Q3 2023 Allot Ltd Earnings Call

Okay.

Sure.

Okay.

Sure.

Got it.

[noise] [noise].

Speaker 1: The.

Got it.

[music].

Okay.

[music].

Okay.

Okay.

Okay.

Okay.

Okay.

[music].

Okay.

No.

Yeah.

Okay.

[music].

No.

[music].

Hum.

Okay.

[music].

Ladies and gentlemen, thank you for standing by and welcome to our low third quarter 2023 results Conference call. All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session.

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

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 EK Global Investor Relations at 1-212-378-8040 or view it in the news section of the company's website at www.alot.com. I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations.

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 <unk> Investor Relations team at U K Global Investor Relations at 12123788040 or view it in the news section of the company's website.

At Www Dot alone Dot Com I would now like to hand over the call to Mr. Kenny Green of Ek Global Investor Relations.

Speaker 2: Mr. Green, would you like to begin?

Mr. Green would you like would you like to begin.

Welcome to third quarter of 2020 conference call I would like to welcome all of you to the conference call and I'd like to thank <unk> management for hosting this call.

Speaker 3: Welcome to the last third quarter 2020 conference call. I would like to welcome all of you to the conference call, and I'd like to thank a lot of management hosting this call.

Speaker 3: With us on the line today are Mr. Eridan Tebbe, President and CEO , and Mr. Zid Lightman, CEO .

It also aligns with J D.

President and CEO.

<unk> CFO.

Erez will provide an opening statement and summarize the key highlights of the quarter.

Speaker 3: Erez will provide an opening statement and summarize the key highlights of the quarter. We will then open the call for the question and answer session and both Erez and Zib will be available to answer those questions.

Open the call for question and answer session, and then alright, and it will be available to answer those questions.

Speaker 3: You can all find the financial highlights and metrics, including those we typically discuss on the conference call in the earnings release issued last week. Before we start, I'd like to point out the following safe harbor statement. This conference call contains projections of other forward-looking statements regarding future events or the future performance of the conference.

You can always find the financial highlights and metrics, including Nathan.

On the conference call.

In the earnings release issued last week.

Before we start I'd like to point out.

I point out the following Safe Harbor statement East Goldman School contains projections or other forward looking statements regarding future events.

These statements are predictions and are not cannot guarantee that they will in fact.

Speaker 3: These statements are only predictions and a lot cannot guarantee that they will in fact occur. A lot does not assume any obligations are very pleasant.

Okay.

She and you'll mutations.

Actual events or results may differ materially from those projected including as.

As a result of changing market trends.

My customers reduced demand.

The industry is.

Well as deposit rates.

Mind, you the documents filed by the company with the Securities and Exchange Commission.

I would now like to hand, the call over to Aaron Aaron. Please go ahead.

Speaker 4: Thank you, Kenny. I'd like to welcome all of you to our conference call. 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 4: Our third quarter revenues were $22.6 million, 10% lower than the comparable quarter last year.

Our third quarter revenues were $22 $6 million, 10% lower than the comparable quarter last year.

In September 2023, our CCAR.

Speaker 4: In September 2023, our CCAS ARR was $10.6 million, 9% higher than our CCAS ARR in June 2023, and 52% higher than our CCAS ARR for September 2022.

R R.

$10 $6 million, 9% higher than the oversea crossing here in June 2000, Twenty's theory.

52% higher than our CCAR for.

For September 2022.

But once you're through continues to be very 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 4: 2023 continues to be very challenging for us. The transition of the business into CCAS recurring revenue model has proven to be slower than we originally anticipated. In addition, our core DPI business is experiencing macro-related headwinds.

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

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.

During the second quarter.

During the third quarter.

Our cash balance fell by $5 $5 million, mostly as a result of the operating loss and decrease in accounts payable.

Gosh, there continues to be a major area of focus for us.

Speaker 4: Cash burn continues to be a major area of focus for us. As our cost-cutting efforts come into effect partially in the fourth quarter and in full in 2024, we expect to improve our cash flow.

As you know our cost cutting efforts to come into effect, partially in the fourth quarter.

Before we expect to improve our cash flow.

Speaker 4: While our visibility remains challenged, we remain committed to reaching profitability in 2024.

While our visibility remains challenged we remain committed to reaching profitability in 2024.

Speaker 4: Our gross margin in the second quarter was 48% due to our deal mix. We continue to target 70% gross margins for 2024 consistent with our historical performance.

Our gross margin in the second quarter was 48% due to our deal mix, we continue to target, 70% gross margins for 2024, consistent with our historical performance.

As we announced in July.

Speaker 4: 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 a focus on driving sustainable profitability and enhancing shareholder value.

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.

The focus of driving on driving sustained sustained.

Sustainable profitability and enhancing shareholder value.

Speaker 4: The Executive Committee and Management continue to work together to prepare the budget and operating plan for 2024.

The Executive Committee of management's continued towards together to prepare a budget and operating plan for 2024.

Speaker 4: As we discussed in the previous talk, in order to conserve cash, reach rate-given profitability in 2024 and ensure that we have staying power even as CCAS takes longer to ramp up.

As we've discussed in the previous call in order to conserve cash rich breakeven profitability in 2020 for sure because we have staying power you can ask a few tests takes longer to ramp up.

Speaker 4: we implemented a cost reduction plan towards the end of the third quarter. We reduced approximately 30% from our employee headcount from the end of the third quarter of 2022 to the end of 2023 while also implementing other cost reduction.

We have two Atlanta, a cost reduction plan towards the end of the third quarter, we reduced approximately 30%.

