, we signed with or expect to sign with to get a better and much more detailed understanding of their service launch dates their internal prerequisite initial target segments lengths of free service and go to market times.
While many of these parameters are still undecided and May still change we feel we have today a better understanding of what is expected to happen and as a result, we are able to build a more accurate bottom up security as a service revenue model.
On our side, we learned to insist during contract for much more concrete and aggressive go to market commitments from the CSP.
It prolongs the negotiations, but helps to make a better launch and reach better penetration in the short and medium term.
How do we meet Csp's worldwide.
We are continuing to see growing interest in launching security service to consumers and Smbs.
Our pipeline is continuing to grow as we continue to sign additional deals with CSP.
To date, we have signed security as a service deals with 18 different operators.
11 of which have not yet launched the service.
Nine of these operators have signed with us deals to launch services with more than one product of allot secure two different segments of their customer base.
Of the science customers, one as a group level agreement with the intent to deploy in several of the group operators.
Seven others are with operators that belongs to a group with the opportunity to expand the service to other operators in that group.
In addition, we were awarded six additional deals with CSP.
For which we are currently in contract negotiations and expect to sign within the next few months.
As we look at CSP interest worldwide and security service I am very encouraged with our prospects. Despite the delay in revenues I discussed earlier.
And this for several reasons.
One our pipeline is bigger than ever.
Growing number of CSP is understand the need to launch security services to their customers and as a result, we see continued growth in number of Rfps a number of operators we are in direct engagement with <unk>.
To meet this indicates growth of the network based security market.
Two adoption rates of consumers and Smbs.
When the service is launched with good go to market approach adoption rates are very high as we discussed in previous calls.
Not only is the adoption rate high but customer stay with the service even when they can opt outs.
The lifetime operators calculate for a consumer is around three years.
Right.
A growing number of CSP CMO, chief marketing officers understand that security needs to be part of the brand promise and are building it into their core offerings.
Some CSP still look at security services, as a vas or value added service, but a growing number of view it as a core service.
Once CSP Chief marketing Officer, I spoke with only a few weeks ago explained to me that he see security as part of this core offering and he wants all of his customers eventually to be protected.
Another SVP products from the North American mobile operator, I met with clients on offering a free of charge.
Through August premium customers.
With that operator, we will pay a lot of course to incentivize consumers to move to higher tier plans.
A European based fixed and mobile operator with operations in several countries with whom we have signed already looks at security services as their differentiation.
Competition.
Viewing security is a core service rather than a vas leads to more aggressive go to market and higher penetration rates.
For the North American market is very interested now in north North network based security services.
As I mentioned in previous calls several north American operators are actively looking to launch such a service.
In April we announced that we signed an agreement with dish in the U S to protect their new <unk> network and that we expect to sign the agreement where dish will provide security services to their customers on the <unk> network when it launches.
As I mentioned before we recently signed a security as a service deal with dish to protect their cut because there are customers.
And the agreement includes multiple products of the allot secure family.
In addition, I can share we are in advanced discussions with two additional north American operators.
For a security service to their entire customer base and another for their SMB customers.
Five.
We have a high win ratio.
During the past year by our count we won most of the deals that we were awarded for CSP network based security to consumers.
To me this shows our market leadership and the strength of our offering.
We are winning due to.
Due to our unique combination of several elements.
A comprehensive 360 product offering that enables unified security across mobile and fixed access across all devices and against many threats.
B, our commercial partnership model, where we share the risk and reward with the operators.
See our value add sharing best marketing and sales practices, helping them positioning and launch the service.
Deep our track record that can be shared proven proving that when large correctly adoption rates and revenues are very high.
As I mentioned earlier seven of the operators, we signed with have launched the service already.
We expect additional two to launch before the end of this calendar year.
Accounting for what we know of the launch timing of the deals we signed and of those we were awarded and in addition, what we are told by other CSP. We have not yet won but we are currently engaged with we expect an additional 12 to 18 Csp's two launch security services.
