Allot Ltd (ALLT) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Allot's Second Quarter 2018 Results Conference Call.

(Operator Instructions) 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 Allot's Investor Relations team at GK Investor and Public Relations at 1 (646) 688-3559 or view it in the News section of the company's website, www.allot.com.

I would now like to hand over the call to Mr. Gavriel Frohwein of GK Investor Relations.

Mr. Frohwein, would you like to begin, please?

Thank you, operator.

Welcome to Allot's Second Quarter 2018 Conference Call.

I'd like to welcome all of you to the conference call and thank Allot's management for hosting this call.

With us on the call today are Mr. Erez Antebi, President and CEO; and Mr. Alberto Sessa, CFO.

Erez will summarize the key highlights, followed by Alberto, who will review Allot's financial performance of the quarter.

We will then open the call for the question-and-answer session.

Before we start, I'd like point out that this call may contain projections or other forward-looking statements regarding future events or the future performance of the company.

These statements are only predictions and Allot cannot guarantee that they will, in fact, occur.

Allot does not assume any obligation to update that information.

Actual events or results may differ materially 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 filed by the company with the Securities and Exchange Commission.

And with that, I would like to now hand over the call to Erez.

Erez, please go ahead.

Thank you, Gavriel.

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

I would like to start with some key financial parameters for this quarter.

Our revenues in the second quarter of 2018 were $23 million, up 18% from that of the second quarter 2017.

This is a similar year-over-year improvement to what we showed in the first quarter of this year.

Our gross margin improved to 72% compared to 68% in the second quarter 2017.

And as a result, our net loss for the quarter narrowed to $1.2 million, an improvement from $2.3 million in the second quarter of 2017.

In addition, our book-to-bill ratio for the second quarter was greater than 1, and the book-to-bill for 2018 to date is also greater than 1.

Our R&D and sales and marketing expenses grew this quarter.

We are seeing significant opportunities in the market, and we are investing in the product and in sales to generate growth.

I will add that during the second quarter, we opened a low-cost R&D center in Belarus and hired the first people there.

While Alberto will later go through our results in detail, I wanted to start with our financial performance because I believe it shows that we are executing on our plan to return Allot to growth and profitability.

During this quarter, we continue to see revenue growth and pipeline growth across both security and visibility and control segments.

The operational changes we made last year, such as reorganizing our sales and customer success departments into customer-facing units, or CFUs, changes in management at various levels and changes in internal processes are working.

We are seeing new operator wins and an increased pipeline of opportunities across the different market segments, product lines and geographies.

I will start with a few words on the visibility and control domain, another market in which our pipeline and revenues are growing.

We have recently won several deals from operators throughout Asia and Europe.

One of these was a Tier 1 European mobile operator, who selected us for our advanced analytics capabilities.

These wins are important for 2 reasons: First, they demonstrate that we can and are successfully taking market share from competition, including cases where they are the incumbent.

I believe this is a testimony to the strength of our technology and of the company as a whole.

Second, each new win in a new operator creates a base for potential future revenues and expansions, renewals and maintenance.

As we discussed in the past, many operators are moving their core network from an appliance-based network to an NFV environment.

As we planned for this to happen, we developed our software to run in an NFV environment and have taken orders and made commitments to deploy it.

I am glad to say that our NFV product is ready for commercial deployment, and I expect it to be deployed in an operational network environment during this year.

I believe this is a significant technical advantage we have over the competition.

In our previous call, I mentioned several growth use cases for visibility and control: smart traffic steering to effectively handle congestion and reduce connectivities costs; regulatory compliance to allow governments to block malicious or illegal sites; quality of experience where communication service providers, or CSPs, can understand what the real user experience is on their network or even on encrypted traffic, such as YouTube and Netflix; and analytics to enable the CSPs to get significant detailed and actionable analytics on their network to properly plan network build and configuration.

We are seeing growing opportunities and new orders in these areas.

Let's turn now to what we see in the security market, which, as you know, is our main growth engine.

In general, we are seeing more and more CSPs who understand that providing secure broadband services at a premium is something they, as operators, really need to do.

