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[00:00:00] Ladies and gentlemen, thank you for standing by. Welcome to the Allot third quarter Twenty twenty results conference call. All participants are present in listen only mode following management's formal presentation, instructions will be given for the question and answer session as a reminder, this conference is being recorded. You should have you should have all received by now the company's press release. If you have not received it, please contact a lot of investor relations team at G.K Investor and Public Relations at one six four six six eight eight three five five nine or Vuit in the news section of the company's website. W w w got a lot dotcom. I would now like to hand over the call to Mr. Ken Green of Investor Relations. Mr. Green, would you like to begin, please?

[00:00:51] Thank you, operator. Welcome to a third quarter 2020 conference call. I would like to welcome all of you to this conference call and thank all of the management for hosting this call. With us on the line today, Mr. Ehud Helft president and CEO and Mr. Ziv Leitman, CFO, I will begin and summarize the key highlights followed by this review. A lot of financial performance of the course that will then open the call for the question and answer session. Before we start, I'd like to point out that this conference call may contain projections or other forward looking statements regarding future events of the future performance of the company. These statements are only prediction, and I cannot guarantee that they will, in fact, occur. A lot does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of the impact due to the covid-19 pandemic. Changing market trends reduce demand and the competitive nature of the security systems industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. And with that, I now like to hand over to error and said the errors. Please go ahead. Thank you, Kenny.

[00:02:12] I'd like to welcome all of you to our conference call and thank you for joining us today. Our third quarter was another quarter of solid growth. Revenues grew 26 percent year over year for the third quarter and reached thirty four point eight dollars million. [00:02:30] This is our 11th straight quarter of double digit revenue growth year over year. And I am very pleased with the results we achieved during the third quarter. I believe it shows we are on track and successfully executing on our plan. The number of opportunities we see continues to grow. We continue to close new deals, win against competition, bring more business and grow our revenues. Our revenue growth in 2020 accelerated so far compared to our revenue growth rate in 2019, and we expect this to continue in the fourth quarter as well. As we see our opportunities grow, we increased our investments to capitalize on the significant number of opportunities that we see. Zeeb will provide more details on our financials and forecast later. In order to allow better focus and faster response to market needs, we recently implemented an internal organizational change instead of having a single R&D group for all products and a single product management group for all products. We created two new product business groups, one for a lot secure products and one for a lot of smart products. [00:03:49] Each product business group will have its own R&D and its own product management. Sales and customer success will continue to be global and serve all product lines as today to lead to a lot secure business group. We are joined by Elvina. Yeah, and is a cyber and data science expert. [00:04:11] Among her previous roles, Ya'el was VP Security and Cisco and General…

[00:22:22] Please go ahead. Thank you. Before I begin reviewing the financial results for this quarter, unless otherwise noted, I would refer entirely to the non-GAAP financial measurement when discussing the operational results, which is what we use internally to judge the ongoing performance of our business, not get financial differences in respect from the generally accepted accounting principles and exclude Schill based compensation expenses, expenses related to M&A activity, amortization of intangible assets, and defensive changes in deferred tax and tax related items, and also the financial results. [00:23:10] Revenue for the first quarter of Twenty twenty will be four point eight million dollar, going by 26 percent compared with those of the first quarter of 2019. I would like to give you some more color regarding the revenue breakdown and diversification. The geographic breakdown for the third quarter was as follows. Americas with one point nine million dollar, six percent of revenues, Imman 28 million dollars or 80 percent of revenue, and Asia-Pac was four point nine million to around 14 percent of revenues. The breakdown between products and services in the third quarter of Twenty twenty versus the comparable quarter last year was as follows. Product revenues were twenty four point four million dollars, compared to sixteen point six million dollars last year. Professional services revenues were two point nine million dollars, compared to two point four million dollars last year. Support and maintenance revenues were seven point five million dollars, compared to eight point seven million total of last year. Palsson of Communication Service Providers revenues out of total revenue in the third quarter well eighty six percent, compared to eighty two percent in the comparable quarter last year. I know that the revenue breakdown may fluctuate from quarter to quarter depending on specific revenues and…

[00:30:48] Thank you, ladies and gentlemen. 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 to if you are using speaker equipment, kindly lift the headset before pressing the numbers. Your questions will be pulled in order. They are received. Please stand by while we poll for your questions. The first question is from Michelle. Michelle Waller from Needham and Company Michelle, please go ahead.