Based on the local products during 2022.
Yes.
Network based security services are relatively new type of service for CSP.
As we sign with more operators and move to the detailed planning phase before launch and as we follow changes in adoption rates post launch we learn more about what affects the results and how to better forecast and predict the process.
We also learn how to excellence things in early days to yield faster and better results.
E M. A R indicator, which we have put forward as an indication for future revenues is not good enough to forecast revenues, especially in the short term.
It doesn't take into account the high variance on launch timing and marketing strategies, especially over a small base of launched operators.
There are many variances some of which we were aware of like the difference between prepaid and postpaid customers.
Something we learned to appreciate more recently.
You mentioned several of them.
Different countries have different regulatory requirements that affect adoption.
For example, in some countries postpaid customers have a contract have contract terms of a finite period.
Such as no more than three years.
This means that every year.
At least one third of the customer base need to renew their mobile contracts and are therefore in touch with the operator. This is a great time to sell security and leads to high adoption rates.
In other countries service plans are indefinite and churn is relatively low compared to other geographies. This resulted in fewer opportunities to engage with the customer so even while take up rates are high adoption adoption rises more slowly.
As we've taken these and other understandings we tried to see how we can better forecast our revenues.
While in the past we have to make predictions using a top down approach with <unk> as a guideline to revenue potential we now understand better the differences between operators and we can base our predictions on a bottom up approach analyzing each customer separately.
Of course over time over a large customer base over many operators and with our influence on the go to market strategies averages will work and I believe our assessment of 25% penetration rate of the target customer base can be achieved.
We therefore think the M. A R metric, we use till now to try and indicate short term future revenues is too simplistic and I think we should provide additional metrics to help investors track our progress.
We will continue to provide information on <unk>. We will also continue to track the number of signed deals and the number of launch services.
In addition, we will report every quarter the E. R. R achieved based on the last month of the quarter.
We defined the E. R. R R.
Annual recurring revenue run rate.
As the monthly recurring security revenues, we achieved during the last months of the quarter multiplied by 12.
We will also provide guidance on what we expect to be a or are at the end of the year to be.
I do want to remind you that while our main growth engine is in recurring security revenue deals. We do have security revenues from some capex deals like Vodafone and from security products protecting the network itself, such as Ddos and five <unk> net protect.
As I explained before we are now expecting a delay of approximately two quarters in the amount of security as a service revenue versus the previous projection.
In view of this our expectations for recurring security as a service revenue our advice to the following.
$4 1 million to $4 $3 million for full year 2021.
10 million to $15 million for full year of 2022.
20 million to $30 million for the 12 months of July 22 to June 23.
In addition, I want to provide you passed information and expectations on our <unk>.
In December 2019, our a R. R was zero point $5 million.
In December 2020, our a R R.
<unk> was $2 7 million.
In September 2021 hour.
It was four 6 million.
We expect our E. R. R. In December of 2021 to be between 5 million to $6 million.
We expect our E. R. R. In December 2022 to.
To be between $20 million to $30 million.
While the M. A R metric is not accurate enough to predict short term revenues I believe it does provide the ability to indicate longer term revenue potential and we will continue to provide it.
We expect to meet and exceed the $180 million target for 2021.
An additional $180 million for 2022.
Yeah.
I would now like to summarize the overall picture and the key messages.
And the Allot smart product line, we see a strong pipeline.
Multiple use cases, such as congestion management digital enforcement or the enterprise business are growing.
Overall, we see a solid demand for a lot of smart.
The security areas, where we see our long term growth.
We are very encouraged by the pipeline growth, we see on by the consumer and SMB take up rates as they sign up for the service.
Overall, while we would have preferred not to have the six months delay in achieving our recurring revenue targets.
I believe the network based cyber security market is emerging as a high growth market.
We are winning most deals and I am confident of our future success in the direction we are pursuing.
We know better how to work with CSP.
To achieve high penetration rates and I am very optimistic on our recurring revenue outlook.