I believe they understand this is a service they need to provide for 2 main reasons: First, it is of interest to their customers, to the mass market consumers and SMBs who are increasingly worried about Internet security; and second, because their customers are willing to pay for such a service.

These make secure broadband connectivity a real opportunity for CSP revenue growth.

As you all know, Vodafone is our largest customer providing security services and the only Tier 1 operator that has implemented this service over several years in mass deployment.

It is all based on Allot technology.

I would like to share with you a quote from the annual report call with Vodafone's CEO, Vittorio Colao, who said, "Our Secure Net product is already EUR 160 million in revenue so there is something that we have been building quietly and we will leverage on."

But it is not only Vodafone.

More are following.

We are seeing growing interest from operators in a wide range of security offerings to the mass market, anti-phishing, anti-malware, parental control, IoT security and home CPE security, all of which can be provided today by the Allot Secure family.

We see CSPs putting out RFPs and RFIs for security services.

We are approached by various CSPs who heard about our experience with security services and want to provide them in their market.

These are growing indications that, as we anticipated, the market for security service to consumers and SMEs by the CSPs is beginning to materialize.

As we discussed in the previous earnings call, we believe this market could potentially reach tens of billions of dollars annually for the CSPs and a potential total addressable market of billions of dollars for Allot.

I remind you that our main security deals so far, Vodafone and Telefónica, were both based on sales of perpetual licenses per subscriber.

We are striving to change this model with future customers and are offering OpEx or recurring revenue based on deals.

We are encouraged to see that more and more operators are open to such model.

This offering is meeting positive response in most cases.

For example, we expect to announce such a deal to provide unified security to Telefónica Spain SMB, or small-medium business, customers.

This is an additional deal to the Telefónica security deal we signed in 2017.

The unified security is a combination of Allot NetworkSecure and an endpoint security app.

This deal is based on sharing the monthly revenue from the subscribers to the service with Allot.

I believe we will see other recurring revenue-based deals close before the end of this year.

Our HomeSecure product from the Netonomy acquisition is progressing.

We have started technical trials with several operators based on recurring revenue model, and we expect to have first deals for this product during 2018.

While deals like this contribute little to bookings and revenues in the short term, they potentially ensure long-term revenue growth and success for the business overall.

In summary, I can say that we see positive indications for the future.

There is a growing number of CSPs showing interest and looking to offer secure broadband to satisfy customer needs as well as generate significant new revenues.

Secure broadband is a growing interest across mobile, fixed, home and IoT segments.

We closed our first recurring revenue security deal and have a growing pipeline of additional deals.

Our advancements in DPI products as well as better execution on our part are gaining us market share and revenue growth in this segment as well, and we are growing revenues and margins.

This is all very encouraging and indicates to me we are heading in the right direction.

Unfortunately, as you know, working with CSPs takes time, with sales cycles typically exceeding 12 months.

While we are advancing with the CSPs we are currently working with and starting to work with more CSPs on these exciting security offerings, it still takes a bit longer than we would like to close.

Based on the results of the second quarter and the pipeline of deals we see, I would like to reiterate our guidance for the full year 2018.

We expect full year 2018 revenues in the $91 million to $95 million range, and I would like to add that we are trending toward the upper half of this range.

Furthermore, we expect our book-to-bill to be larger than 1 for the full year.

And looking ahead further out, I expect to continue our double-digit rate of revenue growth into 2019.

Finally, I would like to summarize in a few words my key points: One, a growing number of CSPs are beginning to see the opportunity to provide secure connectivity to their customers.

This could create substantial revenue potential for the CSPs.

Two, Allot, with our large and growing installed base and our wide product portfolio, is in a unique and strong position to capitalize on this opportunity by providing to CSPs the software, customer engagement tools and marketing support they need.

All this in a recurring revenue or OpEx model.

Three, our advancements in visibility and control products as well as better execution on our part are gaining us market share and revenue growth in this segment as well.

And four, we are growing our revenues, improving our margins, and we expect to continue this growth going forward.

And now I would like to hand the call over to Alberto Sessa, our CFO.

Alberto?

Thank you, Erez.