He has held since the end of the third quarter of 2022 to the end of 2023, while also implementing other cost reductions.

Our third quarter numbers include a one time risks.

Speaker 4: Our third quarter numbers include a one-time risk cost of approximately $1.5 million.

Cost of approximately $1 $5 million.

Speaker 4: As you know, a lot operates in two business lines, a lot smart and a lot secure.

As you know although it operates in two business lines, a lot smoke and allot secure.

Speaker 4: On the Alut small front, while we continue to see growing interest globally from governments as they look to block illegal activities such as drug trafficking, child pornography and terrorism.

On the Allot Smart front, while we continue to see growing interest globally from governments as they look to block illegal activities, such as drug trafficking child, Qunar goofy of terrorism.

Speaker 4: Our CSP and enterprise businesses remain soft.

Our CSP and enterprise businesses remain soft.

Speaker 4: while some of the weakness is due to cutbacks in spending.

What are some of the weakness was due to cutbacks in spending.

We also recognize the need to continue shifting our resource resources and focus to developing countries and governments has developed countries and enterprises embrace the cloud.

Speaker 4: We also recognize the need to continue shifting our resources and focus to developing countries and governments as developed countries and enterprises embrace the cloud.

On the allot secure small spend.

Speaker 4: On the a lot secure front, while spending by CSPs remains challenging, our CCAS revenues are growing steadily.

Spending by Csp's remains challenging our CFS revenues are growing steadily.

While we are not seeing the pace of growth we had expected given.

Speaker 4: While we are not seeing the pace of growth we had expected given slower deployment, there are quite a few positives worth highlighting. I would like to start...

Slower deployment, there are quite a few positives worth highlighting.

I would like to start with the North American market.

Verizon business has successfully launched their network native security service, which incorporates almost networks.

Speaker 4: Verizon Business has successfully launched their network native security service which incorporates all of network secure. The launch is going well, the number of customers is growing and we are discussing with Verizon several expansion opportunities to different customer segments.

The launch is going well.

Customers is growing.

We are discussing with Verizon several expansion opportunities to different customer segments.

Speaker 4: While we cannot be assured of our success in adding additional customer segments,

While we cannot be assured of our success in adding additional customer segments.

Speaker 4: I believe Verizon is the largest signed C-CAS opportunity for our local.

I believe horizon is the largest signed seek us opportunities for our reps.

Furthermore, as other Csp's see Verizon success, I believe some will follow suit.

Speaker 4: Furthermore, as other CSPs see Verizon's success, I believe some 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.

We're already getting enhanced interest from other operators to better understand what Verizon is doing.

Housing might do the same.

Speaker 4: in APAC, we recently launched another CCAS service in Tonga.

In APAC, we recently launched another CCAR service informed.

Speaker 4: As this is a small deal, we guarantee the revenue for our lot regardless of penetration as per the revised direction we have previously explained.

As this is a small do we guaranteed the revenue for our local regardless as penetration as opposed to revise direction. We have previously explained.

We remain excited about about our secrets opportunities.

Speaker 4: We remain excited about our CCAS opportunities as operators continue to be interested in launching network-based security services and we have a differentiated, scalable solution for CSP.

Operators continue to be interested in launching network based security services.

Services, and we have a differentiated scalable solution for <unk>.

Okay.

Looking ahead I want to summarize our expectations for 2023.

Speaker 4: Looking ahead, I want to summarize our expectations for 2023.

Speaker 4: We expect C-Cast revenues for 2023 to be around $10.5 to $11 million.

We expect to see cash revenues for 2023 to be around 10, and a half to $11 million.

We expect to seek us out and also December 2023 to be between 12 and $13 million and our total including supports a maintenance to be between $51 million and $63 million.

Speaker 4: We expect the CCAS ARR for December 2023 to be between $12 and $13 million. And our total ARR, including support and maintenance, to be between $51 million and $53 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.

Speaker 4: 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.

We expect our total revenues for the full year 2023 to be between $89 million of $94 million non-GAAP operating loss to be between 42 and $44 million.

Speaker 4: We expect our total revenues for the full year 2023 to be between $89 million and $94 million. non-GAAP operating loss to be between $42 million and $44 million.

Speaker 4: including the $14 million Doubt for Death Reserve and cash burn for the whole year to be between $31 and $38 million.

Including a 14 million dollar doubtful debts reserve and cashmere and so the whole year to be between 31 and $38 million.

As I stated, we remain committed to reaching profitability in 2024.

Speaker 4: As I stated, we remain committed to reaching profitability in 2024.

We expect the fourth quarter revenues to be 20% to $25 million.

Speaker 4: We expect the first quarter revenues to be $20 to $25 million.

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 Timeframes. 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.

Speaker 4: 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 timeframes, 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.

And cash flow generation to invest in our <unk> business, because our CCAR businesses, where we see significant future growth opportunities.

Speaker 4: 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 years.

While our <unk> 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 I'm confident that it will grow significantly in the coming years.

I have full faith in our company, our team and our products and I believe the actions we are taking.

Speaker 4: I focus on our company, our team, and our products. I believe the actions we are taking make our goals achievable.

Good.

The actions, we are taking make our goals 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 Ziva 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 one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions.

Dave or myself will be available to take your questions operator.

Ladies and gentlemen at this time, we will begin the question and question and answer session. You will have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment congruent with the handset before pressing the numbers questions will be pulled in the order. They are a seat please standby while we poll.

For your question.

The first question.

It's from Max My Golf of Lake Street. Please go ahead.

Speaker 2: is from Max Michaels of Lake Street. Please go ahead.