Looking at our backlog the market demand as we see it now.
The pipeline of deals that we're working on and accounting for the delays in security as a service recurring revenue, we expect 2021 revenues to be between $145 million to $146 million.
We are currently working on our budget and annual operating plan for 2022.
It is important to share with you our guidance for recurring security revenues in advance.
While other elements of the guidance, we will be able to share in the next earnings call. Once we finish our budget.
It is worth noting at this time that the combination of additional positions we need to take advantage of opportunities such as those I mentioned in five G.
The exchange and exchange sorry, the change in exchange rates.
And the general high demand for technical people worldwide are creating pressure on our expenses for 2022.
Now I would like to open the call for questions and answers and zebra and myself will be available to take your questions.
Operator, thank you.
Ladies and gentlemen at this time, we'll 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.
Speak real equipment.
Handset before pressing the numbers questions will be pulled in the order. They are received please standby while we poll for your questions.
The first question is from Alex Henderson of Needham and company. Please go ahead.
Yeah.
Thank you very much.
That was a ton of information I'm not sure I absorbed all of it.
The thing Thats transcripts something that you think there are couple of pieces I just wanted to clarify the first one was I thought you said the 18th.
Signed deals 17 launched but then later I thought you said 11.
<unk> launched so I'm little confused so can you can you clarify how many of the 18th have actually launched.
18 signed deal seven launched 11 not launched.
Oh, I see I see.
Sure.
On that.
In terms of the shekel, obviously are a major hit to all Israeli companies not just you guys.
It's.
At a you know.
All time high I believe looking at the chart.
Hum.
<unk> has spiked quite sharply over the last couple of months can.
Can you give us some sense of what the impact of that is.
In the December quarter.
Quarter.
So kind of annualize for 'twenty two just based on the current exchange rates and talk a little bit about what are you doing any hedging or not that might change the timing of the.
Of that realization to your costs.
So I would say this every 10%.
And the injury.
When the shekel is strong girl.
Yeah.
A few million dollars.
That's a more than five and less than 10.
We do some hedging.
Do you think into it comes its when we.
Let's take an example, if we are right now.
Against the shekel.
So we get an exchange rate.
All right.
No.
Spot rate.
So we think we are recognizing all of that.
Uh huh.
And.
Most of that.
Next year.
In Q4.
As you said, we did some hedging.
And then the.
And the change in the exchange rate.
Okay.
Walker.
Next to you we will get the full the full effect.
So we can expect as the Opex will be higher next year.
Also because of the exchange rate.
Alex.
There's a lot sooner it seems the disconnect that it has.
Disconnected. The next question is from Eric market Mark to market Newsy of Lake Street. Please go ahead.
Yeah.
Okay.
2022, I know you're going through your planning process now and we will get additional color, but just at a high level if we're backing out.
Backing out roughly $12 5 million Cts revenues from IL 2022 model.
Puts you into Canada.
Mid to high single digits growth.
Growth trajectory based on my own.
Does that square with what Youre thinking.
High level.
So as you said, we didn't prepare our plan for next year.
And as we said in the past, we think that the small.
Product the market.
Hi.
Oh might be.
Yeah Yeah.
Low single digits, unless we said.
This year, it will grow more than others.
You can go.
Even flat.
There's going to be even slightly increased.
So again.
Generally speaking these are.
Uh huh.
Your assumption for next year.
You put a new one.
Jim.
Oh 165, I don't recall the number.
And now the CCAR revenue will be lower by $1 million.
So.
Not unreasonable to assume that.
The previous forecast to be reduced but he's got them all.
<unk>.
One 5 million level.
Okay.
And then.
It does seem like a dramatic recasting and I understand the the layering effect of.
Yeah.
When things get pushed out by six months.
You're missing out on all of those incremental dollars of each carrier.
But is there.
How about the level of conservatism in the new forecast, obviously you guys.
Had a certain expectation you've now got another year under your belt on the <unk>.
A more conservative forecast.