Before I begin reviewing the financial result for this quarter, I would like to inform everyone in this call, unless otherwise noted, I will refer entirely to the non-GAAP financial measure when discussing operational results, which is what we use internally to judge the performance of our business.

Non-GAAP financial measure differ in certain respects from the generally accepted accounting principles and exclude share-based compensation expenses, revenue adjustments due to acquisitions, recurring restructuring expenses, expenses related to M&A activity, amortization of certain intangible assets, changes in tax-related items and changes in deferred tax.

With regard to the financial results.

Revenue for second quarter 2018 were $23 million, growing by 18% compared with those of the second quarter of last year.

This is a similar year-over-year improvement to what we showed in the first quarter of this year.

Now I would like to give some details regarding the revenue breakdown and diversification.

The geographic breakdown of revenues for the second quarter of 2018 was as follows: Americas with $2.9 million or 12% of revenues; EMEA with $14.7 million or 64% of revenues; and Asia Pacific with $5.4 million or 24% of revenues.

Product revenues for the quarter accounted for 56%, while service, maintenance and professional service revenues were 44%.

This is compared to a 61% and 39% split in the second quarter last year.

Communication service providers, or CSP, revenues were 79% in the second quarter compared to 78% as reported in the second quarter last year.

I note that revenue breakdown, whether geographical or by product segment or other, may fluctuate from quarter-to-quarter depending on the specific revenue and deals recognized in the specific quarter.

In terms of customer concentration, our top 10 customer made up 61% of our revenues, and this is compared with a concentration of 58% last year.

Book-to-bill ratio in the second quarter of 2018 was above 1 for the sixth consecutive quarter.

Gross margin for the quarter were 72.2% compared to 67.6% in the second quarter 2017.

This represents significant improvement and was due to the sales mix in the quarter, which favored more higher-margin software.

We do not expect the average gross margin for the year to be as high as this.

But as a whole, we do expect it to be higher than that of the last year.

Operating expenses for the quarter were $17.9 million compared to $15.6 million as reported in the second quarter 2017.

Our level of non-GAAP operational -- operating expenses in the quarter was due primarily to both higher R&D, higher marketing and sales, while G&A remained flat.

The higher R&D and marketing expenses is mainly due to the following reasons: our second quarter includes the operating expenses of Netonomy, a business we purchased earlier in this year; an increase in headcount compared to the second quarter of 2017; and the U.S. dollar to new Israeli shekel average exchange rate, which dropped between the second quarter 2017 and second quarter 2018.

We are allowing this controlled expenses growth in order to capitalize on the growth opportunity in the end markets we are addressing.

I would note that some of these expenses are temporary R&D expenses to enable faster deliveries where required.

Non-GAAP operating loss for the quarter improved to $1.3 million compared to an operating loss of $2.4 million in the second quarter 2017.

Net loss for the quarter improved to $1.2 million or $0.04 per share versus $2.3 million loss or $0.07 per share in the second quarter of 2017.

Turning to the balance sheet.

Our cash reserve comprised of cash, cash equivalents and investments as of June 30, 2018, grew to $105.9 million compared to $104.7 million at the end of last quarter.

In terms of guidance, as Erez mentioned, we maintain our outlook, expecting revenue of between $91 million to $95 million for 2018, representing continued year-over-year revenue growth throughout 2018.

I would like to add that we're trending toward the upper half of this range.

We also expect book-to-bill for the full year to be above 1.

As I mentioned last quarter, our operating expenses 2018 will be higher compared to 2017 for 3 main reasons: additional investment in R&D, marketing and sales, as you already saw this quarter; additional investment required in Netonomy for the unsecured products; and the level of the Israeli shekel versus the dollar, which increased our Israeli base cost in U.S. dollar terms.

That concludes my remarks.

We would like -- we will be happy to take your questions now.

Operator?

(Operator Instructions) The first question is from Alex Henderson of Needham.

Can you just remind us what your hedging policy is and how we should view that going forward?

Obviously, the shekel has moved quite nicely, down 5%, 6% in the June quarter, another 3% since.

So I would think that would start to give you some tailwind as opposed to a headwind.