Yeah.

Max.

Oh, sorry, I was on mute.

Speaker 5: Sorry I was on mute. My apologies. When we look at, my first question is looking at 2024, just with the visibility being fairly cloudy, I mean are you confident you guys could be able to do something different than prior to 2021 feel like a

We looked at it.

My first question is looking at 2024.

Physical.

It's fairly cloudy I mean are you confident you guys can be.

Hey, guys.

Thank you.

I'm sorry could you repeat your last question.

Speaker 4: I'm sorry, can you repeat your last, really the last sentence? I will be comfortable able to guide.

Really the last sentence uncomfortable, we're able to guide.

Speaker 5: Yeah, yeah, yeah. So just given visibility, just kind of want to get simple. You're seeing in the market and start to be confident dipping in 2024.

Yeah, Yeah, yeah, so just given visibility just trying to make it simpler.

March.

Got it.

Great.

Yeah.

Speaker 4: At this point we're not giving a 2024 guide. We will be giving guidance once we finish our AOP and budget for 2024 which will be towards the end of this year. In the next earnings call, I expect we will be able to provide guidance on 2024. The challenge you stated is correct. The visibility is tough.

At this point, we're not giving a 2024 guide we will be giving guidance once.

Once we finish our <unk>.

Project, 24, which would be towards the end of this year and the next one the next earnings call. We expect we will be able to provide guidance on 24.

The challenge.

The challenge you state that is correct.

The visibility is tough.

Speaker 4: and yet we are going to guide to the best of our ability and we're going to focus very hard to turn it profitable in 2024.

And actually we are.

We're going to guide to the best of our ability and we're going to focus very hard to.

To turn profitable in 2004.

Speaker 6: And then the next question here is just on gross margin. A little bit of a down tick here in Q3. I think this gross margin is around 48%. What's giving you guys the confidence you can get back up to that 7% level in Q4 and then into 2024? V

And then my next question here is just on gross margin.

Little bit of adopting children.

Adjusted gross margin is around 48%, what's giving you guys confidence.

You can get back up to that.

In Q4.

And then maybe go into what caused that downtick from Q3.

Yes.

Speaker 4: Hi Max, as we said in our previous conference call, we were expecting around, gross margin around 50% this quarter.

Hi, Max as we said in our previous conference call.

While we were expecting around the gross margin going on the 50% this quarter.

So 40 <unk>.

Speaker 4: So 48 is in the same range. And the reason was a few deals with a very low gross margin. As we explained...

The same range.

The reason was.

A few deals.

Very low gloss mountain.

As we explained in some time.

Speaker 4: we decided to take deals with a very low gross margin when it's competitive.

We decided to take.

Deals with a very low gross margin.

Competitive displacement.

Speaker 4: When it says a big deal for us when we expect the future expansion

Of course.

Of course, when we expect for future expansions.

Speaker 4: And also bear in mind that we can get a larger deal, but the amount that we recognize.

Also bear in mind.

We can get a larger amount.

The amount that we recognized.

Speaker 4: In the first quarter is much lower than the total

In the first quarter is much lower than the total.

Speaker 7: because it includes also support and maintenance for future use. So we care about the amount of support and maintenance which will be recognized later at the ILM.

Because it includes also support and maintenance for two reasons.

So we care about the amount of support and maintenance, which will be recognized later.

Yeah.

Okay.

No.

Speaker 7: Now, fill Q3.

Sure.

Q3.

Speaker 8: For the last many years...

So the last.

Many of us.

Speaker 7: Our gross margin was around 70%, 7-0. Also in the first half of 2023.

Our gross margin was around 70%, 70% seven zero also in the sales to outsource.

Now 2023.

And we do believe that inspire.

In spite of the logos margin in the second half of 2023, we will be able to come back.

Okay.

So the 70% gross margin.

Next year.

Alright, thanks for taking my questions.

Alright.

Speaker 2: The next question is from Nihao Chokshi of Northland Capital Markets. Please go ahead.

The next question is from Anyhow shop chain of Northland Capital markets. Please go ahead.

Yeah. Thank you and our roads that sit here that there are still being held equal.

Speaker 9: Yeah, thank you and good to hear that there are some health concerns...

Yeah.

Hum.

It sounds like.

You know given that you have limited visibility.

Speaker 9: Given that you have limited visibility, the buildup of how you're guiding has changed. A, is that correct? And B, if so, how has it changed? The last one is off, somewhat on course.

Buildup of how you're guiding hasn't changed.

Is that correct and B, if so how has it changed.

Yeah.

I'm not sure I follow the question sorry.

Hi.

Oh.

Yeah, let me try to clarify.

Speaker 9: Yeah, let me try to clarify. So for example, in prior quarters your guidance may consist of...

So for example in prior quarters.

Your guidance may consist of.

Speaker 9: sort of bottoms up basis where you're looking at your pipe.

Some sort of a bottoms up basis, where you're looking at your pipeline, you're assuming some sort of close rates.

Going forward have you changed your thought process or change the parameters that you utilized in that process.

Speaker 9: going forward, have you changed that process or changed the parameters that you used?

Yeah.

Speaker 4: No, I think we're still building a bottom-up from what we see.

No in St. Louis we are still building it bottom up from what we see.

Speaker 4: and we are trying to accurately forecast what the results are going to be and we do that in a very detailed bottom-up process that we do internally and follow up on basically weekly.

Right.

We're trying we're trying to accurately forecast what the results are going to be able to do that.

Very detailed bottom up process that we are we do internally and follow up on phase two weekly.