I think I think it's a it's.
I'm not sure if I would say more conservative, but I think the main difference is that our previous forecast we had because we had a.
Much fewer contracts and we had less.
Detailed data on each and every customer we did the forecast basically talked about right. We took the <unk> model, we try to do some averages and we figured out. Okay. This is probably where we're going to get to.
Now what we're doing is we're the forecast we're giving now is really built.
The bottom up.
When we made dollar assessment and having spent a lot of work with each of these operators, okay and understanding what's the launch date.
Go to market plan.
Which portion of the customer base are they going to launch this initially et cetera, et cetera, et cetera, and we try to forecast what we thought was reasonable bottom up basis.
And I think that's the main difference.
No I appreciate that.
Reality based versus theory based so.
In my experience.
<unk> reality wins versus theory.
And then I also.
So I appreciate the.
Color I want to make sure you gave five data points. If you don't mind I'd like to go through those and make sure I have this correct December 2019.
On the zero point $5 million December $2022 seven September 'twenty 146 December 'twenty, one $5 million to $6 million December 2022 expectation of $20 million to $30 million is that correct.
This is correct. Then you also have those numbers in the P O.
Okay, Alright, and then lastly, the.
You talked about the the DPI side of the house.
Yes, they are.
I know you guys are primarily software, but I have had experienced this earning season with companies that are primarily software being impacted by hardware issues because their software gets deployed on hardware with limited availability have you seen any supply chain.
Issues hardware availability issues impacting your ability to meet your DPI expectations or do you anticipate that.
Like you mentioned, we are a software company, but we do many times is to provide as part of the deal that we do with operators. We also have to provide a servers routers et cetera that we procure from off the shelf.
Things like that.
Dell HP, Lenovo or what have you a variety of others.
So in that sense.
We are.
We have we are seeing the same issues that everybody else is seeing where shortage of chips causes.
Supply chain issues with getting routers and servers.
That we need to but what we did do is we quite early on in the process.
We did we did buy into inventory and make longer term commitments.
In order to guarantee delivery timely delivery of what we need to provide our customers and we believe that based on forecast. So as of now I think we're doing okay on this.
These things.
You have some depending on how long these shortages will last.
It may be more challenging next year, but right now I think we're handling it okay.
Understood. Thanks for taking my questions.
We will continue and go back to Alex Henderson or more question. Alex. Please go ahead.
Yeah. Thanks, I don't know what happened there just sort of disappeared after the call.
Anyway.
Wanted to talk a little bit about a couple of the comments you made one was you said you had the biggest ever pipeline.
Can you talk about.
To what degree that's the case I mean, if you were to go back to say 'twenty 'twenty.
End of year.
And look at the pipeline there versus the you know what you think it will look like by the end of 'twenty. One can you characterize that is up 30% up 5%.
You know what what magnitude of pipelining expansion can you identify.
I E.
I can't really put a number on that without going and doing a pretty it cause us to exercise.
But I would say that we're seeing.
We're seeing many more deals okay. It's not that we're seeing like one or two deals or it's a go of it where it's.
Minor you can if you like you can.
Hi.
I would I would look at a number that I gave you.
There's an interesting indication.
We signed over.
Over the past.
Two or three years to date, we've signed a total of 18 different deals, but only seven of a launch.
And I also said that I am expecting that we will launch.
Anywhere from.
What was the number.
Yes, 12 to 18, new launches next year. So you can see that the number.
What we're seeing is significant growth in the number of deals that are out there.
Yeah.
It was actually going to be one of my next questions.
So that would imply if you have seven that are already launched a out of 18 that you've signed a that 11 are in process to launch it youre, giving indications of 12 to 18, additional <unk>, which would suggest less than our full year two are to launch the more or roughly a full year of the launch them, which seems.
A little shorter than previous history.
Am I doing the math right on that it sounds like it sounds like you're actually expecting some improvement in the time to launch going forward to get to those numbers, particularly at the high end.
