Q2 2023 Allot Ltd Earnings Call

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Speaker 2: Ladies and gentlemen, thank you for standing by. The conference will begin shortly.

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Speaker 2: Ladies and gentlemen, thank you for standing by. The conference will begin shortly.

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[noise], ladies and gentlemen, thank you for standing by and welcome to <unk> second quarter 2023 results Conference call. All participants are at present in listen only mode. Following management's formal presentation.

Speaker 2: Ladies and gentlemen, thank you for standing by. Welcome to a lost second quarter 2023 results conference call. All participants are present in listen only mode. Following management formal presentation, instructions will be given for the question and answer session.

Instructions will be given for the question and answer session. As a reminder, this conference is being recorded you should have all received by now the Companys press release. If you have not received it. Please contact I loved Investor Relations team at U K Global Investor Relations at once you wanted to 3788040 or view it in the news section of the company's website.

Speaker 2: As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Alot's Investor Relations team at ekglobalinvestorrelations at 12123788040 or view it in the news section of the company's website at www.alot.com.

At Www Dot a load dot com.

I'd now like to hand over the call to Mr. Kenny Green of Ek Global Investor Relations. Mr. Green. Please begin.

Thank you Horacio.

Speaker 2: Thank you, Ocureza. Welcome to ELOP's second quarter 2022 conference call. I would like to welcome all of you to the conference call and thank ELOP's management for hosting this session.

Welcome to allow second quarter 2023 conference call I would like to welcome all of you to the conference call and thank a lot management for hosting this call.

Speaker 2: With us on the line today are Mr. Eric and Teddy, President and CEO , and Mr. Rick Lightman, CEO .

On the line today.

In February President and CEO and Mr. Ziv.

Speaker 2: RS will summarize the key highlights, but if I do, it will review a lot of financial performance of the quarter. We will then open the call for the question and answer session.

The key highlights with.

Financial performance for the quarter.

Nicole for the question about session.

Speaker 2: Before we start, I'd like to point out that this conference call may contain projections or other four different statements regarding future events with a future performance of the company.

I'd like to point out that this conference call may contain projections or other forward looking stay.

Regarding future events or the future performance of the company.

Speaker 2: These things are only predictions and a lot cannot guarantee that they will impact the curve. A lot could not assume any obligation to update them.

So any prediction the lock cannot guarantee that they won't buy pickup, but now that you.

Any obligation to update that information actual events or results may differ materially from those projected including without changing market trends reduced demand for nickel that would make.

Speaker 2: actual events or results made different material from those projected, including as a result of changing market trends, reduced demand and the competitive nature of the security systems industry, as well as other risks identified in the documents far by the company with securities and strikes of watermelons. And capabilities issues such as natural gas emissions and greenhouse

Sure the security systems industry as well.

Other risks identified in the documents filed by the company with the Securities and Exchange Commission I would that I would now like to hand, the call over to Ed.

Speaker 2: And with that, I'll now have to hand the call over to Eris. Eris, please go ahead.

Please go ahead.

Speaker 2: Thank you Kenny. I'd like to welcome all of you to our conference. So thank you for joining us today.

Thank you Kenny I'd like to welcome all of you to our conference call. Thank you for joining us today.

Speaker 2: Our second quarter revenues were $25 million, 24% lower than the comparable quarter last year.

Our second quarter revenues were $25 million, 44% lower than the comparable quarter last year.

Speaker 2: In June 2023, our CCAS ARR was $9.7 million, 4% higher than our CCAS ARR in March 2023, and 41% higher than our CCAS ARR for June 2022.

June 'twenty three our CCAR a R R.

$97 million, 4% higher than our CCAR. So yeah all of the hard in March 2023.

41% higher than our CCAR for you or for June 2022.

Speaker 2: The first half of 2023 was challenging for us. The transition of the business into CCAC's recurring revenue model has proven to be slower than we originally anticipated.

The first couple of 2023 was challenging for us.

The transition of the business and to seek US recurring revenue model has proven to be slower than we originally anticipated.

Speaker 2: In addition, our core DPI business is experiencing some macro-related headwinds.

In addition, our core DPI business is experiencing experiencing some macro related headwinds.

Speaker 2: While we don't expect these challenges to disappear in the near term, given the challenging economic backdrop, we continue to make progress with the aspects of the business that we can control.

I don't expect these challenges to disappear in the near term given the challenging economic backdrop, we continue to make progress.

It took a business that we can control.

Speaker 2: I remain optimistic about our future. During today's call, I will discuss the challenges we are facing, the opportunities we see, and why I am confident in the future.

I remain optimistic about our future during today's call I will discuss the challenges we are facing the opportunities, we see and why I'm confident in the future.

Okay.

During the second quarter, our cash balance fell by $11 million as a result of the loss inventory increase and accounts payable decrease.

Speaker 2: During the second quarter, our cash balance fell by $11 million as a result of the loss, inventory increase, and accounts payable decreased.

Speaker 2: This cash burn is of course higher than we would like it to be.

This cash burn is of course higher than we would like it to be.

Speaker 2: as our cost-cutting efforts come into effect partially in the fourth quarter and in full in 2024.

Our cost cutting efforts come into effect, partially in the fourth quarter and full of.

In 2024.

Speaker 2: Together with a projected increase in revenues, we expect to improve our cash flow and we are re-iterating our expectations to be profitable in 2024.

Together with a projected increase of revenues, we expect to improve our cash flow and we are reiterating our expectation to be profitable in 2020.

Four.

Speaker 2: Our gross margin in the second quarter was 71% due to our deal.

Our gross margin in the second quarter was 71% due to our deal with it.

Speaker 2: We continue to target a gross margin of 70% for 2024, despite expecting a lower gross margin in Q3, as we drop in the specific deal next.

We continue to target a gross margin of 70% for 2024, despite expecting a lower gross margin in Q3.

As a result of the specific deal mix.

Speaker 2: In July , we announced an increase of approximately $14 million in the allowance for credit losses relating to receivables arising from sales in three African countries.

In July we announced an increase of approximately $14 million, India allowance for credit losses related to receivables arising from sale and three African countries.

Speaker 2: We have been affecting the collectability of these accounts receivable on a quarterly basis, and in our most recent assessment, the company determined that these accounts previously disclosed as outstanding will not, with reasonable certainty, be collected. We are continuing our efforts to collect these amounts and believe we should be able to collect them. However, as I said, we can no longer state this with reasonable certainty, so we took an allowance for credit loss.

We have been assessing the collectability of these accounts receivable on a quarterly basis.

Recent assessment the company determined that these accounts previously disclosed his outstanding will not with reasonable certainty the collective we.

We are continuing our efforts to collect these amounts and believe we should be able to collect them.

However, as I said, we could no longer status with reasonable certainty. So we took an allowance for credit losses.

I've went after July given the challenges facing our business.

Speaker 2: As we announced in July , given the challenges facing our business,

Speaker 2: The board formed an executive committee that has worked with management to identify and recommend opportunities for further improvement, with a focus on driving sustainable profitability and enhancing shareholder value.

The board formed an executive committee that has worked with management to identify and recommend opportunities for further improvement with a focus on driving sustainable profitability and enhancing shareholder value.

Speaker 2: The executive committee and management agreed that the right direction is to maintain CCAS as our main growth area.

The Executive Committee and management agreed that the right direction to maintain CCAR as our main growth engine.

Speaker 2: In this area, we will continue to focus on network-naked security solutions.

In this area, we will continue to focus on network connected security solutions.

Speaker 2: in our traffic management and analytic solutions. We are modifying our initiatives to prioritize profitability.

Now traffic management and analytics solutions.

Modifying our initiative to prioritize profitability.

Speaker 2: in order to conserve cash, reach profitability in 2024. And ensure that we have staying power even as three cascades wander through AMP. We are implementing a cost reduction.

In order to conserve cash reached profitability in 2024 and in truth.

We have staying power, even a CCAR takes longer to ramp up.

We are implementing a cost reduction plan.

Speaker 2: Specifically, our actions will result in a reduction of approximately 20% from our current employee headcount as well as other cost reductions.

Specifically our actions will result in a reduction of approximately 20% from our current employee head count as well with other cost reductions.

Speaker 2: We expect this cost-cutting effort to save approximately $15, $15 million per year.

We expect this cost cutting effort to save approximately 61 $5 million per year.

Speaker 2: The relevant employees that may be affected have already been notified.

The relevant employees that maybe affected have already been dealt with.

Got it.

Speaker 2: This cost reduction plan will have a one-time cost of approximately $2 million, which will be booked in the third quarter.

This cost reduction plan will have a one time cost of approximately $2 million, which will be booked in the third quarter.

Now I would like to discuss all of the different product lines.

Yeah.

I would like to start by discussing our traffic management and analytics business addressed by our smart product line.

Speaker 2: I would like to start by discussing our traffic management and analytics business addressed by our Alok Smart product.

Speaker 2: The main use case is we see today in CSP continued to be a traffic management, congestion management, quality of user experience, especially for video, policy and charging control and digital workforce.

The main use cases and keep it there and CSP continues to be a traffic management congestion management quality of user experience, especially for video.

Policy of charging control and digital and unfortunately.

As governments look to fight crime terrorism, we see a growing interest globally and being able to block the legal activities such as drug trafficking child pornography and terrorism, we have solutions that address these issues and we are seeing growing interest in our products.

Speaker 2: The government looks to fight crime and terrorism. We see a growing interest globally and being able to block the legal activities, such as drug trafficking, trial pornography and terrorism. We have solutions that address these issues, and we are seeing growing interest in our product.

Speaker 2: We will continue to pursue this direction as we believe this is a segment that will continue to grow.

We will continue to pursue this direction as we believe this is a segment that will continue to grow.

