Allot Ltd (ALLT) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Allot's Third Quarter 2019 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. Kenny Green of GK Investor Relations.

Mr. Green, would you like to begin?

Thank you, operator.

Welcome to Allot's Third Quarter 2019 Conference Call.

I would 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 to point out that this conference 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 would, 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 demands 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 now like to hand the call over to Erez.

Erez, please go ahead.

Thank you.

Welcome, everyone, to our conference call, and thank you for joining us today.

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

The third quarter was another quarter of solid growth.

Our revenues grew 14% year-over-year for the third quarter, and our gross profit grew 12% year-over-year for the third quarter.

This is our seventh straight quarter of double-digit revenue growth year-over-year.

I am very pleased with the results we achieved during the third quarter.

And the main message is that we are on track and successfully executing on our plan.

We see a growing number of opportunities.

We are continuing to close new deals, winning against the competition, bringing more Tier 1 business and our revenues are growing.

We expect this trend to continue through the remainder of 2019.

We expect revenue growth to not only continue into 2020 but to accelerate.

While our revenue growth in 2019 is on target, we are increasing our investments to capitalize on the significant number of opportunities we see.

While Alberto will provide more details on our financials later, I did want to start with the financial highlights that demonstrate our growth.

I would like to return now to a general discussion on our business.

Overall, we are signing business at a growing rate.

During the first 9 months of 2019, our bookings were significantly higher than over the same period last year.

During the quarter, we announced that we won a significant expansion with an existing EMEA customer worth tens of millions of dollars.

We also stated that this deal revenues will be recognized over several years.

The combined bookings we won from all the deals, including the significant one and the strong pipeline we have, will enable us to enter next year with a significant backlog, providing us with strong visibility going forward.

As we work with more Tier 1 operators worldwide, we take upon ourselves additional commitments that expand product development, delivery and customer support.

This is the reason we are investing further in our R&D and customer success organizations.

I believe this is the right thing to do as this investment enables us to fuel our growth and catch up on certain product gaps we still have.

While today the rate of growth in our expenses is similar to our rate of growth in revenues, I expect that next year, the rate of growth of expenses will be lower than that of the revenues, allowing us to reach profitability.

I will now discuss a bit the visibility and control domain.

We are continuing to see an active market here with a healthy pipeline of opportunities for our Allot small product line.

We see similar use case as to what we saw in previous quarters, such as traffic management and analytics.

In addition, we see growing interest for congestion management and roaming analytics.

As I discussed in the previous call, we see a growing need of governments to curtail illegal traffic on the Internet, which results in regulations imposed on the operators who then require technology such as ours.

The type of illegal traffic targeted by these means, includes, for example, child pornography and VPNs used by criminal organizations.

We see a growing market here with more RFPs coming out globally.

We won several such deals this year and are seeing interest in this use case continuing to increase.

I would like to say a few words on technology.

We're seeing a growing number of CSPs deploying or transitioning to an NFV environment.

I am proud to say that currently, we already have several NFV implementations with multiple operators in the U.S., EMEA and APAC.

We have invested significantly and are continuing to invest in NFV technology.

In addition, we are seeing CSPs plan and start 5G deployments.

5G networks bring a promise of much higher bandwidth to consumers, and we believe this will require traffic management and enhanced security.

The transition of an operator to NFV technology or to 5G creates an opportunity to reevaluate all of the network elements.

We are investing resources to take advantage of these opportunities.

While our main focus is on CSPs, a portion of our revenues comes from sales to the enterprise market.

2 years ago, we established a customer-facing unit or CFU focused on the worldwide enterprise market.

The enterprise business is signing up new customers every quarter.

During the previous earnings call, I noted that we won our largest enterprise deal in over 2 years for a national post office network in EMEA.

I am glad to say that since then, we beat that record and won an even larger deal for a public institution in Latin America.

Overall, we see a strong pipeline for our Allot Smart product lines serving the visibility and control domain.

We are winning against our competition in new deals and even replacing their products and some of their existing customers.

Overall, I feel comfortable with our continued growth in this area.

I would like to turn now our attention to the security domain, which, as we stated in the past, is our main long-term growth engine.

As I mentioned in previous calls, we see a growing number of CSPs who understand the need to provide secure broadband services and see value in 3 elements.

One, an important enhancement to their brand value, becoming a "secure broadband" provider; two, a potentially large new source of revenue; and three, a key element in their customer satisfaction.

As the market recognizes the importance of providing a broadband security service, the number of CSPs we are engaged with continues to grow.

This growing interest is across the breadth of the Allot Secure product family, including NetworkSecure, IoTSecure, HomeSecure, DDoS Secure and the combination with our partners' endpoint secure.

I would like to remind you that Allot's ability to provide protection at several locations in the network while seamlessly providing the same service across customer location and platforms is one of Allot's key advantages and that we see a growing number of opportunities that combine 2 or even 3 different products of the Allot Secure family.