Hey, I wouldn't I wouldn't.
I wouldn't read the averages oh that accurately I would say that some of these some of these deals are still going to take more than a year to launch and some may be shorter and I think that on average I would stick to the one year to launch from signature, but its an average was relatively wide.
<unk> ability.
And also do you think it could come.
Say long doesn't mean.
The Oracle <unk>.
Switching to serve you well we've entire install base.
The launch of service only saw a small segment of the.
As always and then.
After a few months few quarters, the meso claims coming in.
So on north.
Sure.
So the entire installed base.
So the initial Tam maybe smaller than the total market.
Yes.
Right.
Going back to the you know the a lot.
Mark line.
Clearly you've been gaining share versus.
Your competition certainly you've gained some business in the enterprise due to the.
The Broadcom deal.
Those dynamics are.
Getting a little long in tooth and in terms of the they're contribution do you expect those benefits to start to decelerate as we get go through 'twenty, two and you can get back to sort of a more normalized market environment.
And then Conversely.
And it seems like.
The security business is okay. It's clearly taking off with the 180 million Mark comment for next year, but is that also is starting to pull through smart business.
Oh, Okay, I'm not sure I fully understood.
And your first question if I understood correctly.
Should we expect continued growth on the allot smart business or did I not understand it.
Well the dynamics that were helping you grow at a higher rate than the market share gains in the enterprise piece those are purely.
Mature dynamics, you know deal the competition mergers happen quite a while ago. The distribution changes happened quite a while ago I would think that that's starting to fall out as a driver of growth.
In the traditional smart business.
Similarly, the enterprise opportunity with the Broadcom.
I would think you'd hit most of the low hanging fruit on that that should be diminishing elements. So I would think the baseline on that should be trending towards a flatter.
Environment than historical.
The most recent numbers.
Yes.
And then the second but the second part of that is is the security business as a lead edge entre, creating an opportunity for you to win smart business at customers that may not have been your customer in the past, but want to security capabilities.
Okay.
So regarding the first question as I said before.
It's not unreasonable to assume that the next deal the DPI market would be flat or up.
As we said before.
The previous year, when we took a lot of market share.
I will remain competitive.
This means we will be able to do it.
Next year as well.
So still on a multiyear period.
We would see single digit growth.
The smart.
But perhaps next year.
You bet.
And on the second.
On the security.
First of all you know, we view security as a service deals with operators that have our competitors DPI system as well right. That's our we're not.
We don't.
We don't demand to buy our DPI system.
Order to do a security as a service deal with us.
However, the fact that they're working with us.
The example, this call of a customer.
Customer in APAC that.
The sign.
Basically two.
Separate deals west us once the DPI and one for security as a service, where we where we are replacing the DPI, we're replacing a competitor's product. Obviously, the fact that we're engaging with the customer we're talking to them et cetera on either side helps us to do the other thing as well because they get comfortable with.
They know us and so but the deals are as such unrelated and it's not that.
That you know that having one misses and necessity necessarily or gives us a huge advantage on the other.
Please remember the minefield.
You feel Hebron.
Yeah.
We sell to the network guys.
The security service.
Yes.
Marketing guidance.
So in our smallest is the.
Maybe the.
Vintage variable.
And the Big CSP Neurology C U E.
So what was different.
He bought mental confusion.
Okay. One last question.
The router home router security piece.
It seems like it's becoming a feature on a lot of the routers for instance.
The boys over at Netgear have built it into their portfolio as part of part parcels are offering they give it away free for the first Oh, I don't know six months or a year, depending on which which router you buy and they sell at a pretty inexpensive price of detour.
The installed on your router when you buy it.
Tied into there.
Launching and maintenance software.
They are the number one player in the auto market and to that extent.
Home router market.
To that extent does that represent a barrier to you on that product.
Not that we've seen so far.
I think there's a huge number of operators they work with obviously with a whole wide variety of Oh.
Routers.
And what we're seeing is that the operators.