Speaker 4: And it's true that over the past couple of years our ability to forecast the probability and timing of closing deals has diminished so our forecasts have become less accurate. But the process itself has not changed. It's simply become harder for us to nail the numbers correctly.

And it's.

It's true that over the past couple of years.

Our ability to forecast the probability and timing of closing deals.

Has diminished.

Our forecast has become.

And that's accurate.

But the process itself as you know has not changed it's simply become harder to us too.

To nailed that number numbers correctly.

Please just remember the two previous years till like two years ago.

We had a much larger backlog.

Speaker 8: So it was easier to forecast the quarterly revenues. Now when the backlog is much lower, we are dependent on the same quarter booking.

So it was easier to forecast the quarterly revenues.

When the backlog is as much low oil well it depends on the same quarter bookings.

Speaker 7: So we have a challenge to forecast the revenues. Yes, on my solar 1942 MGG satellite we have demonstrate the the

So we have a challenge to forecast.

Revenues.

So I degree of accuracy.

That's helpful and just to be clear I mean.

Given the commentary around the limited visibility are you using lower probabilities compensate for that.

Speaker 9: Given the commentary around limited visibility, are you using lower probabilities to compensate for that lower visibility?

Visibility.

Low probabilities of closing.

Speaker 7: We believe the tower forecast is realistic and achievable.

We believe that's all forecast.

Or at least streak and achievable.

Speaker 7: but it's not conservative and it's not aggressive. We think it's realistic and material.

But it's not a concern.

Not aggressive we think so.

Realistic and achievable.

To directly answer your question, yes, we.

Assuming lower probabilities on things because it becomes harder to forecast.

Yes.

Okay. Thank you and then.

Thank you.

Speaker 9: I think you mentioned that you're looking to drive

You mentioned that.

Ah.

You're looking to drive profitability and it sounds like you know the main driver to drive that profitability has continued to grow.

Right.

Is the Opex portion.

The overall business.

And while most of your Opex is.

To mingle with between the <unk> and the D. P I.

Speaker 9: Is there some amount of minimal investment that you're going to want to maintain?

Is there something.

The Mount of minimal investment that you're going to want to maintain.

Strategically on the <unk> portion.

Yeah.

Speaker 4: we will definitely maintain a balance between our investment policy portion and our drive to reach profitability and it will limit the amount that we are able to invest. So no doubt we will be investing less than we have this year and definitely less than we invested in the year before.

We will definitely maintain.

We're pleased with.

The word minimum has the rights, we will maintain a balance between our investment policy pass portion though.

And that would drive that.

To reach profitability.

The amount since we were able to invest so no doubt.

Due to less than <unk> <unk>.

This year and definitely less then we invested the year before.

Speaker 4: It's now let's say.

Okay.

Yeah that's.

Speaker 4: You are correct that a significant part of our drive to reach profitability has and continues to be expense control.

You are correct that the significant part of our drive to reach profitability.

Uh huh.

Has and continues to be expense control.

Speaker 4: Because when we look at the top line, then I would expect to see fast revenues like a

There is because when we look at the year. When you look at the top line again I would expect to see first revenues right.

But like we've been showing over quite a few last quarter's dosing system control. So I would expect them to continue to grow into next year, which will help us but the absolute numbers themselves are not very high.

Speaker 4: like we've been showing over quite a few last quarters, they're consistently growing, so I would expect them to continue to grow into next year which will help us. But the absolute numbers themselves are not very high.

Speaker 4: So we remain with trying to forecast and see how much can we count on the DPI or a lot of small segment for revenues. That area which relies heavily on operator spending is still affected by significant headings and cuts and reductions in operator's budget.

So we remain with trying to.

<unk> forecast and see how much can we count on the DPI or small segment for us.

For revenues without the area, which relies heavily on.

Operator spending.

As I said are affected by significant headwinds.

So deductions and operators of budgets. So why do I think we are.

Speaker 4: So while I think we are roughly around the general sense without taking any numbers, I think we've roughly reached sort of the bottom of the curve here. I don't think we can rely on the significant growth in our DPI or our LOPSMART segment. So the combination of that leads us to reach profitability by reducing the outputs, which is what we have been doing so far.

Roughly around.

The general sense without stating any numbers I think we were off to reach sort of the bottom of the curve here.

I don't think we can rely on a significant growth there.

Hello, everyone look smart.

So the combination of what we just.

To reach profitability.

By reducing the Opex, which is what we've been doing so far.

Just to be clear.

Speaker 9: Would you be able to cut your off-x further if you believe you needed to in the case that you played does not?

Would you be able to cut your opex are there. If you believe you need to indicate that there's.

Does not stabilize here.

Oh.

Speaker 4: We didn't prepare our 24 budget yet.

We didn't prepare all 24 a budget yet.

So we don't know.

Speaker 10: And as I said, it will be a combination between the revenues which we think will be achievable and the right level of OPEX and we keep our goal to be breaking the next year.

Unnecessarily set that can be a combination between the Oregon.

Which we'll see we'll be achieving that.

And they're right in the ballpark.

Next and.

And we keep our volume to be breakeven next year.

Yeah.

Last question for me.

So as you mentioned you had announced a special committee to explore.

Options for.

Speaker 9: a lot and subsequently you announced your founder retiring from the chairman position chris

A lot and subsequently you announced a gift.

Your founder are retiring from the chairman position and our new chairman.

Speaker 9: Does that represent the conclusion of that special committee or is that still ongoing? What do you think?

Does that represent.

The.

Conclusion of that special committee or is that still ongoing and then what do you expect the new chairman of the brain.