This is a strong testament that our strategy of enabling operators to provide "anywhere, any device, any threat" protection to the consumer and SMB markets is gaining acceptance.

I believe the most important factor to assess the importance of a security service to a CSP is the adoption rates of paying customers.

I would like to share with you a little of what we are seeing in the market today.

In Vodafone, our largest security customer, the total number of subscribers is continuing to grow, albeit at a lower rate than before as some markets reached saturation levels.

Looking across the 10 different markets where Vodafone launched the mobile security service, we see adoption rates maintained between 15% and 60%, 1-5 and 6-0 percent, of the total mobile customer base.

In markets where security services were launched in recent years, such as in the U.K., Turkey and Germany, we are seeing healthy, consistent growth every month.

Telefónica Spain launched the Niji service less than a year ago.

The security service is offered to converged customers as a bundled service with speed and content.

The service already has hundreds of thousands of users and Telefónica Spain is in the process of massifying the service by including it in a bundle for everyone.

While we cannot commit to the timing of Telefónica services, we further expect Telefónica Brazil to launch the service in the next few months.

Telefónica Argentina is also expected to massify the service, which they launched as a pilot, in the next few months as well.

Towards the end of August, Hutchison Drei launched security services in Austria under the name lnternetschutz.

The service is based on our NetworkSecure platform, and as we announced, this is a revenue share deal.

The service is offered primarily to new users in both mobile and fixed wireless broadband categories primarily in physical stores.

While the time since launch is very short, we are very encouraged by the adoption rates we are seeing.

Hutchison is a global operator, and we believe that success in Austria opens doors for us elsewhere within the Hutchison Group.

Several months ago, Safaricom in Kenya launched the security service for their fiber-to-the-home customers, also based on our NetworkSecure product.

This deal too is a revenue share deal with us.

This network is not large and is almost entirely monthly prepaid connectivity.

Users are offered to sign up to the security service for an additional fee.

I am glad to say that penetration rates after a few months have already exceeded 15%, 1-5 percent.

The SMB segment is one where we are seeing growing interest globally.

To be more precise, we are looking at SMBs that typically have between a few employees up to a few hundred, but do not have an internal IT department with a security expert.

This is an interesting segment for several reasons.

One, SMBs pay more for connectivity and should be willing to pay more for security; two, the security requirements of SMBs are similar to those of consumers; and three, the perceived risk of not having security is high.

Telefónica Spain launched the SMB security service about 6 months ago to customers with fixed-line connectivity.

I will remind you that Telefónica Spain SMB customers enjoy network-based security provided by Allot technology together with endpoint app protection provided by McAfee.

In this deal, the security revenue is shared between Telefónica Spain, Allot and McAfee.

The service was launched with a try-and-buy, go-to-market strategy and is priced at EUR 10 per month to the SMB for a fixed line.

The service is offered to SMBs joining the Telefónica network or renewing a service plan and the adoption rate of the security service is close to 50%, 5-0 percent.

This is very encouraging and is a testament to the appeal of security service to SMB customers.

These cases show us that the high adoption rates achieved by Vodafone for mobile subscribers in Europe can be replicated by other operators and that the commercial incentive for operators to launch security service to the mass market is high.

Unfortunately, working with CSPs takes time, typically exceeding 12 months and often much more time than we would like it to take.

While we are engaging with more CSPs, we are still challenged by the time it takes to close the deals.

We are engaged at various stages with a large number of additional operators for more security deals on all the various elements of Allot Secure family.

And I am encouraged by the size of our pipeline, the continuous growth in number of CSPs we are engaging and the interest within the CSPs to launch such security services for the mass market.

As I mentioned in previous calls, to view this market, I look at the combination of several indicators including: one, the initial security OPEX deals we signed; two, the growth in tenders and RFPs that are being issued; three, the healthy pipeline we have in hand; and four, the penetration rates and speed of adoption where the service is launched.

Looking at all the above, I am confident that we are heading in the right direction, and I'm optimistic about this market segment and our future growth in it.

As a reminder, to help us measure the potential of the aggregated security OPEX deal we signed and our progress in this area, I introduced in previous earnings calls a metric we use internally that we call Maximum Annual Revenue or MAR for short.

MAR reflects the annual revenue Allot would receive if 100% of the CSPs' relevant customer base were to sign up for the security service.

The actual revenues Allot will get are expected to be the MAR multiplied by whatever the penetration rates will be.

I remind us all that upon signing the deal, we don't record bookings or revenues, but as service is launched and penetration levels grow, our recurring long-term revenue stream is gradually built.

These deals should form a base for continued and sustainable growth for Allot.

We have recently been selected by 2 additional Tier 1 operators in 2 countries in EMEA for NetworkSecure revenue share deals, and we are currently in contract negotiations on these deals.