Understand and want to launch this as part of their security offering because when the operator owns the router.
Basically the edge of the network located on the end users either consumer or small business premises. So its the operator, who decides what services that the customer gets or doesn't get put on the walls or what's not put on the router.
And we haven't seen that.
As the limiting factor at this time, that's actually looks pretty good.
Great. Thank you.
Thank you. The next question is from Marc Silk Silk investment advisors. Please go ahead.
Thank you for taking my questions.
So on the seven that are have long shot any recurring revenue has there been any changes to their strategy excited I'm going back to like you know us.
They know that you've worked with Vodafone. So you have knowledge about how to get more penetration just wondering off on those seven right now have they.
Changed any of their strategies or using your know how more than in the past.
Yes, not all but some yes I gave an example on this call with one of the operators that launched this started by just putting it out with digital means so clearly you'd have to go to their website or whatever and or custom.
Customers would get an SMS, but it was not it was.
Not being launched in stores it was not bundled into any of their packages and so on and penetration levels were really low and we work with them and we show them, how we how and why we think it should be done differently and we convinced them to launch it in the stores and then they tried it and some of their stores they saw.
Really a great result, even their salespeople told them Hey, this is really easy to sell and this is great. We want to sell more of this.
And Dave.
They are now expanding it to to all their stores and call centers and so on so yes. That's I think that's an excellent example of an operator that started one way work with us and we help change the way they do the launch and we brought some value there and where things where both of US are now enjoying the rewards of that.
So on the 11 oncoming ones.
Do they all have their own strategy or can you give us a percentage of the people that are kind of working with you that are listening to you to say listen we know what works. We know what doesn't work. We can guide you so kind of like how many of those are open to.
That way they don't have these bumps in the road obviously, that's that's kind of what I'm getting at on the on the 11th that haven't launched yet.
It's.
Yeah.
I don't know to give you a percentage I think I think it's fair to say that all of them are engaged with us and talking to us.
And hearing what we have to stay not just hearing sorry listening to what we have to say.
But ultimately with all of them be convinced will all of them do what we think is best probably not.
It's not and it's.
It's not going to be a homogeneous its not going to be like a half like this or like that it's going to be it's going to be dependent on personalities.
What their other offerings are and so on.
I can't really give you a percentage I do think that what we're doing with providing the marketing knowhow guidance support is meaningful and it's meaningful to quite a few of them.
Immediately so I think there is tremendous value there I think it does it will affect our future numbers, but I don't know how to give you a percentage of how many will we will make a decision based on what we have different decision based on that with all of them.
Okay. That's fair and then my last question is.
So obviously youre coming up with you.
You know you're pushing out the 25 million, let's say six months, which I get it because there's things that are out of your control a few quarters ago, you filed the shelf registration for up to $250 million and obviously you have plenty of cash on the balance sheet. So my.
Probably state, but more than a question is that I think most of the shareholders would probably hope that you get to that level that we can see that your $25 million plus is not going to be a problem excuse me and then if you want to raise money down the line I think I would I think we would get the best Bang for your dollar I mean the share price.
This will be a lot higher if you do have obtained those goals that you had before you decide to raise more money and I don't mind that because you get more investors involved but again I think it makes very it makes common sense that you know because you kind of disappointed a little bit.
You need to really produce those numbers and then if you decided to raise money I would wait because then we can get more bang for the Buck and good luck on your going forward.
Thank you Mark.
Youre welcome.
Yeah.
The next question is from really Wallace of outreach capital. Please go ahead.
Right.
I just wanted to ask on the.
Yes can you hear me.
Yes, yes, we hear you loud and clear.
Hello.
Yes, yes.
Yes.
Fantastic So I wanted to ask specifically.
But I think Theres a delay my apologies so I wanted to ask specifically on the North American side of the business and I think.
You'd commented that you were in advanced discussions with two operators one on the consumer side and one on the SMB side. So I just wanted to make sure I had that correct and then ask if one of those deals specifically the consumer one could be for one of the big three mobile carriers.