And so I'll say a couple of things as long as the committee was formed.

Speaker 4: So I'll say a couple of things. One is that the committee was formed and I'll reiterate what I said. The committee was formed to work with management to identify and recommend opportunities for improvement, for further improvement.

Yeah.

Yeah.

We reiterate what I said to us unless.

Unless it was for them to work with management to identify and recommend opportunities for improvements dispose of equipment.

Speaker 4: with a focus on driving sustained profitability and enhancing shareholder value.

With a focus on driving sustained profitability and enhancing shareholder value.

Speaker 4: the work between the executive committee and management, one of the results of that was the opposite reduction in cost-cutting that we implemented during the third quarter in late August .

Good.

The work between the Executive Committee and management.

One of the one of the results was that what was that.

That to us.

The opex reduction of cost cutting that we implemented during the third quarter.

August.

Speaker 4: And that work continues, like I said earlier, in this fall, continues to work together with management to figure out what is the right operating plan, goals, and expense levels and budget for 2024. Now m'am please come back here after for a quick review and we'll be putting time and money into the collectibles, starting with the

That work continues as I said earlier this fall continues to work well.

Together with management to figure out what is the right operating plan.

And eh and expense levels and budget for 2024.

Okay.

Speaker 4: Ibal, who was our chairman recently.

Hugo who was our chairman until recently.

Speaker 4: he decided to resign for his own reasons. It has nothing to do with the Executive Committee or and there's not a derivative of that in any way shape or form.

We decided to resign for his own reasons says.

Nothing to do with.

The executive committee or does not the derivative of that in any way shape or form.

Yeah.

And do you expect the new chairman bring anything different here.

Speaker 4: I think the new chairman, you know, you feel free to ask him yourself and when you meet him but I think anybody that has and definitely our new chairman David Rice.

I think as the new Chairman you know what I used to feel free to ask them yourself.

If and when you meet them.

I think anybody that ties.

These are our new chairman David devices.

Speaker 4: vast industry and operational experience. I think anybody that brings with them a fresh look, different perspective.

Vast industry and operational experience I think anybody that.

Brings with them a fresh look different perspective can bring significant value to the top there and that's what the newspapers will contribute.

Speaker 4: can bring significant value to the toddler and that's what I believe they would do with the previous

Thank you for taking my questions.

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

Speaker 2: The next question is from Mark Silk, Silk Investment Advisors. Please go ahead.

Speaker 9: Thank you. So earlier in the process in the C-Cast deals a few years ago, you would basically lay out your capital with no commitment. So...

Thank you so earlier in the process of a fee cash deals a few years ago, you were basically lay out your capital with no commitment. So can you kind of.

Speaker 11: explain how going forward that's going to be. Like are you going to before you spend penny number one you're going to get a commitment if you hit benchmarks. It's just you know clarified.

Explain how going forward, that's going to be like are you going to before you.

And play number one you're going to get a commitment if you'll get benchmarks.

It's just you know try to clarify.

Speaker 11: you know, you're kind of spending in this reward in regards to obtaining more CTAS costs.

Youre kind of spending in the scoreboard.

So obtaining washy cash customers.

Okay. So like so.

Speaker 4: Okay, so I'll give you a bit more detailed answer maybe. You're right that that's how we were doing with our input security program in the past.

And so I'll give you.

A bit more detailed answer maybe youre right that that's how we are that's how what we were doing was selling uplifts materials and products.

Yes.

Speaker 4: Now, when we look at it, we looked at it again about a year and a half or so ago, and we said, okay, the fact that we are outlaying capital without hitting a firm commitment from the operators, and that they take a long time to launch, and they take a long time to ramp up and generate revenue, and so on, is not a good way to go forward. So for most new deals...

No no when we look at it we looked at it again.

About a year and a half or so ago. When we said the fourth phase. The fact that we are ultimately chocolate.

I was getting a FERC commencement shortly be operators and that's why it takes a long time to launch in May.

It takes a long time to ramp up and generate revenue. So it's not a good way to go forward.

So for most most new deals.

Speaker 4: definitely for the smaller ones we are looking for a firm commitment for revenue before we take upon ourselves any commitment to invest capital or deploy the network and so on.

Definitely for the smaller ones, we are looking for a firm commitments for revenue before we take upon ourselves.

Any commitment to invest capital or deploy the network and so on.

Speaker 4: And investment capital is not just hardware, right? It can be hardware, professional services, things like that.

And the investment capital is not just hardware right. If it would be hard to professional services things like that.

Speaker 4: Now it's not all operators are created equal. I can tell you the secret, Verizon was not willing to give us a firm upfront commitment for everything.

Now, it's not not all operators are created equal.

I can tell you all of that.

I don't think it's a it's a secret to Verizon was not willing to give us.

A firm commitment for revenues.

Speaker 4: But I think the opportunity has proven itself and it was right of us to sign this dream and launch with them even though they didn't make an upfront minimum revenue commitment to us. So I would expect that there could be other such operators in the future but we will strive.

But we have but I think can be opportunity has proven itself from Duke was right of us more to assign this launch was that even though they didnt make an upfront minimum revenue commitment to us. So I wouldn't expect it could be other such a such operators in the future, but we will see.

<unk>.

Speaker 4: 100% with the small and medium-sized operators. With the large ones, we may need to be more pragmatic, but we will strive with the other ones to get the minimum commitment.

100% with the small and medium sized operators was the large ones, we may need to be to be more.

More pragmatic, but we will strive with the we'll see other wants to go to them to help promote them.

Well. Thank you for taking my question.