Speaker 2: In CSP, we see the need for analytics continuing. In traffic management use cases, such as fair use, a policy-based charging and congestion management, we still see quite a few opportunities from low-arpeer countries. Some of which are to a basic competitive spot.

And CSP, we see the need for analytics continuing.

Traffic management use cases, such as fair use.

The policy based charging and congestion management.

Still see quite a few opportunities from low RPT countries, some of which are to replace a competitor's product.

In our enterprise business.

Speaker 2: In our enterprise business, we continue to see demand for on-prem systems such as ours from enterprises in developing countries where bandwidth is relatively extensive.

Continue to see demand for on premise systems, such as ours from enterprises in developing countries, where bandwidth is relatively expensive.

Speaker 2: In developed countries such as North America and Europe , we see reduced demands from enterprises that are moving to the cloud, but growing demands from government entities that require monthly for security reasons, on French solutions.

In developed countries, such as North America and Europe .

Reduced demand from enterprises that are moving to the cloud with growing demand from government entities that require mostly for security reasons on Prem solutions.

Speaker 2: Currently, after our deal with Broadcom, we remain the major solution provider for this need.

Currently after our deal with Broadcom, we remain the major solution provider for this need.

Speaker 2: Overall, we recognize that we are facing several challenges that continue to make it more difficult for us to forecast our business over short time.

Overall, we recognize that we are facing several challenges that continue to make it more difficult for us to forecast our business over a short time frames.

Speaker 2: First, as we discussed in previous learning, called, use the PIDOR headwind and PIDOR expense control by the CSP. It is taking longer to close DPI deals than in the past. And the total number of DPI base for CSP in your scene is not good.

First as we discussed in previous earnings calls.

There are headwinds and tighter expense control by the CSP.

It's taking longer to close the deals done in the past and the total number of Epi, where csp's. We are seeing is Knoxville.

Speaker 2: Second, remove of CSP to 5G standalone, or it's very slow. Negatively impacting our ability to grow with our 5G net protect product.

Second the move of CSP to five Standalone, Florida is very slow.

<unk> impacting all of the brokers to grow five G neck with that product.

Speaker 2: In the enterprise market, we believe the growth we saw as a result of the Broadcom view has

Third in the enterprise market, we believe.

We believe the growth we saw as a result of the Broadcom deal has peaked.

Speaker 2: As we stated in our last earnings call, while we continue to have a strong pipeline of large deals for the remainder of the year, the dynamics I just mentioned, together with the potential lumpiness of large deals, makes it challenging to forecast our DPI business over a short time.

As we stated in our last earnings call. While we continue to have a strong pipeline of large deals for the remainder of the year. The dynamics I just mentioned together with the potential lumpiness of large deals.

It challenging to forecast, our DPI business over a short time frame.

I want to turn your attention now what we see in our cyber security business and how the market is developing.

Speaker 2: I want to turn your attention now to what we see in our cybersecurity business and how the market is developing. As I have said previously, Aloha is transforming into a cybersecurity company and this is where we see most of our future growth coming.

Ive said previously although it is transforming into a cyber security company.

This is where we see most of our future growth coming from.

Speaker 2: Our C-cash revenues are growing steadily, albeit not at the pace we would like, as we continue to see slower deployment and expect.

Our Ccs revenues are growing steadily, albeit not at the pace, we would like as you continue to see to see slower deployment unexpected.

Speaker 2: Nevertheless, there are quite a few positive notes worth highlighting.

But there are quite a few positive.

The notes worth highlighting.

I would like to start with the North American market.

Speaker 2: I'm very happy to announce that a couple of months ago, Verizon Business launched their network native security service, which incorporated a lot of network security.

I am very happy to announce that a couple of months ago, Verizon business launched their network Native security service, which incorporates a lora network secure.

Speaker 2: I'm very excited about this offering from Verizon, which provides protection services for segments of Verizon's fixed wireless broadband business customers and helps defend them against 500 Kathryn Raptor Gr fishing

Very excited about this offering from horizon, which provides protection services segments.

Verizon is fixed wireless broadband business customers and helps defend them against cyber threats.

Speaker 2: This cybersecurity service puts a layer of defense at the Internet gateway, intersecting threats before they can even reach devices.

Cyber security service puts a layer of defense at the entry way interest.

Whereas before they can even reach devices.

Speaker 2: Verizon believes that simple, zero-touch solutions like ours are especially helpful for small businesses which might not have the in-house expertise to manage more complicated security measures.

Verizon believes that a simple zero touch solutions like ours are especially helpful for small businesses.

Which might not have the in house expertise to manage more complicated security measures.

Speaker 2: The service has been well received and we are distracting with rising various ways to expand it.

The service is being well received and we are discussing with Verizon various ways to expand its reach.

Speaker 2: I will note that Verizon did not generate any C-cash revenues for ALOT during the second quarter, but Verizon will begin contributing to revenues in the third quarter.

I will note that license did not generate any free cash revenues during the second quarter, but Verizon will begin contributing to revenue in the third quarter.

Speaker 2: As I stated in earlier calls, I continue to believe that the Verizon opportunity is our single largest signed CTAS opportunity.

As I stated in earlier calls I continue to believe that the Verizon opportunity is our single largest signed the C class opportunity.

Speaker 2: Furthermore, as other CSPs see the rise in success, I believe some will follow.

Furthermore, as other DSP CEVA license success I believe some will follow suit.

Speaker 2: We are already getting enhanced interest from other operators to better understand what Verizon is doing and how they might do the same.

Well, we are already getting enhanced interest from other operators to better understand what Verizon is doing and how they might do the same.

On a bittersweet no.

Speaker 2: One of the operators we signed with a Canadian CSP has decided not to launch the C-Cast service for now.

One of the operators, we signed with a Canadian CSP has decided not to launch the <unk> service for now.

Speaker 2: as they are refocusing their business following a major network issue they had unrelated to Alok.

I'd say, our refocusing the business following a major network issues they have unrelated to outlook.

Speaker 2: This year's year is also in a low-smart customer and they have recently expanded significantly the capital, the capital business they have.

This is also in a lot of smart customer and they have recently expanded significantly the topics business. They have they have with us.

Cancellation of this U S launch is a significant contributor to the reduction in our forecast.

Speaker 2: cancellation of this new launch is a significant contributor to the reduction in our ARR forecast for the year.

Forecast for the year.

Speaker 2: in APAC, we are also progressing well. Recently we signed two additional C-pass deals in APAC.

In APAC, we are also progressing well recently.

Recently, we signed two additional C pass deals in April one is a relatively small deal where we deploy network securing a small Pacific islands.

Speaker 2: One is a relatively small deal where we deploy networks secure in a small Pacific island.

Speaker 2: The other is a DNS security deal with a major tier one telecom operator with more than 15 million subscribers. Most of whom are free paid.

There is a D N S secured a deal with a major tier one telecom operator with more than 50 million subscribers most of whom are repaid.

Speaker 2: services will initially be offered to their post-paid customers and potentially later to other high value.

The services will initially be offered to their postpaid customers and potentially later to other high value customers.

I believe these deals are a testament to the importance of potent csp's C and providing business and consumers with network based security services.

Speaker 2: I believe these deals are a testament to the importance of CSPC in providing business and consumers with network-based security services.

Speaker 2: also in Asia, Far East Stone or FET in Taiwan has experienced a very successful one.

Also in Asia.

<unk> or <unk> in Taiwan has experienced a very successful launch.

Since the launch in December of 2022, the service has been expanding rapidly and we are now in the process of expanding the capacity to handle more subscribers.

Speaker 2: since the launch in December of 2022. The service has been expanding rapidly and we are now in the process of expanding the capacity to handle more subscribers.

Speaker 2: I will note that our ARR from FET has not been growing, even as the number of subscribers has ramped, because FET committed to a minimum payment for months from day one.

You will note that our aorta are from equity has not been growing even as the number of subscribers has dropped because of equity committed to a minimum payment per month from day one.

Speaker 2: That minimum has been exceeded, so we should start seeing ARR growth as the number of subscribers grow.

That's another one that has been exceeded so we should start seeing a our growth as the number of subscribers grow.

Speaker 2: FET and their president look at security service as strategic and important to their brand image and in line with their core commitment to their cross-section.

Every time, the President look at security service is strategic and important to their brand image and in line with their commitments to their customers.

Speaker 2: As we discussed in the past, this is an excellent example of how successful CTAS can be when the CSP aligns security with its strategy.

As we discussed in the past. This is an excellent example of how successful tests can be what the CSP align security with its strategy.

It is noteworthy that this efficacy experience shows that on average the security service for block 47 attacks per user per month.

Speaker 2: It is noteworthy that this SEC experience shows that on average, the security service has blocked 47 attacks per user per month.

Speaker 2: I believe this is a strong validation of the importance and value of the network-native security system and security in the future for the development of Christian model.

I believe this is a strong validation of the importance and value of the network Native security solution.

Speaker 2: As we look at the market, we see that the direction and momentum of operators interested in launching network-based security services continues to be positive.

As we look at the market, we see that the direction and momentum of operators interested in launching network based security services continues to be positive.

Speaker 2: We see that in many markets, the various operators provide services that are on par with respect to speed coverage and reliability.

See that in many markets.

Yourself graders provide services that are on order with respect to speed coverage and reliability.

Speaker 2: as they look for differentiation, network-based security is emerging as an important element.

As they look for differentiation.

Security is emerging as an important element.

Speaker 2: Because it is a service native to the operators network, network security is directly coupled to the access network itself.

Because it is served.

This makes it to the operator's network network security is directly coupled to the access network itself.

Operator: Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Ladies and gentlemen, thank you for standing by. The conference will begin shortly.

Speaker 2: There are several tier one operators who have reached the conclusion that providing network-based security to their customers is of significant importance to them, and they are discussing with us how to do so.