[00:31:32] Thanks. Hi, guys, thanks for taking the question on Groulx. Quick one for you guys are indeed declining in Twenty twenty one. Just wondering if you guys expect that to be offset by other factors such as travel expenses and whatnot, coming back into the model that we may have had taken out of the model due to covid. And also just wondering if you can give us an update on your hedging strategy there and how it impacted the quarter and maybe even looking at Symbicort or if you can and I have a follow up.

[00:32:16] Ok, I'll take this for the first question. We don't we don't yet have a budget for 2021. So honestly, I, I don't think we can we can address exactly what the various elements of expenses we expect to have or not have and so on. A, I really think we'll have that by the end of the year in the next conference call or provide guidance on where we see where we share Twenty twenty one numbers go. But I think that's about all we can say right now.

[00:32:55] Regarding the exchange differences, this was the second question. So we didn't have a significant effect on the quarterly results. By the way, each one percent change in the system, the Israeli currency, the effect is less than one million dollar. [00:33:23] So it's not a significant risk for a full year. Yes. All right. Yeah, hopefully so it's not that it's not a significant effect on each one of the quartos.

[00:33:41] Ok, thanks, that's that's helpful. And from a follow up, you know, you guys had some pretty good traction in announcing deals, this during the third quarter and just looking into next year. Can you talk a little bit about your pipeline and how that looks with you guys continuing when new deals, despite some delay launches? It seems like your pipeline would be building quite strongly. And you kind of mentioned that in your prepared remarks. Are there any areas where you see headwinds that, you know, like prolonged project launch, the ways that you, you know, that have seemed to extend more than you previously thought or or areas where you're you're not seeing as much still activity as you would have expected that might be offsetting factors for, you know, the pipeline or is it just, you know, there are no negative impacts in the pipeline, so to speak, outside of what you guys already mentioned on the prior year to second quarter call.

[00:34:44] And look, I think I try to help to address it during the call. I think, you know, when we look at each market segment separately, we're seeing mostly growing demand across the across the various segments. Now, like I mentioned and, you know, we already talked about it, there's yes, covid-19 does create some delays in the projects and closing the deals and signing them and launching them and so on. But overall, I think the net effect is that we're seeing we're seeing more business. And if I look at the pipeline that we have today and I look at what I would expect it to be going to the future, I think the pipeline is very robust. And I think that's that's particularly true for the security product line. But I think it's also true for the LookSmart product line. It's not it's not defined to one segment. So overall, I think we see a very healthy pipeline. And so that looks promising.

[00:35:53] That's helpful. And congrats in the quarter again. Thank you.

[00:35:57] The next question is from Eric Martinuzzi from Lake St. Eric. Please go ahead.

[00:36:08] Thanks to my congrats on the quarter as well, you're looking at it right now. I've got consensus at thirty nine point two million for Q4. If I back off the nine months from the full year, revenue guidance would be talking about 38 million to 43 million. Just clarification, is that correct? 38 to 43.

[00:36:28] Yeah. You subtract that correctly. You know,

[00:36:31] I've got an MBA, so I just want to. Ok. So when I look at the the backlog exiting 2019, we had you know, you talked about 138 million dollar backlog exiting 2019, and that's 70 percent of that would translate into revenue and twenty twenty. That's still a correct assumption, roughly.

[00:36:57] Roughly speaking, correct assumption.

[00:37:00] Ok. All right. And then as we look at this, the comet impacts the delays here. Your your expectation of the 140 million dollar mark are winding up with kind of a logjam here in Q4 because of covid in that in order to hit 140 million mark, we need to we need to sign a bunch of business or or their transactions maybe that you haven't announced that translate into that 140 million mark.