Speaker 3: The next question is from Todd Seltzer of 8-8 Management LLC. Please go ahead.

The next question is from Todd it's out there.

Management LLC.

Please go ahead.

Okay.

Okay.

Todd are you on the line.

Yeah.

Todd would you like to ask you a question.

The question is not asked and he's not asking his question.

Speaker 2: The questioner is not asking his question. We'll continue to Rory Wallace from Albridge Capital. Please go ahead.

Danielle to Rory Wallace from <unk> capital. Please go ahead.

Speaker 9: Hi, Reza. It's good to hear you're feeling better. I was wondering if you could elaborate at all on the launch of Verizon, and how they're thinking about the offering.

Hi, Rez good good to hear you're feeling better I was wondering if you could elaborate at all on the watch at Verizon and how they're thinking about the offering in terms of their strategy around cyber security maybe.

Speaker 9: their strategy around cyber security, maybe how they would view potentially expanding the deal. It's obvious that for a lot it would be wonderful to expand outside FWA since the opportunity there is an order of magnitude larger outside that footprint. And do you think that Verizon is viewing this solution as something that's very additive both to revenue to churn or in other strategic ways that would give them a real impetus to expand the deal.

Maybe how how they would view potentially expanding the deal it's obvious that for a lot of it would be wonderful to expand outside SWA since the opportunity. There is an order of magnitude larger outside that footprint and do you think that Verizon is viewing. This solution is something that's very additive both to revenue to churn or in other strategic.

Waste that would give them a real impetus to expand the deal.

Speaker 12: Okay, I'll try to respond and I'll tread lightly here. First of all, Verizon is a very, very large corporate, right? There are not many people in Verizon and they have to...

Okay Oh.

I'll try to respond to in all likelihood a day now first of all horizons are very very large corporates right. The more amendments equal to Verizon in the house.

Yeah.

Speaker 4: But I'll try and state what I believe from my interaction with many people in Verizon, what I believe the general consensus could be. First of all, the security services launch is perceived to be going very well.

But try and stay with I believe from my interaction with many people at Verizon with I believe the general consensus first of all the launch is persistent.

The security services watch list, which is perceived to be doing very well.

Speaker 4: They believe it is something that the customers value and that the sales people find they are comfortable in selling it because the customers perceive value and it's good for them.

I believe that.

I'm thinking about it.

Is that our customers value.

Dr Salespeople assigned.

They are comfortable and selling it because the customers perceive value on it.

Speaker 4: Second, I would say that yes, it's definitely showing nice revenues for Verizon, and I think that they are overall happy with the way it's going, not just technically, but also commercially.

Second I would say that yes.

Definitely showing.

Nice revenues for Verizon.

But I think that their overall happy with whats the way, it's going not just technically but also commercially.

Speaker 4: I would add to that that we are hearing sentences from people on Verizon which say things like okay they understand that they as an operator are losing more and more the grip on the end user devices as people bring.

I would add to that but you know we're hearing centers this problem by people and Verizon.

Sure.

It seems like it's okay. They are they understand that there is an operator.

R R I.

Losing more and more of a grip on the end user devices.

So Britain wide range of devices doing different things from different sources and so on.

Speaker 4: wide range of devices doing different things from different sources and so on. And here's a value.

He was a value that is something that to work its metalwork Tonight. If it's on the network with the value of the Verizon network matures.

Speaker 4: that is from the network, it's network native, it's on the network, it's the value of the Verizon network which is, and the network itself is their pride so this fits very well along with that.

The network itself is there a price so just six very well along with that.

Speaker 4: and we're discussing with quite a few people in Verizon options of where to take this further because it's considered something that is inherent to the Verizon, an inherent value that can be added to the Verizon network, it's valued by customers and there are many different segments that can enjoy this. So as a...

We were discussing was quite a few people and realize that options of where to take this further because it's considered something that is inherent to the horizon and inherent value that can be added to the Verizon network, it's valued by customers and there are many different segments western enjoyed this so.

So you want without without.

Speaker 4: So without getting too much into details, I think the opportunities there are large, but like I said in the call, that we cannot guarantee that they will eventually expand this to other segments, but we are in serious discussions on it, and I think it's a big potential.

Getting too much into details. So I think the opportunities there are large but like I said that the Cogs do we cannot guarantee that they will eventually expand this to our two other segments, but we are in serious discussions on it.

And I think it's a big potential.

Thanks, and with far Eastone, they've announced that they've hit 550000, subs, which I think it's 10% or so of their postpaid base within one year. It seems like a great curve of growth are they doing anything really unique as far as kind of at or approaching the service I think.

Speaker 9: They've announced they've hit 550,000 subs, which I think is...

Speaker 9: 10% or so of their post-paid base within one year. Seems like a great curve of growth. Are they doing any...

Speaker 9: really unique as far as how they're approaching the service. I think the answer is probably yes, but can that be replicated?

Probably yes, but cannot be replicated elsewhere with future watches or where do you see them, taking it maxed I know, they're merging with another telecom carrier, they're acquiring another Taiwanese telecom carrier do you think theres an opportunity to continue to grow that at a rapid rate within FMT.

Speaker 9: elsewhere with future launches or where do you see them taking it next? I know they're merging with another telecom carrier, they're acquiring another Taiwanese telecom carrier. Do you think there's an opportunity to continue to grow that at a rapid rate within FET.

Speaker 4: What FET is doing, I think that is different from other operators is the attitude of the executive management. The person who took...

And what does she is doing I think that is different from some other operators.

Is the I would say the attitude of the executive management.

Person who took.

Sure.