There are several tier one operators, who have reached a conclusion are providing network based security to their customers is up significant importance to them and they are discussing with us how to do so.

Speaker 2: In addition, we are in discussions with several other operators globally, where we hope to be able to conclude deals over the coming months.

In addition, we are in discussions with several other operators globally.

Hope to be able to conclude deals over the coming months.

I would like to say a few words about convergence.

Speaker 2: GSB worldwide, I've been talking about convergence for quite a few years. Most combining, excuse me.

Yes, Pete worldwide I've been talking about convergence for quite a few years, mostly combining.

Excuse me, mostly combining fixed and mobile services.

Speaker 2: Unfortunately, many CSPs have been struggling to bring tangible value to their customers and basically provide unified billing and discounts.

Unfortunately, many csp's I've been struggling to bring tangible value to their customers.

And basically provides unified billing and discounts.

Yeah, I love secure platform.

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Speaker 2: combined security enforcement in the core, under DNS line, and in the routers, under a unified management system and port.

Combined security enforcement in the core on the D&S flying and into routers under a unified management system in Portugal.

Speaker 2: This is perhaps one of the few tangible convergence values CFPs can bring to their customers.

This is perhaps one of the few tangible convergence values CSP can bring to their customers.

Speaker 2: offering a unified experience on both mobile and fixed access.

Offering a.

Operating a unified experience on both mobile and fixed access.

Speaker 2: We don't see CSPs starting with a convergent operating, but we are in discussion with several CSPs in Europe that have launched our CCAS service to mobile customers and are looking to expand it to a converged mobile bus grew.

We don't see CSP, starting with a converged offer it but we are in discussion with several csp's in Europe that have launch out of CCAR service to mobile customers and they're looking to expand it to convert mobile plus fixed offerings.

Speaker 2: As we discussed in previous calls, I want to remind you that we changed our strategy for the ELOP secure bid.

As we discussed in previous calls I want to remind you that we changed our strategy for the allot secure goodness.

Speaker 2: We are putting more emphasis on large strategic accounts that can have a high revenue impact, while in small to medium deals we are looking for minimum revenue thresholds.

We are putting more emphasis on large strategic accounts that can have a high revenue in fact, while they're in small to medium deals. We are looking for a minimum revenue thresholds.

Speaker 2: These changes reduce the number of new CSPs we can sign up. However, it allows us to focus our resources on the smaller number of CSPs that see more strategic value in the CPAS service, which should drive profitable revenue growth for our local.

These changes reduced the number of new Csp's, we can sign up.

However, it allows us to focus our resources on a smaller number of CSP, but see more strategic value. The C pass service, which should drive profitable revenue growth for outlook.

Speaker 2: We remain excited about our CCAS opportunity as we have a differentiated, scalable solution for CS.

We remain excited about our <unk> opportunity as we have a differentiator scalable solution for she is please.

Speaker 2: Our C-Cast revenues for the second quarter were $2.4 million, and the C-Cast ARR at the end of the second quarter was $9.7 million, significant growth year over year.

I would think as revenues for the second quarter were $2 $4 million and the C class a or at the end of the second quarter with $9 $7 million.

Significant growth year over year.

Speaker 2: As of June 30th, 2023, we have 28 signed customers, but seven of them have been cancelled and discontinued, mainly due to our strategy to focus on large carton.

As of June 30th two.

2023, we have 28 signed customers, but seven seven of them have been canceled and discontinued mainly due to our strategy to focus on large customers.

Speaker 2: Unfortunately, only 14 have started to generate revenue.

Fortunately only 14 has started to generate revenues.

Speaker 2: Most of them are relatively small operators and the majority of them launch the service only to a portion of their subscriber base. InOWa is theadd declaration. There's an ad that maybe our Dan get theew so thinki is North Inspect V

Most of them are relatively small operators and the majority of the launch of a service only to a portion of their subscriber base.

There are a few more launches planned for this year.

Looking ahead I want to summarize our expectations for 2023.

Speaker 2: Looking ahead, I want to summarize our expectations for 2023.

Speaker 2: We expect C-TAS revenues for 2023 to be around $11 million.

We expect to see first revenues for 2023 to be around $11 million.

Speaker 2: We expect the fee pass ARR for December 23 to be between $12 million and $14 million. And our total ARR including support and maintenance to be between $51 million and $55 million.

We expect to speak that's a R. R for.

For December 23.

To be between $12 million and $14 million and now we're talking to a R R, including support and maintenance to be between $61 million and $55 million.

Regarding our total residue.

Speaker 2: Regarding our total revenue, operating loss and cash flow guidance, we are providing a wide range because of a specific large expansion deal we expect to close this year.

Operating loss and cash flow guidance, we are providing a wide range because of a specific large expansion deal we expect to close this year.

Speaker 2: We expect our total revenues for the full year 2023 to be between $95 million and $110 million.

We expect our total revenues for the full year of 2023 to be between $95 million and $110 million.

Erez Antebi: [inaudible] for the access to the business that we can control. [inaudible] I remain optimistic about our future.

Speaker 2: non-GAF operating loss to be between $38 million and $44 million, including the $14 million dollars down for debt reserve.

non-GAAP operating loss to be between $38 million at $44 million, including the $14 million doubtful debt reserve.

Our cash burn for the whole year to be between $24 million and $44 million.

Speaker 2: catchable for the old year to be between $24 million and $44 million dollars.

Speaker 2: As I stated, we remain committed to reach profitability for the full year 2024.

As I stated.

We remain committed to reach profitability for the full year of 2024.

Speaker 2: This will be achieved through some revenue growth, mainly in CTAS, combined with tight expense control.

This will be achieved through some revenue growth mainly in CCAR combined with tight expense control.

We expect the third quarter revenues to be approximately $25 million.

Speaker 2: We expect the third quarter revenues to be approximately $25 million, but with a lower than average gross margin of 50% due to the specific expected yield mix.

But with a lower than average gross margin of 50% due to the specific expected deal mix.

Our strategy remains the same.

Speaker 2: While we believe that our DPI business has limited growth potential and the lumpiness of the business makes it difficult to forecast over short time frames, we think we can maintain a stable level of revenues through new use cases and market share gains. And we are using DPI's profitability and cash flow generation to invest in our C-CAST business because our C-CAST business is where we see significant future growth opportunities.

While we believe that our Dci business has limited growth perpetual.

And the Lumpiness of the business makes it difficult to forecast over short time frames. We think we can maintain a stable level of revenues through new use cases and market share gains.

You are using cpi's profitability and cash flow generation to invest in our CFS business, because our CFS business is where we see significant future growth opportunities.

Speaker 2: While our C-Cast revenues are being recognized later than we would have liked and later than we expected, I remain convinced of the large potential of this business and am confident that it will grow significantly in the coming years.

While our <unk> revenues are being recognized later than we would've liked and later than we expected I remain convinced of the large potential of this business and I'm confident that it will grow significantly in the coming years.

Speaker 2: for facing our company, our team, and our products. And I believe the actions we are taking to make our goal. And I believe in the actions we are taking to make our goals.

Ah full faith in our company our team and all the products and I believe the actions we are taking to make our world and I believe the actions, we're taking to make all of those are achievable.

And now I would like to open the call for questions and answers.

Speaker 2: And now I would like to open the call for questions and answers. And these and myself will be available to take your questions. 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 1. If you wish to cancel your request, please press star 2. If you're using speaker equipment, kindly lift the handset before pressing the numbers. The questions will be pulled in the order they are received. Please stand by while we poll for your questions.

Given myself will be available to take your questions operator. Thank.

Thank you ladies and gentlemen at this time, we will begin the question and answer session.

You have a question. Please press star one if you wish to cancel your request. Please press star two.

If you are using speaker equipment in Canada with the handset before pressing the numbers the questions will be pulled in the order. They are a seat. Please standby while we poll for your questions.

The first question is from.

Speaker 2: The first question is from Eric Martin Uzi of Lake Street. Please go ahead.

Rack marketing entity of Lake Street. Please go ahead.

Speaker 3: I have a question regarding the bad debt write off the $14 million credit allowance. Are we still doing business with the reseller or resellers in Africa that were responsible for that write off?

I have a question regarding the bad debt write off of $14 million.

Credit allowance or are we still doing business with the reseller or resellers in Africa.

We're responsible for that write off.

Speaker 2: Hi Eric, we are not doing the new business with this retailer, but we are making an effort to collect the money.

Hi, Eric.

We are not doing new business.

I would say Hello.

But we are making an apple to collect the money.

But we don't have any new business.

Alright.

Oh, that's a strategy examination that you announced on July 17th.

Speaker 3: The strategy examination that you announced on July 17th, are we complete with that or is that still an ongoing process? Obviously, we're focused on growth on CCAS and a return to profitability, but does that say that the strategic examination...

Complete with that or is that still an ongoing process. Obviously, we're focused on growth on free cash.

Returned to profitability.

Erez Antebi: During today's call, I will discuss the challenges we are facing, the opportunities we see, and why I am confident in the future. During the second quarter, our cash balance fell by $11 million as a result of the loss, inventory increase and accountable decrease. This cash burn is of course higher than we would like it to be. As our company efforts come into effect, partially in the fourth quarter and in full in 2024.

I'd say that the strategic examination is complete.

Yeah, I would I would say that.

Speaker 2: I would say that we've done a lot of work over the past few weeks on this.

Got it.

You've done a lot of work.

You know the past few weeks on this.

Speaker 2: We've reached some high level conclusions, both on the general specific direction that we are continuing to focus on the speaker's opportunity to meet because we believe in it.

We've reached some high level conclusions both on the general strategic direction.

We are continuing.

The focus on this opportunity because we believe in it.

Speaker 2: which is completely unique to significantly reduce our cost structure, which we are implementing already. And I think that we will continue to work.