Yes.

I would like to remind you that in -- we are expected by the depreciation of the U.S. dollar compared to the Israeli shekel for all the expenses that we do have here in Israel, mainly salary-related and branch.

In terms of hedging policy, I mentioned that in the past.

I mean we are hedged generally approximately 6 months in advance.

So I mean, we are able to -- we are able actually to enjoy the increase in the dollar or the decrease in shekel depending only after a period, which is approximately 6 months.

I see.

So that should start to benefit you in CY '19 predominantly then?

Something like that, yes.

Second question I had, there's been some time now with the consolidation of Procera and Sandvine into a single entity owned by a private equity fund.

How is that impacting your business?

Is it giving you some opportunities in that customer base?

Is it giving you some opportunities in the distribution front?

Yes, it is.

It's -- the impact is, of course, is varied in different places.

But in general, I would say we are, in the distribution side, in places where, for example, Procera and Sandvine had different companies that they were working with, different distributors or value-added resellers.

Now that they're combined, obviously, they need to -- in many places, they need to choose one of them, which opens up an opportunity for us, for Allot, to work with the other.

There are cases where we see customers or operators that have a dual vendor policy, and they had equipment from Sandvine, equipment from Procera.

Now that the companies have combined, this opens up an opportunity because they'll be looking for another vendor to add to the mix.

So I would say that the combination, while creating a larger competitor on one hand, is also creating for us opportunities on the other hand.

And can you talk a little bit about what their behavior is relative to pricing now that they've merged together and whether you see any changes in their orientation in terms of their competitive stance in the marketplace?

Obviously, you guys are morphing very heavily.

What are those guys doing?

Well, we're not seeing them at all on the security deals.

In that area, I don't know what they're doing, but we're not seeing -- if anything, but we're not seeing them there at all.

In the traditional visibility and control, DPI market, we are, of course, seeing them.

They are our main competitors in that area, and it's hard for me to -- I would say, to conclusively say that there is a specific behavior.

We have seen deals where they are not going after them aggressively.

And we have seen deals where they're being behaved -- where they behave more aggressively.

But overall, I think we feel comfortable that we're gaining market share in this market as well.

So one of the key variables here in your business in the quarter was the move to a what I've described as pure cloud principles going to a software-only commercial off-the-shelf with the hardware and the like.

I would assume that, that has a pronounced positive impact on the perceptions of you with your customers.

Can you talk to that issue relative to what the competition is doing?

I would think that the competition is still much more hardware-centric and less NFV-enabled in that sense and cloud-enabled in that sense.

Yes.

I think -- I mean the fact that we've -- we spent significant efforts over the last year to productize and bring to market our NFV-based platform, what you called our sort of cloud-based software, if you like, even though it's a private cloud for the operator, that's, I think, a tremendous advantage.

I can tell you that it has been a decisive factor in at least a couple of deals.

I think that it's -- I mean, to the best of my knowledge today, I can tell you for sure that we have an NFV-ready product that we can deploy and deploy it immediately.

To the best of my knowledge, the competition is not there yet.

And our customers are aware of that, and that gives us an advantage.

One last question.

Can you give us the headcount, the fully diluted share count, assuming you were profitable for -- which we need for valuation purposes?

And then just last on the gross margin.

It looks like you might be hitting a new threshold of 70% plus going forward.

Is that kind of the right way to be thinking about the GMs as you shift the mix to more SaaS, more soft-only sales?

Okay, so let me take one by one.

First of all, in terms of headcount, the full-time employee at the end of this quarter, the second quarter 2018, were 504.

Regarding the gross margin, we show a gross margin of 72% this quarter.

The product mix favored an higher level of software revenue, which is -- translate in higher margin this quarter.

I think that looking forward, we do expect our gross margin for the whole year to be above what we did in 2017; still will be lower to the level that we reached this quarter.

Regarding -- we do see a more favorable software mix this quarter.

Still, I think that -- I mean, the impact of the NFV and the software-only sales is -- will be seen probably in the coming years.

So is it reasonable to think of a 70% plus as a reasonable baseline to be working off of?