Speaker 4: took within FET, who took the initiative on this, is their CEO , and she decided that FET should be viewed. She wants to make FET considered as the secure, the most secure operator within Taiwan.

So of course in the ICT totally we're taking the initiative on this.

Is there a CTO.

And she.

She decided that.

It should be a huge she wants to go with it to make FCC.

Considering.

The secure the most secure operator within Taiwan.

Which is her market of course.

Speaker 4: which is her market of course. Now by doing that then she has decided to go to market to be very aggressive so they are selling security at almost every touch point, I think almost every touch point I'll say cautiously almost every touch point they have with customers whether it's stores, advertisement, callsense.

Now.

By doing that then she she is.

She has decided to go to market to be very aggressive so they are there.

They are selling security.

So almost every touch point, so think of every touch point I'll say cautiously almost any thoughts they have wished with customers whether its stores advertisement because it.

Speaker 4: excuse me, et cetera, which is pushing the results. And that's what creates, what generates at the end, the sales and the uptake in the service.

Excuse me et cetera.

Which is pushing the well it's pushing the results and that's what creates what January so at the end of the sales in the.

Just on the surface.

Speaker 4: Can this be replicated? I would certainly hope so. I think we discussed it in previous calls. I think that when there is an alignment of the strategic interests of the operators.

Can this be replicated, but I would certainly hope so and I think we've discussed this in previous calls.

I think that when there is an alignment of the strategic interest of the operator.

It was security for Us I'll rephrase that were there when the operator sees security is aligned with our strategic interest that drives many things in terms of who is the operator of the way. They go to market with the priority. We put on this et cetera, and that then drives adoptions with rapidly.

No mention just as a.

Yeah, just to put some color on it.

We initiated actually lost a few weeks ago several weeks ago, we initiated the marketing cockpit.

Speaker 4: in Europe where we had marketing people from various operators using our product meet with each other and compare notes on what exactly they're doing, what they should do, how somebody else is doing something better, what their takeaways are and so on and so forth. That's a role that our marketing department has been doing, sharing the information.

In Europe.

We had.

Marketing people from various operators using our products meet with each other and compare notes on what exactly youre doing what they should do.

I'll, let somebody else is doing something better than what they were takeaways are and so on and so forth.

That's a role that our marketing department has been doing sharing information.

Speaker 4: as best possible between them. But this time we gave them a platform to do it with each other directly. I think it was very encouraging and we had quite a few operators walk away and come to us at the end of that not just touting the value but saying okay we learned that this other operator is doing this and that and we think that's a good idea so we're going to see how we can implement it and drive higher adoption and revenues in our life.

It's the best possible between the first time, we gave them a platform to do it.

If you do it with each other directly I think was it was very encouraging I'm glad to be quite a few operators walk away they've come to us.

Just how do the body with saying, Okay. We learned that this other operators doing business that we think that's a good idea. So we're going to see how we connect a momentum and drive higher.

The assumption that revenues in our market.

Speaker 4: And we have quite a few of those, so we're trying definitely to get that.

We have quite a few of those so we're trying to get that problem.

Yeah. Thanks, Yeah, it sounds positive and thinking about the free cash revenue going into next year.

Speaker 9: Thanks, yeah that sounds positive and thinking about the CCAS revenue going into next year, it's clearly going to grow. I think you can't control the adoption curve but Verizon is going to be almost all incremental next year and then FET should generate.

It's clearly going to grow I think you can't control the adoption curve, but Verizon it's gonna be almost all incremental next year and then F.

Should generate.

Decent growth I would say if you just kind of model out what they've been doing so is there anything that you think about on the flip side, we see cash why it wouldnt grow at a rapid rate next year and taking it to the next level.

Speaker 9: decent growth I would say if you just kind of model out what they've been doing. So is there anything you should think about on the flip side with C-Cast why it wouldn't grow at a rapid rate next year and taking it to the next level.

Speaker 9: When does that business really reach a profitable scale in your opinion and obviously subject to change but I think

When does that business really reach a profitable scale in your opinion, and obviously subject to change, but I think it's important to consider when that business might become cash generative and what it would take to get there if it's Verizon expanding a deal or if it's winning several new operators.

Speaker 9: it's important to consider when that business might become cash generative and what it would take to get there if it's Verizon expanding a deal or if it's winning several new operators and how you see that evolving.

And how you see that evolving over the next year or two.

Speaker 4: I think you've asked, you're asking the right questions and I think that those are the answers we need to answer ourselves as we're building our plan and budget for next year.

I think you've asked Julie I think you were.

You're asking the right questions.

I think those are the answers we need to ask ourselves is we're building our plan and budget for next year.

Speaker 12: I would like to be a bit more cautious and I prefer to address those questions in more detail after we have our planned budget and numbers for next year and I feel more confident in giving you more detail on that.

We are still with us.

I would like to be a bit more cautious and I prefer to address those questions more in more detail.

So we have our client budget that numbers for next year and what I feel more confident can give you more detail on that.

Speaker 9: That's fair, thanks. And then just a couple questions on the model.

That's fair. Thanks, and then just a couple questions on the model.

One is on product revenue this year it looks like it'll probably be the lowest product revenue you've had in 10 years or more and.

Speaker 9: One is on product revenue this year. It looks like it'll probably be the lowest product revenue you've had in 10 years or more.

Speaker 9: And I guess, versus the expectations you had coming into the year, what does your gut feel about how much of the miss was driven by macro? We know it's a very bad carrier spending backdrop. Everyone has confirmed that outside of you versus some of these secular issues, or even execution issues, frankly, that might have contributed to the revenues coming in low.