Yeah.
Can't comment on who the who those operators are.
Yeah, but you got the first part of the statement correct.
But I'm not going to comment on who that is.
Or who that could be.
Understood and then on the five G net protect side of the business.
Yeah, I think that was a not sort of it's highlighted as deeply on the call could you just talk a little bit more about how that opportunity is shaping up for you going into 'twenty two.
Yeah, I think it's.
I talked a little about both five G. In the context of the DPI and you're right I didn't mention our muscle of generic protect what we're saying is that yes.
That's the value that we're seeing in five genetically Texas significant we said that we are.
We announced that we had sold to dish as they are building out their network in the U S and we mentioned that we sold it to another operator in APAC.
I think that.
As we are seeing additional opportunities for this buck.
I will repeat the comments I made on how <unk> networks are being rolled out.
About a year ago, we saw that they were going to be more five gene networks rolled out with the five G core fiber network Tech works with <unk> Corp.
We're seeing that.
Right now still the vast majority of operators that are investing in five G are really investing in five G frequencies in <unk> radio, but are continuing to use the <unk> Corp.
So the rollout of a really full stand alone five G network, and so on or not the rollout of such networks I should say.
It is taking more time than we thought but I think that the value that we bring there was five gene that protect.
It's a very large opportunity for us.
Okay and then on the.
The new launches that are yet to come versus the the operators that have already launched for allot secure.
The relative scale of opportunity from those that have launched so far versus those that have not yet launched and if I think about it from a subscriber base standpoint, or a mall base.
Yeah.
You know, it's a it's a mix there there are some that are small there are some that are larger I go I don't think that could you give any indication on the change one way or another.
It's not more than one soon.
The total.
Got it and then as far as the the metrics that you're giving now which which are very helpful. Especially the <unk> metric is that something that youre going to continue to provide on a quarterly basis.
Yeah.
Yes Luke.
We'll provide every quarter on the <unk> at the end of that quarter.
Okay great.
Well, thank you very much and and good luck.
Thank you.
The next question is from Jeff Bernstein of Cowen. Please go ahead.
Hi, guys I, just wanted to ask some competitive environment questions.
And both on sea cash and on the <unk> network protect.
So I guess on CCAR.
You know from from what you can read out there Cyan AG has been the main competitor they have a DNS based kind of a lightweight.
Product I think you guys now have that capability for very small carriers.
They want to Orange I think that was the one big carrier. They want it took them about three years to roll it out I'm not even sure if it's totally rolled out yet and.
Some small carriers is there someone who I think the U S cable guys were using somebody cerberus or trying to you know can you build out is there more competitors out there than there were before as your prior enterprise competitor now trying to compete here or what's the status of the competitor.
The environment did see Cas.
Okay seek us.
Although mention again that we are.
We're in a unique position where we are.
Really the only.
The only technology company, that's providing the whole range of products for a different network based security solutions.
So and we have different and as a result, we have different competitors in different parts of our portfolio.
On the on our network secure our inline network secure.
Which is.
Which is what we rolled out for example, in Vodafone and Telefonica and so on.
This is something where we don't see a direct competitive product, we do see a DNS security.
Yes.
We don't have Dcs DNS security companies that are rolling it out and that is our putting security on the DNS lines San is actually not our main competitor there I think our main competitors.
Our info blocks and I'll come on because they are the two main DNS providers to the CSP. So the operators in the world San is maybe making a lot more noise than they are.
In terms of what.
What we see in the market, it's it's really.
No.
It's logical for an operator to look at their DNS provider to provide security on BNS worth to look at us.
Not really that strong a competitor and we see them in very few deals.
Okay.
On the router security side.
<unk> got our approval without providing security agents on the routers, we see probably different.
Competitors.
We've seen our competitors are.
Typically cancun and point solutions and have migrated their offering to include router security.
So I'd include their Mcafee.
Yeah.
F secure.