We reached the conclusion that we need to significantly reduce our cost structure, which we are implementing already and I and I think that you will continue to work to see how we implement this cause.

Erez Antebi: Together with the projected increase in revenues, we expect to improve our cash growth and we are reiterating our expectations to be profitable in 2024. Our growth margin in the second quarter was 71% due to our deal mix. We continue to target a growth margin of 70% for 2024 despite expecting a lower growth margin in P3 as a result of the specific deal mix. In July, we announced an increase of approximately $14 million in the allowance or credit losses relating to receivable, arising from sale in three African countries.

Speaker 2: see how we both implement this and continue to bring the company back to growth.

Continues to bring the company back to growth.

Speaker 2: in the future. So I wouldn't say it's complete. I would say it's a working process, but we've done a lot until now.

In the future. So I wouldn't say, it's completely I would say, it's a work in process, but we've done a lot to.

Until now.

Speaker 3: Okay, and I appreciate the color on the full year outlook as well as the Q3 revenue of 25 million. And 50% on the gross profit. What should we be thinking about for a normalized operating expense post restructure?

Okay and I appreciate the color on the full year outlook as well as the Q3 revenue.

Of the $25 million and he said it was 50% on that gross profit what should we be thinking about for our normalized operating expense post the restructuring.

Erez Antebi: We have been affecting the collectibility of these accounts receivable on a quarterly basis. And in our most recent assessment, the company determined that these accounts previously disclosed as outstanding will not with reasonable certainty be collected. We are continuing our efforts to collect these amounts and believe we should be able to collect them. However, as I said, we can no longer stay this was reasonable certainty. So we took an allowance for credit losses.

Speaker 2: So as we said, the total cost reduction is supposed to be around $15 million on a yearly basis.

Oh absolutely.

Absolutely.

You talked about cost reduction.

And.

All right.

And then that's the baseline.

Speaker 2: And then let's achieve the baseline would be.

Our Q2.

Speaker 2: to expand. So the most of it will be in the office, the smaller part of it will be in the court.

He can explain more.

And the offset is.

It's more smaller call it would be.

Erez Antebi: As we announced in July, given the challenges facing our business, the board formed an executive committee that has worked with management to identify and recommend opportunities for further improvement with the focus on driving sustainable profitability and enhancing shareholder value. The executive committee and management agreed that the right direction is to maintain seed cash as our main growth engine. In this area, we will continue to focus on network-naked security solutions in our traffic management and analytic solutions. We are modifying our initiatives to prioritize profitability.

Nicole.

Speaker 2: So together, as we said, we are targeting the positive in 2024.

But those who came to us with that.

Yeah.

We will be profitable.

People.

Understand thanks for taking my questions.

Speaker 4: The next question is from Mihal Chokshi of Northland Capital Markets. Please go ahead.

The next question is from me, how chalk Kate <unk> of Northland Capital markets. Please go ahead.

Yes. Thanks.

Speaker 3: Yeah, thanks. I'm sorry, I couldn't hear you that well. What was the comment? What was the

Yes, I'm, sorry, I couldn't hear you that well what what was the how much what was the <unk>.

Speaker 3: on the off-beds runway that you had just given out, you just see that, you know.

On the Opex run rate that you had.

Erez Antebi: In order to conserve cash, which profitability in 2024 and ensure that we have staying power even as we cast it longer to ramp up, we are implementing a cost reduction plan. Specifically, our actions will result in a reduction of approximately 20% from our current employee headcount as well as other cost reductions. We expect this cost-cutting effort to save approximately $15.15 million per year. The relevant employees that may be affected have already been notified. This cost reduction plan will have a one-time cost of approximately $2 million, which will be booked in the service quarter.

Could you say that again I'm sorry.

Speaker 2: So the baseline is Q2 expensive. And the people

So the baseline is.

Q2.

Spencer.

And the $50 million.

Speaker 2: With the reduction it would likely be increased and the models will be increased.

The reduction in cost multiple.

And expenses.

Model.

Cool.

Speaker 2: Talking together, this should bring us to be profitable in 2020.

Yeah.

<unk> will be profitable multi point people.

But that's what I've mentioned, we will see the full effect.

Speaker 2: But as was mentioned, we will see the full effect of these copes on the total at the end of the year.

Coke coffee only towards the end of the year.

Okay.

Speaker 3: And when you say profitable in calendar 24.

And when you say.

Profitable in calendar 'twenty four.

Speaker 3: Does that mean possible in each quarter of calendar 24, possible for the folio calendar 24, or just possible by?

Does that mean profitable in each quarter or 24 possible sort of full year 'twenty four or just actual book by the end of calendar 'twenty four.

Erez Antebi: Now, I would like to discuss our different cost lines. I would like to start by discussing our traffic management and analytics business addressed by our local smart product. The main use cases we see today in CSP continues to be in traffic management, congestion management, quality of user experience, especially for video, policy and charging control and digital enforcement. As governments look to fight crime and terrorism, we see a growing interest globally and being able to block legal activities, such as drug trafficking, trial pornography and terrorism.

Speaker 2: Maybe the cumulative of 2020, doesn't mean each one of the quarter. As we mentioned already in the quarter. And so.

Maybe for you.

Once the protocol doesn't mean each month.

We mentioned already.

Okay.

Okay.

And.

So.

Looking into the September quarter.

What's the worst case scenario.

You see transpiring with respect to the GPI business.

Erez Antebi: We have solutions that address these issues, and we are seeing growing interest in our products. We will continue to pursue this direction as we visit the segment that will continue to grow. In CSP, we see the need for analytics continuing. In traffic management use cases, such as fair use, a policy based charging and congestion management, we still see quite a few opportunities from low-arty countries, some of which are to replace a competitive product.

Not quite sure how to answer that.

Speaker 2: I'm not quite sure how to answer that. And I'm not, and honestly, I'm not quite sure of the question. And it was, it gave us the forecast for the revenue or the guidance, I would say, for the revenues on third quarters. So maybe if you can elaborate what you're looking for, I can try and help. Yeah.

And I'm not honestly.

Honestly I'm not quite sure.

Certainly we can.

The forecast for the revenue guidance I would say for the revenues in third quarter or so.

Maybe maybe.

Maybe if you can elaborate what youre looking for I can try and help.

Yeah, Okay, so maybe a little bit more explicit.

Speaker 3: So your full year guidance of 95 million to 110 million.

So your full year guidance of 95 million to <unk> 7 million.

Erez Antebi: In our enterprise business, we continue to see demand for on-prem systems such as hours from enterprises in developing countries where bandwidth is relatively expensive. In developed countries such as North America and Europe, we see reduced demand from enterprises that are moving to the cloud, but growing demand from government entities that require monthly for security reasons on-prem solutions. Currently, after our deal with WACOM, we remain the major solution provider for this need.

Speaker 3: big range given that you have two quarters left. What I'm trying to figure out is if

That's a big range given that you have two quarters left and what I'm trying to figure out is.

Yeah. It's.

You basically see this a 25 million.

Speaker 3: that you did in the June quarter as a sustainable level given your order.

You did in the June quarter as a sustainable level given your order book and the uncertainty is whether or not you have any inflection or D. G. I was in the December quarter or is there uncertainty with respect.

Speaker 3: the uncertainty is with whether or not you have an inflection of DPI within the December quarter, or is there uncertainty with respect?

Erez Antebi: Overall, we recognize that we are facing several challenges that continue to make the more difficult for us to forecast our business over short time frames. First, as we discussed in previous earnings calls, using tighter headwind and tighter expense control by the CSP, it is taking longer to close DPI deals than in the past, and the total number of DPI bills for CSP we are seeing is not growing. Second, the move of CSP to 5G standalone port is very slow, negatively impacting our ability to grow with our 5G network and product.

Even the September quarter revenue level.

Speaker 2: So, yeah, as we talked about,

So yeah as we talked about an issue obviously.

You mentioned exploring one month before the end of the.

Speaker 2: Even this one one month before the end of the quarter, we don't have all the revenue.

Because you know.

We don't have all the revenue.

So when you say Oh Oh.

Speaker 2: So when we say our focus for the third quarter is 25 million, this is our focus. We don't have it in hand. So for two, we don't have all the revenue before in hand.

Looking at the $25 million.

I'll walk you don't have a demand pool.

Cool.

You don't do them, all so revenue probably man.

Speaker 2: So when we set the range 95 to 110, this is our focus. It doesn't mean that we have an end 95 and we are not...

Erez Antebi: Third, in the enterprise market, we believe the growth we saw as a result of the WACOM deal has peaked. As we stated in our last earnings call, while we continue to have a strong pipeline of large deals for the remainder of the year, the dynamics we just mentioned, together with the potential lumpiness of large deals, makes it challenging to forecast our DPI business over short time frames.

So when we set that <unk>.

95, one longer than that.

Oh got it doesn't mean that we ever had.

95.

And we can pull it up.

Speaker 2: This is the normal cost of business. It's all the same situation also. Here go and you will see it.

This is the normal course of business.

Most of the same situation and also a year ago three days ago.

Speaker 3: Okay, understood. And how do you know that the DPI softness is definitely macro related as opposed to, say, hey, encryption is reducing irrelevant to the DPI market or some other.

Okay understood.

And how do you know that the G. P. A softness is suitably macro related as opposed to.

Erez Antebi: I want to turn your attention now to what we see in our cybersecurity business and how the market is developing. As I have said previously, a lot is transforming into a cybersecurity company, and this is where we see most of our future growth coming from. Our PCAS revenues are growing steadily, albeit not at the pace we would like, as you continue to see slowly deployment and expected. Nevertheless, there are quite a few positives and notes worth highlighting.

You know say, hey, encryption is reducing the relevance of the epi market or some other.