As I said before, it would be higher than last year, lower than 72%.

So anything in the middle it could be.

Okay, I won't press it any further.

How about the fully diluted share count?

And then I'll cede the floor.

What about?

Fully diluted share count.

The share count is 33 million.

Let me have a look at that.

I don't remember by heart right now.

I will get back to you.

Fully diluted.

We just need it for the valuation parameter.

We'll get back to you soon.

I will have to get back to you.

I don't have the figure in front of me right now.

The next question is from Peter Zdebski of Barclays.

You mentioned 61% of sales from your top 10 customers.

Is your backlog in line with that currently?

Or is there any shift going on there?

So you started off with 6...

I didn't -- I didn't...

We said that -- just to make sure that we understand the question.

We said that the product revenues for the second quarter of last year was 61 products, 39 maintenance and professional service.

And the same split for this quarter 2018 -- second quarter 2018 was 56 and 44.

I see.

No, I was referring to your sales from your top 10 customers.

I believe you said 61%.

Oh, okay.

The top 10% made up 61% of our revenues.

Correct, yes.

And is backlog the same proportion currently?

Or is there any evolution there?

I think it will be -- it makes sense to assume that it's a similar proportion there, yes.

Okay.

And there were some other security customers you've discussed in the past such as [Telefónica] and a couple of other Latin American carriers.

Could you discuss how much product revenue they've installed?

We'll give out the breakdown of the -- I think it's a bit, even I would say, misleading to discuss specific product revenues of security quarter-by-quarter.

We'll give out the breakdown on security revenues versus other revenues at the end of the year.

I'm not -- and that's for specific customers.

I'm not sure I can give you those numbers.

All right.

Understood.

And finally, how amenable have you -- could you discuss how amenable you found carriers to be to a revenue-sharing deal as opposed to a perpetual deal like with Vodafone?

It varies, of course, from one operator to another.

I would say that we found quite a few -- first of all, in general, carriers are open to it.

I would say that there are nuances there.

Some carriers is a minority actually from our experience prefer CapEx, but that's the minority.

The majority prefers something like -- something in the form of a recurring revenue.

Some of these carriers prefer a revenue share because they see this as a direct risk-sharing and they like the partnership aspect of a revenue share.

Other operators would prefer a flat quarterly or yearly fee per customer because they don't want anybody involved in their revenues, pricing, et cetera.

But as a general, the trend toward recurring revenue based on number of subscribers success and so on is the -- I would say the acceptance of that is very high.

That's helpful.

Do you ever see any kind of a hybrid structure?

In other words, any upfront revenues on a -- if you…

There could be.

There could be, and it could be built in different ways.

For example, a carrier would pay perhaps a set-up fee one time to initiate the business, and then there will be recurring revenues.

It's really a very specific business discussion to the specific situation in each and every carrier.

Do they have a CapEx budget?

How much do they have?

Do they want to spend it?

Do they not?

How are they measured on OpEx?

It's really a very particular discussion.

But in general, it's our intent, and I think this is the -- this is widely accepted by carriers that we're talking to, they prefer not to spend a lot of money upfront in a CapEx-like deal.

They prefer to spend their money as revenues come in and spend it over time in a recurring fashion in one mechanism or another.

The next question is from Tal Liani from Bank of America Merrill Lynch.

First, high-level question.

Can you discuss the challenges?

I mean, you grew -- if my math is right, you grew 18% year-over-year and 6% sequentially, which are quite good numbers stand-alone.

What are the challenges?

Okay, okay.

I think the challenges are in a few fronts.

First of all, growth itself is, of course, a challenge because you need to keep everything in line, delivery, product, et cetera.

You need to maintain that.

I think part of the challenge and we're spending more money on that is the product itself.

Because as we provide product to CSPs, in many of the cases, we have to do some sort of customization development, some feature adaptment, what have you.

And as we grow, it means that R&D has to work more and develop more things around the product.

So we need to keep that in line.

That's part of the reason we're putting some more money into R&D as well.

And I think some of our challenges are also to go into customers where our competition is the incumbent and open up the deal and see if we can do something, offer them a better alternative.