[00:37:33] I think we can say that a significant portion of the one on one should be signed in Q4.

[00:37:40] Ok, will you be able to announce them, or is it a situation where because of the operators preference, maybe you won't be able to do that?

[00:37:49] Hopefully it will announce. But if we will, we'll get the push back from the customer. We will not be able to announce it. Maybe we will announce it without mentioning the name. But I guess it's by the beginning of February when we will finalize the usually revised. [00:38:14] We will announce that announcing the deal. There is a bit tricky because the operators tendency is to agree to make announcements when they actually launch the commercial service. It's for their own reasons. They don't want to alert the market to their local market of customers and their local competition to what they're up to, what they plan to do and so on. So their tendency, it's not always correct, but but the tendency of many operators is not to not to allow us to announce when they sign the contract with to to announce when they actually launch the the service itself, which, as you know, is typically say nine months later. So we try and we don't always succeed.

[00:39:01] Yeah, I understand. And then last question for me. I'd like to dove a little bit deeper into the organizational announcement that you open the call with. Certainly brought on a skilled executive there. What what should we be looking for, given this, the bifurcation of R&D into two kind of four, maybe product into two different executives as well, them having their own R&D but not controlling their own sales force?

[00:39:34] And look, the reason the rationale behind that is pretty simple, I think that if you know, the R&D in the product and the product management was to, to a large degree, segregated previously because, you know, product manager, just for example, product manager of the home secure product is a different person. And the product manager for four already product and same. Of course, the Rennard Group is a bunch of guys working on the undeveloped, continuing, developing and supporting the DPI product. And other people are supporting Rhino Network, Secure Home, Secure Products. I think the big the the big difference here is bringing bringing leadership to both these groups. That is focusing on each one of them. But both, Kiran. And you are focusing on on a is I would call it a more well defined and targeted a use case customer audience type of sale type of business, I would say. And therefore, they're in a better position to to innovate, to find the right vision going forward, find the right value of how we create value, not just tomorrow morning, but how do we do this properly and how do we advance the products and the strategy properly to be much more successful a year or two or three years down the road. [00:41:08] And that's why we made this this difference now. We didn't do it in sales and support, honestly, because of scale. We are you know, we don't have we don't have many people in different geography and we have many people spread around the world. But if you want and you know, in Australia, we have a very small team. In Japan, we have a small team and et cetera, et cetera, go geography by geography. And had we segregated them and made a is a lot smaller team for sales and and a lot is security for sales and for support, we would have no one have to increase significantly our expenses because we would have to duplicate and number two, which is even a lot more important, we would have lost a lot of leverage on dealing with the operators to whom we are offering both product lines. So at the end, we decided to do it this way and gain the proper focus vision going forward. Quick response to changing market conditions and so on on the product lines. But keep the sales and customer support you globally, globally and regionally targeted as they are today. [00:42:33] I hope that explains that a bit more.

[00:42:36] Yeah, I appreciate that. Thank you for taking my questions. [00:42:42] The next question is from Marc Silk of Silk investments. Please go ahead.

[00:42:49] Thanks for taking my questions and congratulations on continued success in your strategy. So in the last few calls, you've said that on the recurring revenue model, some customers will accept that, others won't. So the two recent deals you mentioned, MCO and then the Tier one home secure in the Asia-Pac with those recurring revenues knew it was a recurring revenue.

[00:43:17] But the latest the latest deal that we announced in Asia-Pac, it was the home security and nonsecure. You are about.

[00:43:30] So because the MIO deal is announced, I'm assuming that that has been launched.

[00:43:37] Yes, it was launched just recently, but yes.

[00:43:41] Ok, so besides the changes in the R&D structure, is there anything because of covid-19 that maybe structurally has changed going forward where you become more efficient, leading to more cost reduction?