Market phenomenon, that's might be going on.

Yeah.

Speaker 2: I think it's very hard for me to really differentiate what the macro level consists of. I do see the operators...

I think it's very hard.

It's hard for me to really differentiate.

What what the macro level consists up I do see the operators.

Mhm.

Speaker 2: tightening very much their budgets and expenses. You've seen operators in the US announce layoffs and reductions in costs. We've seen that in operators in Europe . So this affects, I think, not only a lot, I think it probably affects other technology providers who are selling through the output.

Tightening very much there are there.

Erez Antebi: I would like to start with the North American market. I am very happy to announce that a couple of months ago, Verizon Business launched their network-native security service, which imported a lot of networks.

The budgets and the added expenses.

You've seen the operators in the U S.

Layoffs and reductions in costs, we've seen that with the.

Operators in Europe , So net effect, so I think not only our north I think of it probably affects.

Erez Antebi: Thank you. I'm very excited about this topic from Verizon, which provides perfection services for segments of Verizon's fixed wireless broadband business customers, and help defend them against cyber threats. This cybersecurity service puts a layer of defense at the Internet day play intersecting threats before they can even reach devices. Verizon believe that simple zero-touch solutions like ours are especially helpful for small businesses, which might not have the in-house expertise to manage more complicated security measures.

Other other technology providers, who are selling to the operators.

Speaker 2: Now, I don't think that there is, I don't see technically a material change in the ability of DPI to provide value because of encryption.

No I.

I don't think that there is.

Oh, Gee technically a material change.

The ability of PCI to provide value because the equipment or something like that.

Speaker 2: or something like that. We're dealing with increased encryption and we have certain algorithms some of them based on AI and machine learning to help us cope with that. I don't think that that's a major contributor but the macro environment is definitely harder for operators again as a result for companies providing them with their technology.

Really what's increased encryption on me.

We have certain algorithms and Oh.

Okay. So now some of the risks that sounds good but based on AI and machine learning.

Erez Antebi: The service is being well received, and we are discussing with Verizon various ways to expand its reach. I will note that Verizon did not generate any fee cash revenues during the second quarter, but Verizon will begin contributing to revenues in the third quarter. As I stated in earlier calls, I continue to believe that the Verizon opportunity is our single largest signed fee cash opportunity. Furthermore, as other CSP's fee Verizon success, I believe come will follow suit. We are already getting enhanced interest from other operators to better understand what Verizon is doing and how they might do the same.

With that.

I don't I don't think that that's a major contributor but the macro environment is definitely hard to cooperate with them as a result.

Providing them with that apology.

Okay, great. Thank you for answering my questions.

Speaker 4: The next question is from Mark Silk of Silk Investment Advisors. Please go ahead.

The next question is from Marc Silk of Silk investment Advisors. Please go ahead.

Oh excuse me.

Speaker 5: Excuse me. Thanks for taking my questions. I have questions on the July 20th announcement with tier one with more than 50 million mostly prepaid customers. So you're initially offering to the post-paid customers and then

Thanks for taking my questions questions.

Questions on the July 20th announcement with tier one with more than 50 million, mostly prepaid customers.

Oh actually offering it to the postpaid customers again.

Erez Antebi: On the bitter sweet note, one of the operators we started with a Canadian CSP has decided not to launch the fee cash service for now, as they are refocusing their business, following the major network issues they had unrelated to our look. This CSP is also an aloof smart customer, and they have recently expanded significantly the capital business they have with us. The cancellation of this fee cash launch is a significant contribute to the reduction in our ARR forecast for the year.

Speaker 5: potentially to other high value customers. Does that include the prepaid customers or is it just a product that's not a product for them?

To other high value customers does that include the prepaid customers are that's basically something that.

That's not a product for a prepaid.

And how does that all these customers include.

Speaker 2: High value customers include the post-paid customers, which typically pay a lot more than prepaid, and some of the prepaid customers as well. Prepaid means different things in different geographies.

Postpaid customers, which typically pay a lot more than prepaid.

Some of the prepaid customers as well.

Prepaid means different things in different geographies.

Speaker 2: I mean, it's always been prepaid, obviously, but it's not necessarily just, you know, very, very poor people who have very, very little money and are trying to save every cent. It's also...

I mean, it's always been prepaid obviously, but it's not necessarily just you know a very very poor people, who have very very little money and are trying to say that we said, it's also and it's also a way of of.

Erez Antebi: In APEC, we are also progressing well. Recently, we signed two additional fee cash deals in APEC. One is a relatively small deal where we deploy networks securing a small Pacific island. The other is a DNS secured deal with a major tier one telecom operator with more than 50 million subscribers, most of whom are free paid. The services will initially be offered to their post-paid customers and potentially later to other high-value customers.

Speaker 2: It's also a way of how people spend their money and how they choose to contract with the telecom operator. So, high value customers are mixed in both. Now, having said that.

How people spend their money on housing how they choose to contract with the with a telecom operator, so high value customers are a mix of both now having said that.

Speaker 2: the majority of the, you can imagine this is an APAC customer, tens of millions of customers.

Majority of yes, you.

You can imagine this is an APAC customer with tens of millions of customers.

Speaker 2: and we said more than 50, we can assume that a majority of them are really very low, very low revenue producing or very low article type customers to the operator and they will probably not be relevant or not relevant to a large extent to the service.

We said more than 50, you can assume that a majority of them are really very low.

Erez Antebi: I believe these deals are a testament to the importance of CSP's fee and providing business and consumers with network-based security services. Also in Asia, Paris Stone or FET in Taiwan has experienced a very successful launch. Since the launch in December of 2022, the service has been expanding rapidly and we are now in the process of expanding the capacity to handle more subscribers. I will note that our ARR from FET has not been growing, even as the number of subscribers has ramped, because FET committed to a minimum payment per month from day one.

Very low revenue producing a very low alcohol like customers to us as the operator, and they will probably not be relevant or not relevant to a large extent to the service.

Speaker 5: Okay, so there's a report that China continues to basically try to infiltrate Taiwan as far as with fishing, etc., etc. Are you seeing that from other Asian countries that might be an impetus to use your product or you don't really hear that from some of the other countries that might be an impetus to use your product?

Okay. So there's reports that China continues to I'm basically trying to infiltrate a taiwan as far as what you know fishing et cetera et cetera are you seeing that from other Asia.

Countries that that might be.

I dunno and empathy.

Just to use your product or you don't really hear that from some of these customers.

Erez Antebi: That minimum has been exceeded, so we should start seeing ARR deals as the number of subscribers below. FET and their president look at security service as the teachers are important to their ground image and in line with their core commitments to their customers. As we discussed in the past, this is an excellent example of how successful CPAS can be when the CSP aligns security with its strategy. It is no forcey that this efficacy experience shows that on average, the security services block 47 attacks per user per month.

Speaker 2: No, I haven't heard that as a reason or a motivation from any of our customers or any of the operators, neither in Taiwan nor elsewhere.

No I haven't I haven't heard that I haven't heard that as well.

We've been or what motivation from any of our customers are any of the operators neither in Taiwan or elsewhere.

Okay and then.

Speaker 5: I'm just concerned about this 2024 profitability, which, you know, I know you're trying to do the right things here, but I'm worried that

I'm just concerned about the 'twenty 'twenty four profitability, which you know I know you're trying to do the right things here, but I'm worried that we.

Speaker 5: We have to have a recession next year, and then you have another excuse. So I think it's important that the executive committee as they're looking at this, as they go throughout the rest of the year, they gotta really make an assessment if you can get the profitability because...

If we could have a recession next year and then you have another excuse so I think it's important that the executive Committee as you are looking at this as it goes throughout the rest of the year they've got to really make an assessment. If you get you can get the profitability because you know the story is getting a little old and it's frustrating because you have fantastic technology.

Erez Antebi: I believe this is a strong validation of the importance and value of the network-nated security solution. As we look at the market, we see that the direction and momentum of operators interested in launching network-based security services continues to be positive. We see that in many markets, the various operators provide services that are on-party with respect speed coverage and reliability. As they look for differentiation, network-based security is emerging as an important element.

Speaker 5: You know, the story is getting a little old and it's frustrating because you have fantastic technology. So I think they got to kind of, you know, maybe think outside the box because your stock price is not reflecting your revenues or your or the success of your product.

So I think they've got a kind of maybe think outside the box because your stock price is not reflecting that revenues or you are the success of your product.

So has that been discussed as well.

Speaker 5: So has that been discussed as well as saying that maybe a bigger company could do better?

Saying that may be a bigger company could do better.

Speaker 2: I've shared what I can from these questions that we've had with the executive committee. And I think, as I said, we'll see a response to a previous question by someone else on the call. The work is not done. We reach the conclusion until now and we will continue to work to make sure that we find the way both to reach profitability next year and to create shareholder value.

Yeah, I've shared what I caught some of the discussions that we've had the conclusions that we've had with the executive Committee.

Erez Antebi: Because it is a service made to the operator's network, network security is directly coupled to the access network itself. There are several peer-won operators who have reached the conclusion that providing network-based security to their customers is of significant importance to them and they are discussing with us how to do so. In addition, we are in discussions with several other operators globally where we hope to be able to conclude deals over the coming months.

But I think as I said, we'll see a response to a previous question.

By someone else on this call.

The work is not done we reached the conclusions until now and we will continue to work.

To make sure that we find a way.

Both rich profitability next year and to create shareholder value.

Okay on a positive note.

Speaker 5: Okay, on a positive note, I did see an advertisement for Verizon and I did call them and it's being well received and I said there's never been any issues with the customers and they say usually if people call us back then there's problems and they haven't really had any call back. I hope that this can accelerate growth.

Did she had an advertisement for Verizon and I did call them and it's being well received and actually I just have been any issues with the customers.