I think those are really our main challenges.

Got it.

And the reason I'm asking is because if I look at your guidance, the midpoint, I know you said it's going to be towards the upper half of the guidance, but if I look at your guidance, the midpoint is about $93 million.

And if I look at the first half of your revenues, you're at $45 million.

So if I just double it, meaning, second half will be flat with first half, no growth whatsoever, you're at $90 million.

So that means you -- right now, with your guidance, you expect very little growth for the second half.

So on one hand, the numbers are good.

The commentary is good.

On the other hand, the numbers that you provide for guidance for second half shows almost no growth.

What are the puts and takes for this guidance?

What could drive it higher?

What could drive it lower?

Look, I think we're -- okay.

I think we're not guiding that low.

The first half, I think, was 44 -- $44.7 million.

Yes, it's almost $45 million.

We're saying we're guiding towards the upper half of the range, so we think we'll grow more than what you mentioned.

But look, the challenge are bringing in more deals and recognizing the revenue on time.

It's -- I think we're doing that.

Not -- I am happy to reach those -- I think it's a good growth for those numbers.

Not quite sure how to answer that.

What are the things that could go right in second half?

First of all, can you describe seasonality?

Will seasonality take second half higher than first half or not?

Second, are there things in the pipeline that you have visibility for that are coming that could drive strong growth -- stronger growth in second half?

I'm trying to understand what happens normally in the second half.

What do you have visibility for in the second half?

Just so I can develop my expectations.

Okay.

Part of our -- second half, I would say, in a very broad brush, part of it is, of course, backlog that we already have.

And we see -- when we believe that we will recognize it during the second half.

Second part is, of course, bookings that we expect to get in the second half and convert into revenues.

Q3 in terms of seasonality, Q3 bookings are typically a bit slower because of vacations and so on and things just go slower during Q3.

You can appreciate the month of August is not the height of business activity.

And then in Q4, we expect to see bookings rise a lot more because we see in Q4, it's not only that it's a full quarter of good business activity, but it's also end-of-year budgets and so on that get released and we get orders.

Now translating Q4 bookings into Q4 revenues is something very tough and that's what we -- just because of timing.

We have to deliver.

We have to get acceptance papers and so on and so forth.

So some things could go better than we expected, but right now, those are the numbers that we see right -- that we're looking at.

Got it.

Last question is about margins and profitability.

What is the -- and if you answer -- if you already said it, I apologize in advance, I didn't get it.

What's your revenue level for break-even point?

And what's your outlook for profitability for the company, both on operating and cash flow levels?

So in terms of profitability, we mentioned that before, that we were able to reach this quarter 72%, mainly due to the product mix -- to a deal mix, actually, a mix in which we were able to recognize quite a lot of software-related deal.

Looking forward, we do believe that for the whole 2018, the gross margin will be higher than what we had in 2017, but lower than what we had this quarter, so something in the middle.

Looking forward, I think that regarding the break-even points and maybe profitability, I think that -- and again, we didn't yet work out an operating working plan for 2019, but we do expect that in the second half of 2019, we will be able to reach breakeven or some profitability.

The next question is a follow-up from Alex Henderson of Needham.

Yes.

I just wanted to go back to that last question just for a second.

So as I was looking at the numbers, if you did $44.7 million in the first half, to get to the high end of your band would be $50 million in the back half which I believe is double-digit growth; 12% growth first half, second half.

Is that math correct?

I think it is.

Yes, it is.

Okay, great.

So the second question I had for you is I wanted to talk a little bit about the Netonomy product.

So you've got a security product in the field now, and then you've got this Netonomy product coming down the pike.

Can you talk about the relevant -- or the revenues per user delta between what you're selling today and what Netonomy might look like?

I'm assuming that that's protecting the router and protecting Internet of Things, which is getting such a high level of publicity around the Russian hacks, has higher numbers.

What's the delta between the 2?

I would start from what is the price that the operators could potentially sell such as service to the consumers.

You can see that Vodafone today is charging for network-based mobile security, security for the mobile phones.

They're charging EUR 1 per month.

So that's the price point.