[00:44:02] I don't think that structurally much will change as a result of it, at least not that I see right now as we're working through the our operating plan for Twenty twenty one and us. And as we'll see and as we'll see later on, you know, once once covid is finally left us at some point, I hope it will. I do expect some of the some of the practices that we have learned to in coping with covid will continue with us. I believe that long term we will we will know how to work better with much less travel than before. [00:44:42] And I believe that that will enable us to save both time and hopefully expense. But I don't see any structural change as such. The other change that I also mentioned on the on the call is the way we generate leads. If if, you know, before covid broke out, most of our lead generation was operators, was done really with physical meetings, face to face meetings and through introductions and so on. Like I mentioned, we are we are changing our method of operation there. And we're moving to, if you call it you can call it sort of a sales transformation for lead generation and doing this a lot more with targeted marketing campaigns as we're learning how this works right now. Right now, we're still learning it, but it looks very promising. It looks effective. We are generating this quite a few new deal new leads with this. So if this continues, I would expect that this will be one of the things that we will want to keep even after covid is gone, because it's simply good.

[00:45:54] So to add on to that, so I get emails about your seminars and there's been a few, how has that been successful, whether it's generating leads or just showing support to your customer base?

[00:46:07] No, no, it's it's been successful and it's generating leads. And we have quite a few new leads as a result of these campaigns and seminars and so on that that, you know, these are companies that we're now talking to that we didn't talk to before.

[00:46:23] That's great. I see that you have one tomorrow on the you on the long term player, so on the five G. Would that be maybe a second half twenty twenty one story or more of a Twenty twenty two story?

[00:46:39] I think it's it's starting it's starting these days, so I don't know if it's I don't know if it's a first half or second half Twenty twenty one four four initial deal or not. But it's definitely starting now. We're really active in this area right now. But I think it's going to you know, it's going to grow. If you look at if you look at where where the projections for five are and how and the number of operators that are expected to launch over the next year and how they expect to grow their networks over the next five, six, seven years, whatever, then this is going to be a growing market. And that means that every year more operators will join, the existing operators will grow their bandwidth, they'll grow their core network requirements, and they will need more protection. So while I think this business will start for us probably next year, I think it will from there it should be we should be able to grow it.

[00:47:45] It'll be exciting to watch. In the past, you've you to my question that you've had discussions with U.S. telcos or any of these and you talk to any of these companies about a recurring revenue model or something different.

[00:48:03] And we are we are talking to them, to the U.S. telcos and we're talking about recurring revenue model, but we're not at this stage. So I can say much further on that.

[00:48:18] And then you mentioned on the in your press release, management continues to expect to close additional recurring security revenue deals and twenty twenty. Would you be upset if it's less than two greater than three?

[00:48:34] You know, I'm I'm always upset that it's not one more than whatever it is we closed, but it sounded like more than one you had before you had plural in.

[00:48:44] So I'll I'll use my imagination. And last thing you know, your stock is down 25 percent since your last conference call, even though your guidance has stayed the same. I think people were kind of scared that some of these deals are being pushed out. So I just want you to know management of the board to know it would it would really boost the stock if they showed some confidence and took a few shekels out of their pocket and we were able to buy some shares. It would just show a lot of confidence and and good luck going forward. And congratulations on continued success.

[00:49:14] Thank you, Marc.

[00:49:20] If there are any additional questions, please press star one, if you wish to cancel your request, please. Press star two, please stand by while we poll for more questions. There are no further questions at this time, Mr. Erez Antebi, would you like to make your concluding statement?

[00:49:42] Yes, thank you. So on on behalf of a lot and the management team, I'd like to thank you for your interest and long term support in our business. We are currently not traveling, as you can imagine, but we will be holding virtual meetings with investors. We will be presenting at at Needham a November 17 and at the ideas conference on November 18. And beyond that, of course, we're open to speaking with investors until the end of the quarter. And if you want to speak with us, please be in touch with our investor relations team. I look forward to talking to you the next quarter. Thank you very much for joining us today. Have a great day and stay healthy. Thank you. [00:50:30] Thank you, this concludes that a lot, third quarter Twenty twenty results, conference call. Thank you for your participation. You may go ahead and disconnect.