And I guess versus the expectations you had coming into the year. What is your gut feel about how much of the Miss was driven by macro we know it's a very bad carrier spending backdrop, everyone has confirmed that.

Side of view versus some of the secular issues or even execution issues frankly.

That that might have contributed to the revenue is coming in the dollar.

Speaker 8: I think the majority has to do with the macro. We did a loss analysis on the deals during this year, we went one-by-one in everything that we were working on and did not materialize into a deal and is not still in process. We haven't...

I think the majority of it has to do with some macro.

When you get into loss analysis on other deals.

This year, we went one by one and everything that we were working on them.

Don't materialize into a deal and it's just not.

Still in the process.

We are.

We haven't.

So.

Speaker 4: Most of the business that did not close did not close because of macro-related issues, budget issues, expense cuts on the operators, things like that.

Most of the business that did not close did not close because of macro related issues budget issues.

The expense cuts on the operator or things like that.

Speaker 4: I think our competitive positioning is still strong and I think the number of execution related problems, they exist, I'm not saying they don't, we can always improve on execution, but I don't think it would have made a materially different result. So that is macro.

I think our competitive position is still strong.

And I think the number of execution related problems they exist I'm not saying they don't we can always improve on execution.

I think there may be materially different from yourself.

Most of it is macro.

Speaker 11: Got it. And then with the expense structure, you mentioned there's one and a half million of OpEx.

Got it and.

And then with the expense structure, you mentioned Theres, one and a half million of Opex related to the at risk where does that show up in operating expenses that I wasn't sure looking at the release.

Speaker 9: related to the risk. Where does that show up in operating expenses? I wasn't sure looking at the release.

Speaker 4: This is part of the op-ex because it relates to the people that were raped. It's like the one-time expense of the real...

This is this is part of the Opex because it relates to that.

Uh huh.

Thank you one time expense of jewelry.

So.

Speaker 4: So if... Would that actually be shown on the press release? I'm not sure. So for instance, if X people were released from R&D...

Yes.

It's shown on the press release I'm not sure.

So for instance.

People, who were at least from the RMB.

Speaker 7: So the relevant one time risk expenses is in R&D. We saw there are people from F-GNA, so it will be shown in...

So the relevant.

One time <unk> expenses in Q D.

You said people from SG&A.

Can be shown in our DNA.

In the same place, where we book the salaries, but we didn't break it out and so forth Laurence you yeah.

Speaker 7: In the same place we booked the salaries but we didn't break it up in separate lines. No, the 1.5 is not in separate lines. It's embedded in the R&D, FDNA.

At one point.

No the one pocket.

It's embedded in gaining R&D of DNA.

Cogs and so on.

Understood understood and it wasn't shown separately, that's just what I wanted to confirm and then.

Speaker 9: Understood, understood, and it wasn't shown separately. That's just what I wanted to confirm. And then if I adjust for the 1.5, it gets.

If I adjust for the one five that gets me roughly.

Speaker 9: know, $21 million or a little, you know, under $21 million of base recurring OPEX in Q3, and then we should expect that there's a $15 million expense reduction that will flow through the P&L over the coming quarters, which should reduce expenses by around a little shy of $4 million a quarter. Is that a reasonable way of looking at the model and where expenses should land?

21 million or a little under $21 million.

Base recurring Opex in Q3, and then we should expect that there's a $15 million expense reduction that will flow through the P&L over the coming quarters, which should reduce expenses by around a little shy of $4 million a quarter is that right.

Reasonable way of looking at the model and where expenses should win.

Speaker 8: I'm not sure it's the right numbers, but we would like to refer to those numbers only in February after we finalize the budget process.

I'm not sure it's the right numbers.

We'd like to sell to those numbers.

Only in February after we finalize the budget process.

Speaker 8: and we will be ready with our 2024 guidance.

And we will be ready with our 2020 full guidance.

Yes.

Got it and one last question. Thank you for being patient with my questions. So you mentioned a large deal that was potentially going to drive a variance in cash flow in Q4 is that a revenue deal or is that a booking with a prepayment and the revenue shifts outside of the quarter.

Speaker 9: Got it. And one last question. Thank you for being patient with my question. So you mentioned a large deal that was potentially going to drive a variance in cash.

Speaker 9: Is that a revenue deal or is that a booking with a pre-payment and the revenue shifts outside of it?

Speaker 6: I would say that it could go either way so that hence we have a wide range. But you are not there. It's the closest of how it goes. Okay.

I would say that.

It is.

It's critical.

So that tends to have a wide range to early adopt.

If we close this of how it flows.

Okay.

Thanks, a lot for taking my questions.

Thank you Rory.

Speaker 9: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions.

If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.

There are no further questions at this time, Mr. Juan Pepe would you like to make your concluding statement.

Speaker 2: There are no further questions at this time. Mr. Entebbe, would you like to make your concluding statement?

Speaker 12: Yes, I want to thank everyone for joining us on the call today. Thank you for your support during these non-trivial times. For those of you in the US, I'd like to wish you a happy Thanksgiving weekend and I look forward to seeing you either at latest in our next call and if not before that perhaps in person. Thank you very much.

Yes, so what I want to thank everyone for joining us on the call today.

Thank you for your support during the non trivial times.

And for those of you in the U S. I'd like to wish you a happy Thanksgiving weekend.

And I look forward to seeing you wise or at latest in our next call if not before that perhaps in person. Thank you very much.

Thank you. This concludes the <unk> third quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.

Speaker 2: Thank you. This concludes the ALO third quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

Okay.

[music].