Erez Antebi: I would like to say a few words about convergence. CSP's worldwide have been talking about convergence for quite a few years, mostly combining student, mostly combining their fixed and mobile services. Unfortunately, many CSPs have been struggling to bring tangible value to their customers and basically provide unified billing and discounts. The yellow secure platform, the yellow secure platform combines security and fortunate in the core under DNS line and in the routers under a unified management system and portal.

And they say usually if people call US back then there's problems and they haven't really had any called back so let's hope that that can accelerate growth in that.

Speaker 5: Maybe bring some other big customers on board. So good luck, I guess. And I'd like to see the board and management buy shares in the open market. It's the only way to show confidence because talk is cheap. Money Talks Being

Maybe bring some other big customers onboard and show the Buck I guess and I'd like to see our the board and management buy shares in the open market. It's the only way to show confidence because pockets cheap.

Money talks thank you.

Thank you.

Speaker 4: The next question is from Rory Wallace of Outbridge. Please go ahead.

The next question is from Rory Wallace of outbreak. Please go ahead.

Yeah.

Hey residence.

Following on Mark's point there.

Speaker 3: point there, it does seem like Verizon is showing a pretty good commitment to the service with the way they've launched it, the way they've priced it. They're certainly pricing it as a pretty incrementally valuable service of $10 or $20 per line.

Seem like Verizon is showing a pretty good commitment to the service with the way they've watched it.

Erez Antebi: This is perhaps one of the three tangible convergence values CSPs can bring to their customers, offering a unified experience of both mobile and fixed access. We don't see CSPs starting with a convergent offering, but we are in discussion with several CSPs in Europe that have launched our CCAC service to mobile customers and are looking to expand it to a convert mobile plus fixed offering.

The way they price their certainly pricing it is a pretty.

Incrementally valuable service, a 10 or $20 per wine.

Speaker 3: And there's obviously 30 million Verizon business lines across.

And there, there's obviously 30 million horizon business why is the cross.

There are groups that currently probably a million of added waxes on FWS C. You mentioned potential expansion opportunity within Verizon.

Speaker 3: but currently probably a million of that are left as on FWA. So you mentioned potential expansion opportunity within Verizon.

Speaker 3: uh, baseball and how the Philippines to be going for them so far, it would seem logical that they might expand at some point, but I wanted to understand your thoughts and surround that and also just

Page barring travel service seems to be going for them. So far it would seem logical that they might expand at some point, but I wanted to understand your thought process around that and also just when you talk about it being the largest contract that you've won and the biggest opportunity you see well what are you sort of basically that analysis surrounding the FW way off.

Erez Antebi: As we discussed in previous calls, I want to remind you that we changed our strategy for the yellow secure business. We are putting more emphasis on large strategic accounts that can have a higher revenue impact while in small to medium deals we are looking for minimum revenue thresholds. These changes with decent number of new CSPs we can sign up. However, it allows us to focus our resources on the smaller number of CSPs that we more strategic value the CFAC service which should drive profitable revenue growth We remain excited about our CCAS opportunity as we have a differentiated, scalable solution for CSPs.

Speaker 3: When you talk about getting the largest contract that you've won in the biggest opportunity you see, what are you sort of basing that analysis around? Is it the FWA opportunity over a few years time and that alone is enough to make it the biggest four is it really predicated on kind of growing outside of FWA into the full business group or even a consumer group?

Sandy.

Over a few years' time and that alone is enough to make it the biggest or is it really predicated on kind of feel like outside of the FWS I answered the phone business group, where he can make consumer goods.

Okay. Okay. So yeah, I'm, obviously very excited about what's happening in Verizon.

Speaker 2: Okay, so I'm obviously very excited about what's happening in Verizon and so far it looks to be successful for everyone and that's great. Now...

So far it looks to be successful for everyone.

Erez Antebi: I will seek out revenues for the second quarter with $2.4 million, and the CCAS ARR at the end of the second quarter with $9.7 million, that's the significant growth year over year. As of June 30th, 2023, we have 28 signed customers, but 7 of them have been cancelled and discontinued mainly due to our strategy to focus on large customers. Unfortunately, only 14 have started to generate revenues. Most of them are relevant to the small operators and the majority of them have launched the service only to a portion of their subscriber base. There are a few more launches planned for this year.

And that's great.

No.

Speaker 2: Right now, as you mentioned, it is being sold only to six for $10 million.

Well right now.

Thank you.

You mentioned it as being sold only two are two fixed wireless access customers.

Speaker 2: And it's I were talking and I mentioned this in my in my notes before we're talking to you rising about because it's going well about possibility to expand that to spend the service and the each other service beyond what it is today. I cannot elaborate where this will be expanded to and if it will be expand.

Hum.

Yeah.

We were talking and I mentioned this in my life.

In my notes before we're talking to Verizon about because its going well about possibilities to expand that.

Expand the service triage.

The service beyond what it is today.

I cannot elaborate too.

Where this will be expanded to and if it will be expected to have two.

Speaker 2: If and when things are concluded and Verizon allows us to share, I'll be happy to share with you. developed again.

Two of them.

Well.

If and when things are completed adult.

Erez Antebi: Looking ahead, I want to summarize our expectations for 2023. We expect CCAS revenues for 2023 to be around $11 million. We expect the CCAS ARR for December 23 to be between $12 million and $14 million, and our total ARR including support and maintenance to be between $51 million and $55 million. Regarding our total revenue, operating loss and cash flow guidance, we are providing a wide range because of a specific large expansion deal we expect to close this year.

Verizon and Verizon allows us to show will be happy to share it.

Yeah.

Speaker 2: You guys in my comment on the size of the potential size of Verizon, I think that the contract we have is with Verizon. The company is, no, we don't have a contract on fixed-floor other factors in Verizon. We have a contract with Verizon. They have launch to a certain state.

Regarding my comment on the.

On the sizable potential size of the horizon.

It was it you know the contract we have is with Verizon.

A company, it's not we don't have a contract on fixed wireless access.

And who is going to have a contract with Verizon They have launched it to a certain segment when I look at overall I look at the size of Verizon and the potential where this can go.

Speaker 2: When I look at overall, I look at the size of Verizon and the potential where this can go. I look at the, not just the number of subscribers, but I also, the fact that Verizon is in the United States with high revenue per customer and high R2. You mentioned that the price that they're putting out in the market for the security services between $10 to $20 a month.

If I look at the.

Not just the number of subscribers, but also.

Erez Antebi: We expect our total revenues for the full year of 2023 to be between $95 million and $110 million. Non-gap operating loss to be between $38 million and $44 million, including the $14 million doubtful debt reserve, and cash burn for the whole year to be between $24 million and $44 million.

The horizon is in the United States with higher revenue.

First customer and high art, you mentioned that the price that they're putting out in the market for the security services between 10 to $20 a month.

Speaker 2: And I think that translates to a very large opportunity for us. How much of that opportunity and materialize? I do not know. But anyway, I believe today, the new largest find opportunity that we have.

And I think that translates to a very large opportunity for us how much of that opportunity will materialize I do not know but.

Anyway, I looked at it I.

I believe today.

Single largest find opportunities that we have.

Erez Antebi: As I stated, we remain committed to each profitability for the four year 2024. This will be achieved through some revenue growth mainly in CCAS, combining with tight expense control. We expect the third quarter revenues to be approximately $25 million, but with a lower than average growth margin of 50% due to the specific expected deal mix. Our strategy remains the same. While we believe that our DPI business has limited growth potential, and the lumpiness of the business makes it difficult to forecast over short time frames, we think we can maintain a stable level of revenues through new use cases and market share gains, and we are using DPI's profitability and cash flow generation to invest in our CCAS business because our CCAS business is where we see significant future growth opportunities.

Yeah that makes a lot of sense and I appreciate those comments.

Speaker 3: Yeah, that makes a lot of sense. And I appreciate those comments. So yeah, good work and congratulations on that watching and we'll see you all so far.

So you've got good good work and congratulations on that watching and he can walk so far to your.

Speaker 3: To your comments on the rest of the US market or sort of halo opportunities coming out of Verizon, watching the service, can you be any more specific about the nature of those conversations? I know it takes a long time to win these tier ones and you've been knocking on their doors and having meetings with senior executives for some time in some of these companies, but is it really potentially accelerating actual signings of large near-term opportunities for you?

Comments on the rest of the U S market or sort of halo opportunities coming out of Verizon and watching that service can be any more specific about the nature of those conversations are I know you. It takes a long time to win these tier one and have been knocking on their doors.

Having meetings with senior executives for something I get some of these companies, but is it really you know potentially accelerating actual signings of.

A large near term opportunities for you.

Speaker 2: As you said correctly, so long process takes time. It's hard for me to predict and short term, whether music short term, sorry, result. So I would rather not create any expectations that they may not be the stand behind. So I think we're talking to the other operators. I think the interest being, I think there's potential to have beyond that a wooden problem.

I think ill pitch.

As you said correctly, it's a long process it takes time.

It's hard for me to predict any short term revenue shortcut I'm sorry resolved.

Erez Antebi: While our CCAS revenues are being recognized later than we would have liked and later than we expected, I remain convinced of the large potential of this business and am confident that it will grow significantly in the coming year. Full faith in our company, our team, and our products, and I believe the actions we are taking to make our growth, and I believe in the actions we are taking to make our growth.

So we'd rather not create.

Create a create any expectation that they may not be able to stand behind.

We're talking to other operators I think it's interesting.

I think there is potential there, but beyond that I wouldn't talk.

Erez Antebi: Thank you.

Speaker 3: Got it. And then as far as that Tier 1 Canadian operator, they've had a few things come up and it's not totally shocking to hear that they're pushing out the launch. I just wanted to be clear, are they backing away from offering CCAS at any point in time or is it just that they've sort of deferred the launch date to an unknown future date? So you've kind of conservatively taken that out of any future projections.