And I think that's a fairly reasonable price point in other countries, give or take, for network-based security of mobile phones.

On the other hand, we're seeing where operators are looking to charge -- to provide security services for fixed broadband connections in the home.

They expect to charge more, anywhere from, say, $3 to $5 per month per home.

And I would expect that similar ratio would be in what we can achieve from these operators in terms of our share of that -- those revenues.

I see.

And so going out in time, when do you think that the Netonomy win start to accumulate as a meaningful portion of revenues?

Is that back half of '19 or into '20?

How long does it take for this acquisition to go from initial seeding and initial proof-of-concept to meaningful revenues?

I -- it's hard for me to say right now, but I would expect it will not be in 2018 for sure and probably not in 2019.

I would expect it to really -- to become something with significant revenues probably in 2020.

The reason for that is it's not just -- it's not an issue of so much of the product.

But also that we need to -- not only to bring the product, but also to close the deals.

And the deals we're talking about will generate, hopefully, recurring revenues, which means that there's a delay between when we close the deals and when we actually start accumulating revenue.

And that's why I think 2020 is a more realistic number for a significant or meaningful revenue from the HomeSecure or Netonomy product.

When we talked last, I think we talked about a couple of deal wins this year and something in the 4 to 10 range in '19.

Is that still your thinking at this point in terms of the deal -- the robust pipeline that you've got?

Look, I think when we talked, we made sort of artificial numbers just to get a feel of where the market can be and what's the potential size.

Like I just talked about, we closed one recurring revenue share deal with Telefónica Spain.

I expect to close additional deals, quite a few, of course, I should say a few other deals this year, and I would expect to close more next year; 4 to 5, I would hope we do more than that.

Okay.

And then just going back to the mix between SaaS and perpetual.

Can you give us any metrics around that scaling?

How should we think about that in '18 and '19?

I don't think any of the revenue shares or recurring revenue deals will have a significant impact on our '18 numbers at all.

And at this point, I'm expecting to have -- and this is -- I said it on the call earlier, I expect to continue to have double-digit growth into 2019 as well, double-digit revenue growth.

I'm -- we haven't -- honestly, we haven't built bottom-up our plans for '19, so I can't -- I would say I can't tell you with reasonable certainty where -- how much of that is going to come from reoccurring revenue.

I believe part of that definitely will.

Okay.

One last question.

Now with the Netonomy business in the full June quarter, I believe that you had it for the whole quarter.

So the OpEx levels that we're currently running at, I think $18 million in the June quarter non-GAAP, I assume that we're kind of holding that steady going forward.

Is that the right kind of level-setting?

As I think that Erez mentioned during the first part of this call, I mean, we do invest, on top of the investment that we did in Netonomy, also in R&D and in sales and marketing, in order to catch those kind of opportunity that we see in the market.

I think that we want to make sure that this company is back to grow and will continue to grow as we did until now.

And in order to do that, some investment has to be done.

So it may be the case that we will have to increase a little bit our level of operating expenses due to the fact as I just mentioned.

And the devaluation of the shekel also impacted 2018 numbers.

We will benefit from the opposite trend that we are seeing in the market right now only next year.

So bottom line, I think that it will be fair to assume a slightly higher number of operating expenses in the second half of the year.

I'll add to that maybe to say that, look, we're definitely preferring now to generate more growth than a faster return to profitability.

Because I think that long term, that's the right thing for the company and that's how I believe we will generate a lot more value.

And we see many opportunities today, and we'll continue, if required, by these opportunities -- if it's required that we invest some more in either R&D or sales and marketing in order to capture those and continue to grow, we'll continue to do that.

But I also believe that at the same time, we will be able to narrow our losses as well, but the absolute level of expenses may go up.

(Operator Instructions) There are no further questions at this time.

Mr. Antebi, would you like to make your concluding statement?

Yes, I'd just like to thank everyone for attending this call and for being with us.

And I hope to continue talking to you, whether individually or on the next calls.

Thank you very much.

Thank you.

This concludes the Allot Second Quarter 2018 Results Conference Call.

Thank you for your participation.

You may go ahead and disconnect.