Hum Vas was in that area and decided to pull out of the.
Around the security field and we're seeing some companies that are that are focusing just on the on router security such as for example, Kudrow, which is she has done very very well in the U S.
Gotcha.
Level view on the competition.
Terrific, that's great and then and then on the on the five G.
Side.
You've got a containerized cloud architected product is there anybody else they are who has virtualized there.
Product is the main competitor Shampine Priscilla or is there someone else.
You've come up against there.
Yeah.
Yeah, Yeah. It sounds like <unk> are competing with us on DPI as such we are not providing any network level quick correction, so where where an operator is looking to do DPI.
And I would expect that sandbox coursera, well sand-blind right there they emerged yet.
And what it is is definitely developing containerized cloud native solution to compete on the <unk> networks for DPI, but for five three net protect this is this is a product that is at its core of it think of it as the Ddos protection.
Protecting the network sandbox does not have a ddos offering.
So with that product we are competing with.
The traditional ddos.
Security companies that were selling Ddos security.
Operators and support the World are these would be companies like Scott Arbor.
Radware those are the kind of a problem.
We're competing with there.
And there are obviously trading at all.
Just like us they're all they also see the same environment, they're moving to.
Moving their products also to containerized cloud native cloud native environment as well.
Gotcha, that's great. Thanks.
The next question is from Shawn Boyd of next Mark Capital. Please go ahead.
Good morning can you hear me okay.
Yes, yes.
Great just one for me I'd like to go to.
Okay.
Commentary regarding IRR.
And I'm trying to tie that back to you.
Deals.
It's very important I think to understand this company and to understand the layering that happens as these.
Come on so can you give us any color as to our guidance at the end of the year.
Starting with the September number and then.
Guidance that you've got for December 21, and then the guidance further December 'twenty two.
Number of launches you are kind of including Maryann you assuming occurring.
Level of adoption or penetration. Thank you very much.
Oh, absolutely said, we Havent seven Oh Boy girl.
Uh huh.
This is the basis.
Oh the September at all.
The answer is debatable.
Oh, okay.
Again.
Oh, the people as I said before.
When we say long she doesn't mean, along the entire installed base.
So part of it.
They can start only.
Great.
We can start only with the people who are coming into the store.
So they can not only with new customer now we can stop it almost all new.
And so on.
Total number of customers out there that.
<unk>.
When calculating the Ah ha turbine.
And the penetration.
Well most of the.
Below the jaw dropping the ball.
And more than doubled.
<unk> segment.
Segment of the silicone historically.
So the potential.
Are.
You there.
We think.
Very high potential.
Okay stepping out to your guidance of $20 million to $30 million for December 2022.
We should assume that's based on the seven that we have now close to 12% so.
<unk> to 'twenty five.
Right.
So should we factor in some nutrition, just trying to think about that $25 million midpoint, there how many different contracts are supporting.
You should probably.
It's definitely based on the fact that we expect.
Once the additional well plus operators next year, but you know some of them may launch Oh, some of them, we expect to launch.
Towards the end of of course, the end of the year that sounds a little watch with Cui period. So even though we launched we still won't see revenues. So we definitely expect for end of 'twenty two to have the E. R. R based on them on a on a.
A larger number of operators, but it's not going to be all of them, but lots of 'twenty two that will contribute to us here at the end of the year.
Got it.
Okay. Thank you and best of luck gentlemen.
Thank you.
Thank you.
No further questions at this time, Mr. <unk> would you like to make your concluding statement.
Yes.
I want to thank you all for joining the call.
For our for your support.
I look forward to.
Meeting you.
The next day or those of you who would like over the next few days or later on over Oh, resume and hopefully well be able to with hopefully COVID-19 calming down a bit maybe we'll be able to start face to face meeting not too late not too far into the future.
Thank you very much for joining us.
And they look forward to talking to you in the next quarterly call.
Thank you. This concludes the alone third quarter 2021 results conference call. Thank you for your participation you May go ahead and disconnect.
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