Got it and then as far as the tier one Canadian operator, they they've had a few things come up and it's not totally shocking to hear that I guess, they're they're pushing Apple watch I just wanted to be clear are they backing away from offering see Cas you know at any point.

Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. You have a question, please press 101. If you wish to cancel your request, please press R2. If you're using speaker equipment, kindly list the handsets before pressing the numbers. The questions will be pulled in the order they are received. Please stand by while we pull for your questions.

In time or is it just that they sort.

Sort of deferred to watch day to an unknown future date, so you've kind of conservative taking that out of any future projections.

Speaker 3: And then I think you mentioned they're still taking DPI equipment from a lot. And I was wondering if that might be part of the reason for the Q3 gross margin being lower. Maybe there was a bundled thought process around how you structured that contract. Just trying to understand, because the gross margin, did you say 5-0 or 6-0 for Q3? But it's a lot lower than the gross margin you've had in any other quarter.

I think you mentioned, they're still taking.

T I equipment trends.

From a lot and I was wondering if that might be part of the.

Eric Martinuzzi: The first question is from Eric Martinuzzi of Lake Street. Please go ahead. I have a question regarding the bad debt right off the $14 million credit allowance. Are we still doing business with the reseller or resellers in Africa that were responsible for that right off? Hi, Eric. We are not doing the new business with Ziv Leitman but we are making an effort to connect the money.

Leasing for the Q3 gross margin being lower might be that maybe there was a bundled thought process around how.

How you structured that contract just trying to understand it because the gross margin did you say five zero or six zero for Q3, but it's it's a lot lower than the gross margin you've had in any other quarter.

Speaker 2: A 35 year o for is three 50% five year o for three it cits.

Five zero.

50% five zero.

Q3.

Yeah.

Okay.

Okay.

Speaker 2: There's no difference between postponing indefinitely to not doing this, because there's some distance to change anyway regardless. Right now, they're not doing it.

No. There's no there's no difference between postponing indefinitely to cannot do I get for it.

Erez Antebi: But we don't have any new business. All right.

Because it's subject to change anyway, regardless.

Nehal Chokshi: The strategy examination that you announced on July 17, are we complete with that or is that still an ongoing process? Obviously we are focused on growth on C-Cats and a return to profitability, but does that say that the strategic examination is complete? I would say that we've done a lot of work over the past few weeks on this. We've reached some high level conclusions both on the general strategic direction that we are continuing to focus on the C-Cats of the community because we believe in it.

Right now we're not doing.

Hum.

Speaker 2: That's how we look at it. In the future, future can vary many.

That's how we look at it from the future interest in very many things.

Speaker 2: It is obviously no longer a ??????.

It's obviously no longer than any of our forecast.

Speaker 2: And regarding the Q3 projected margin, it's very low and it's related to a mix of a few deals, but beyond that they don't want to specify where exactly it's coming from.

Hum.

And regarding the <unk>.

The Q3.

Projected margin fits very well and it's related to a true.

Our next book.

Few deals.

And beyond that if you don't want to specify where they where exactly it's coming from.

Okay. That's fair and then with what sort of other large opportunity on the Vodafone for home secure you know I think you mentioned that convergence of global EM and then fixed services, but can you comment any more on the opportunity with Vodafone or any of these.

Speaker 3: Okay, that's fair. And then with some sort of other large opportunity on Vodafone for HomeSecure, you know, I think you mentioned the convergence of mobile and then fixed services, but can you comment any more on the opportunity with Vodafone or any of these other fixed line deals that you've won for the HomeSecure product?

Nehal Chokshi: We've reached the conclusion that we need to significantly reduce our cost structure, which we are implementing already. And I think that we will continue to work to see how we both implement this and continue to bring the company back to growth in the future.

Other six wind deals that you'd want to put it to the home secure product.

Speaker 2: We likely announced, I don't remember when, but a while ago we signed an agreement with Vodafone to launch the home secure product and we're very hopeful that it will launch and we'll be successful. I don't have other comments on that. We're talking to various other operators both in Europe and other places.

But like we announced.

Erez Antebi: So I wouldn't say it's complete. I would say it's the working process that we've done a lot until now. Okay. And I appreciate the color.

I don't remember when but a while ago, we signed an agreement with Vodafone to launch the home secure product.

Hum.

Nehal Chokshi: The full year outlook as well as the Q3 revenue of 25 million. And I think it was 50% on the gross profit. What should we be thinking about for a normalized operating expense post-restructuring? So, as we said, the total cost to reduction, supposed to be around $2,000 on early basis. And let's assume the baseline could be key to extent. And so democracy can be in the effect of small amount of power. It will be in the course.

We're very hopeful that we're watching.

And we will be successful.

I don't have other comments on that we're talking to various other operators both in Europe and other places.

Speaker 2: about launching home secure. It's one of our product lines. We are actively selling it. And I'm not sure I have much more to add beyond that.

About launching home secure it's one of our product lines.

We are actively selling yet.

I'm not sure I have much more to add beyond that.

Speaker 2: Okay. And then the operating expense run rate, that you mentioned to use Q2, you previously said Q3 would come down from Q2 levels out before this most recent cost reduction action. So is there some cushion in that, or is there reason why that prior sort of expected step down in the Q3 op-x level wouldn't that they'd happen anyway?

Okay.

And then the.

The operating expense run rate that you mentioned to use Q2, you'd previously said Q3 would come down from Q2 levels out before this most recent cost reduction actions. So is.

There are some cushion in that or is there a reason why that prior.

Erez Antebi: Thank you for taking my questions.

Sort of expected step down in the Q3 opex level.

It's been happening anyway.

Speaker 6: In Q3, as we said, we are going to book the 2 million dollar one-time research spending.

Oh in Q3, as we said we're going to do for the two new build of a one time.

Nehal Chokshi: The next question is from Nehal Chokshi, of Northland Capital Market. Please go ahead. Oh yeah, thanks.

Repo expenses.

Yep the other.

Okay.

Speaker 6: And here I've got the same level as the set in quarter.

In the same neighborhood.

Nehal Chokshi: I'm sorry, I couldn't hear you that well. What was the comment, what was the detail on the office run like that you had just given out? Can you say that again? I'm sorry. So, the baseline is the Q2 expense and the $15 million reduction in cost most of it will be an expense and more smaller part will be in cost. But also together this should bring us to be profitable in 2020, but as it was mentioned, we will see the full effect of these cost cutting on the total at the end of the year.

The second quarter.

Okay.

Speaker 3: Got it. And then in terms of working capital, you've had the inventory come up quite a bit. I guess some of that's going to be related to this low margin business. But what should we expect from working capital going forward? I mean, it is.

Got it and then.

In terms of working capital you had the inventory come up quite a bit I guess some of that is going to be related to the.

The lower margin business, but.

What should we expect from working capital going forward I mean is.

Speaker 3: These are gold and a bit of kind of bring back these gazes of inventory and receivables and pay a bolt kind of back to where they were and that should be a tailwind to cashflow at some point letting alone that $14 million bad debt receivables still sitting out there. I mean, it's fair to think that gold and capital should normalize at some point.

As you're going to be to kind of bring back.

Days of inventory and receivables and payables kind of back to where they were and that should be a tailwind to cash flow at some point.

Letting alone that $14 million.

Bad debt receivable, that's still sitting out there I mean is it fair to think that working capital should normalize at some point.

Speaker 6: What is the

Nehal Chokshi: Okay, understood. And when you say profitable in calendar 24, does that mean profitable in each quarter of calendar 24, profitable for the whole year calendar 24 or just profitable by the end of calendar 24? Maybe the cumulative of 2020, doesn't mean each month of the quarter as we mentioned already in the quarter. Okay, and so looking into the September quarter, what's the worst case scenario you see transpiring with respect to a DPI business?

Oh I'm sorry.

Speaker 6: I wouldn't take it into account if the shots go down, but definitely it will not be in place further.

You can take it seemed to come in between the shop will go down but definitely it will not.

Not being filled up.

Okay.

Okay. Thank you. Thank you for taking my questions.

Speaker 2: Okay, thank you. Thank you for taking my questions. Okay, thank you.

Okay.

This concludes the question and answer session.

Mr. <unk> would you like to make your concluding statement.

Speaker 6: Yes, I want to thank you all again for joining this call and for asking the questions and participating and I look forward to talking to you in the next conference call next quarter. Thank you very much.

Yes, I want to thank you all again for joining this call.

And.

And for <unk>.

We're asking the questions and participating and I look forward to talking to you in the next conference call next quarter. Thank you very much.

Nehal Chokshi: Not quite sure how to answer that, you know, and honestly, I'm not quite sure the question. It gives us the forecast for the revenue or the guidance that we say for the revenues on third quarter. So maybe if you can elaborate what you're looking for, I can try and help.

Speaker 4: Thank you. This concludes the yellow second quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

Thank you. This concludes yellow second quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.

[noise].

Nehal Chokshi: Yeah, okay, let me be a little bit more explicit. So your full year guidance of $95 million to $110 million. That's a big range given that you have two quarters left. And what I'm trying to figure out is if you basically see this 25 million that you did in the June quarter as a sustainable level, given your order book. And the uncertainty is whether or not you have an inflection in a DPI within the December quarter, or is there uncertainty with respect to even the September quarter revenue level?

Yeah.

Okay.

Okay.

Okay.

Yes.

Sure.

[noise].

Nehal Chokshi: So, me and I should talk about the pension order from the previous quarter. Even this point, one month before the end of the quarter, we don't have all the revenue in end. So, when you say the other poker for the third quarter, the 25 million, these are all poker, we don't have it in end. So, for sure, we don't have all the revenue we throw in end. So, when you set it to the end, 95 to 100 and 10, this is our poker. It doesn't mean that we have an end, 95, and we are just waiting for the after.

Yeah.

Yes.

[noise].

Yeah.

Yes.

Yeah.

[noise].

Nehal Chokshi: This is the normal core of the business, it's all the same situation also, a year ago and a year ago. Okay, understood. And how do you know that the DPI softness is presumably macro related as opposed to, you know, say, hey, encryption is reducing the relevant to the DPI market or some other market phenomenon that might be going on? I think it's very hot. It's hard for me to hear the French, what the macro level consists of.

Nehal Chokshi: I do see the operators tightening very much their budget and expenses. You know, you see operators in the US announce layoffs and reductions in cost between that and operators in Europe. So, this affects, I think, not only a low, I think it probably affects other technology providers who are selling to the operators. Now, I don't think that there is, I don't see technically a material change in the ability of the DPI to provide value because encryption or something like that. We're dealing with increased encryption and we have certain algorithms and I would say certain algorithms, some of the risks are based on AI and machine learning to help us cope with that.

Nehal Chokshi: I don't think that that's a major conclusive, but the macro environment is definitely harder for operators than as a result for companies providing them with their technology. Okay, great.

Nehal Chokshi: Thank you for your answer, Nick.

Mark Silk: The next question is from Mark Silk of Silk Investment Advisors. Please go ahead.

Mark Silk: Excuse me. Thanks for taking my questions. I have questions on the July 20th announcement on the TN1 with 150 million mostly prepaid customers. So, you're initially offering it to the post paid customers and then potentially to other high value customers. Does that include the prepaid customers or that's basically something that's not a product for a prepaid? High value customers include the both post paid customers, which typically pay a lot more than prepaid and some of the prepaid customers as well.

Mark Silk: Prepaid means we have different things and different the other. I mean, that was in prepaid, obviously, but it's not necessarily just, you know, very, very poor people who have very, very little money and are trying to say that we sent. It's also, it's also a way of how people spend their money and how they choose to contract with the telecom operator. So, high-value customers are a mix of both. Now, having said that, the majority of the, you can imagine, this is an 8-pack customer, tens of millions of customers, we said more than 50, we can assume that a majority of them are really, very low, very low revenue producing, very low high-cool customers to the operator and they will probably not be relevant to a large extent to the service.

Mark Silk: Okay, so this report that China continues to basically try to infiltrate Taiwan as far as with, you know, fishing, et cetera, et cetera. Are you seeing that from other Asian countries that, that might be an impetus to use your product, or you don't really hear that from some of these customers? No, and I haven't heard that, I haven't heard that as a, as a reason or, or motivation from any of our customers or any of the operators, neither in Taiwan or elsewhere.

Mark Silk: Okay, and then I'm just concerned about this 2024 profitability, which, you know, I know you're trying to do the right things here, but I'm worried that we could have a recession next year and then, you know, you have another excuse. So I think it's important that the executive committee, as they're looking at this, as they go throughout the rest of the year, they've got to really make an assessment if you get to, you can get the profitability because, you know, the story's getting a little old and it's frustrating because you have fantastic technology. So I think they've got to kind of, you know, maybe think outside the box because your stock price is not reflecting your revenues or your, or the success of your product.

Erez Antebi: So has that been discussed as well as saying that maybe a bigger company could do better? I've shared what I can from these questions that we've had with the executive committee. And I think, as I said, we'll see a response to the previous question by someone else on this call. And the big work is not done. We've reached the conclusion for a amount and we will continue to work to make sure that we find a way both to reach profitability next year and to create shareholder value.

Mark Silk: Okay, on a positive note, I did see an advertisement for Verizon and I did call them and it's being well-received. And I said, is there been any issues with the customers? And they say, usually if people call us back, then there's problems and they haven't really had any call back. So let's hope that that's going to accelerate growth and maybe bring some other big customers on board.

Mark Silk: So the block, I guess, and I'd like to see the board and management buy shares and then open market. It's the only way to show confidence Money Talks.

Rory Wallace: Thank you.

Rory Wallace: The next question is from Rory Wallace of Outbridge. Please go ahead. Dear residents, following on Mark's point there, it does seem like Verizon is showing a pretty good commitment to the service, the way they've launched it, the way they've placed it, they're certainly pricing it as a pretty incrementally valuable service of ten or twenty dollars per line. And there's obviously 30 million Verizon business lines across their group but currently probably a million of that or less is on FWA. So you mentioned the potential expansion opportunity with Verizon based on how the service seems to be going for them so far.

Rory Wallace: It would seem logical if they might expand at some point but I wanted to understand your thought process around that and also just when you talk about it being the largest contract that you've won and the biggest opportunity to see what are you sort of basing that analysis around? Is it the FWA opportunity over a few years time and that alone is enough to make it the biggest or is it really predicated on kind of going outside of FWA into the fall business group or even a consumer group?

Rory Wallace: Okay, so I'm obviously very excited about what's happening in Verizon and the so far it looks to be successful for everyone and that's great. Now, right now, as you mentioned, it has been sold only to fix why the fact of customers. We're talking and I mentioned this in my notes before, we're talking to Verizon about because it's going well but possibly to expand that to expand the service and the service beyond what it is today.

Rory Wallace: I cannot elaborate where this will be expanded to and if it will be expanded to in one. If and when things are completed and Verizon allows us to share, we'd be happy to share. Regarding my comment on the size of the potential size of Verizon, I think that the contract we have is with Verizon. The company is no, we don't have a contract on fixed why the fact is in Verizon. We have a contract with Verizon.

Rory Wallace: They have launched it to a certain statement. When I look at overall, I look at the size of Verizon and the potential where this can go. I look at the number of subscribers but I also the fact that Verizon is in the United States with higher revenue for a customer and high art. You mentioned that the price they're putting out in the market for the security services between $10 to $20 a month.

Rory Wallace: Then I think that translates to a very large opportunity for us. Comment on that opportunity and materialize. I do not know but anyway, I look at it. I believe today that the single largest find opportunity that we have. Yeah, that makes a lot of sense. And I appreciate those comments. So yeah, good work, and congratulations on that launching and also far.

Rory Wallace: To your comments on the left of the U.S, market or sort of hero opportunities coming out of Verizon, watching the service, can you be any more specific about the nature of those conversations? I know you take a long time to win, you share one, and you've been knocking on our doors and having meetings with senior executives for some time. I know some of these companies that visit really, you know, potentially accelerating actual signings of large near term opportunities for you.

Rory Wallace: I think, you know, as you said correctly, so long process, it takes time. It's hard for me to predict, I'm short-term revenue, short-term, sorry, result. So I would rather not create any expectations that may not be the stand behind. So I think we're talking to the other operators, I think the temprisbee, I think the potential to have beyond that wouldn't pop.

Rory Wallace: Yeah, and then as far as that to your one Canadian operator, they've had a few things come up, and it's not totally shocking to hear that I guess they're pushing out the launch. I just wanted to be clear, are they backing away from offering C-Cafs, you know, at any point in time or is it just that they've sort of deferred the launch date to an unknown feature date, so you've kind of conservatively taken that out of any feature projections.

Rory Wallace: And then I think you mentioned they're still taking DPI equipment from a lot, and I was wondering if that might be part of the reason for the Q3 growth margin being lower might be that maybe there was a bundled stock process around how you structured that contract to try to understand because the growth margin, did you say five zero or six zero for Q3, but it's a lot lower than the growth margin we've had in any other quarter. And so I said five zero, 50%, five zero, for Q3, it's focused, you know, there's no difference between postponing indefinitely to not doing, because it's something to change anyway regardless.

Rory Wallace: So right now they're not doing that, that's how we look at it in the future, if you can look at the market margin, it's very low and it's related to a mix of a few deals, but beyond that, they don't want to specify where exactly it's coming from. Okay, that's fair.

Rory Wallace: And then with sort of other large opportunity on both phone for home secure, I think you mentioned a convergence of mobile and then so this is, but can you come any more on the opportunity with both phone or any of these other six wine deals we've won for the home secure product? I don't remember when, but a while ago we signed an agreement with Vodafone to launch the home secure product and we're very hopeful that the cool launching will be successful.

Rory Wallace: I don't have other comments on that. We're talking to various other operators both in Europe and other places about launching home secure. It's one of our product lines. We are actively selling this and I'm not sure I have much more to add beyond that.

Rory Wallace: Okay, and then the operating expense run rate that you mentioned to use Q2, you previously said Q3 would come down from Q2 levels out before this most recent cost reduction action. So is there some cushion in that or is there reason why that prior sort of expected step down in the Q3 op-x level when you said they're happening anyway? In Q3, as we said, we are going to do the two-minute build-up one-time re-expanding. The other extent is to give up in the same manner that's in the second pool. Okay, got it.

Rory Wallace: And then in terms of working capital, you've had the inventory come up quite a bit. I guess some of that's going to be related to the lower margin business, but what should we expect from working capital going forward? I mean, is your goal going to be to kind of bring back these gazes of inventory and receivables and payables kind of back to where they were? And that should be a tailwind to cashflow at some point, letting alone that $14 million bad bad receivable is still sitting out there.

Rory Wallace: I mean, is it fair to think that working capital should normalize at some point? Currently, I wouldn't take a few to the counter, it's going to shock me go down, but it's definitely if it will not be in place. Okay, thank you, thank you for taking our questions. This concludes the question and answer session.

Erez Antebi: Mr. Antebi, would you like to make your concluding statement? Yes, I want to thank you all again for joining this call and for asking the questions and participating, and I look forward to talking to you in the next conference call next quarter. Thank you very much. Thank you. This concludes the alote second quarter, 2023 Resolved Conference Call. Thank you for your participation. You may go ahead and disconnect. [inaudible]