Each of these operators is part of the different larger multinational group.

We are in advanced stages with multiple other operators around the world where I feel we are in a very strong position.

I expect we should sign several security OPEX deals in the coming months.

While it may slip beyond the end of the year, I feel confident that we are well on the way to a combined MAR of $100 million in the coming months.

I would now like to summarize the overall picture.

We are proceeding according to plan and growing the business.

I believe our third quarter numbers are a testament to that.

In the visibility and control area, we have a growing number of opportunities in various areas.

We see longer-term opportunities as operators move to NFV as 5G networks are deployed and as governments demand more regulation on Internet traffic.

In the security area, which we see as our major long-term growth engine, we have signed initial deals for Allot Secure products including several security OPEX deals.

Adoption rates in the services already launched are encouraging.

Our pipeline of security OPEX deals with CSPs is encouraging as well.

It is expanding, and most operators we talk to are accepting of the OPEX revenue share model we offer.

We were selected by 2 additional operators, and I expect we will sign additional security OPEX deals in the next few months.

From a product perspective, we are progressing well and achieving advantages over our competition, such as in NFV capability.

In previous calls, I mentioned we are investing more in artificial intelligence and machine learning technologies to create further technological differentiation in both visibility and control and security domains.

I see this as a key to our long-term competitive edge.

To this end, last month, we established a CTO office in Allot.

Ronen Priel, who was previously responsible for both product management and strategy was appointed our CTO, and he is now focusing solely on strategy and long-term growth.

A big part of his new responsibility is leading our artificial intelligence teams.

Based on our results so far, our backlog and the growing and strong pipeline of new deals, I would like to reaffirm our expectations for 2019 revenues to be between $106 million and $110 million.

Our revenues this year will depend on our ability to recognize a couple of significant deals that we have already won.

We expect book-to-bill for the full year 2019 to be above 1.

We are currently working on our operational plan for 2020, and we will provide fuller guidance in our Q4 earnings call.

Given our strong backlog and rich pipeline, I do expect to see in 2020 accelerated revenue growth beyond the growth rate in 2019 and return to profitability.

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

Please go ahead.

Thank you, Erez.

Before I begin reviewing the financial results for this quarter, I would like to inform everyone that on 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 such a respect from the generally accepted accounting principle and exclude share-based compensation expenses, expenses related to M&A activities, amortization of certain intangible assets, change in deferred tax and exchange rate differences related to revaluation of assets and liability denominated in nondollar currencies.

With regard to the financial results.

Revenue for the third quarter of 2019 were $27.6 million, growing by 14% compared with those of the third quarter of 2018.

Regarding the details of the revenue breakdown and diversification.

The geographic breakdown of revenues for the third quarter of 2019 was as follows: Americas with $3.1 million or 11% of revenues; EMEA with $9.9 million or 36% of revenue; and Asia Pacific with $14.6 million or 53% of revenues.

The breakdown of revenue by type were as follows: product revenue for the quarter accounted for $16.6 million or 60% of total revenues compared to $13.8 million or 57% of total revenues in Q3 2018.

Professional service revenues were $2.4 million or 9% of total revenues compared to $1.6 million or 7% in Q3 2018; support and maintenance revenue were $8.6 million or 31% of total revenues compared to $8.8 million or 36% in Q3 2018.

Communication service provider or CSP revenues were 82% in the third quarter of 2019, compared to 83% as reported in the third quarter of 2018.

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

Our top 10 end customer made up 64% of our revenue in the third quarter of this year, and this is compared with 63% in the third quarter of 2018.

Gross margin for the quarter were 70.2% compared to 70.7% in the third quarter of 2018.

Overall, while the gross margin may fluctuate from quarter-to-quarter based on the deal recognized in the specific quarter, we expect it to average at around the 70% level over the current full year period.

Operating expenses for the quarter were $21.7 million compared to $18.2 million as reported in the third quarter of 2018.

The increase in operating expenses is mainly due to the increase in headcounts, particularly in R&D and in the customer success departments.

The increase -- this increase being due to our strategy, which is pursuing growth by capitalizing on the opportunities ahead of us.

The total number of full-time employees as of September 30, 2019, was 582, 5-8-2, up 31 full-time employees since the end of last quarter.

Non-GAAP operating loss for the quarter was $2.2 million compared with an operating loss of $1.1 million in the third quarter of 2018.

At the end of this quarter, we reevaluated again the earnout provision for the Optenet acquisition, which we completed in 2015.

This revaluation brings into account that in projecting the security OPEX deal, revenues will be recognized only when subscriber actually enjoys the service.

As a result of the revaluation, a reduction in the earnout estimation of approximately $1.6 million was recorded, generating this quarter a reduction in G&A expenses for the same amounts.

I note that this transaction since it's part of an M&A activity is excluded from our non-GAAP financial statement.

Net loss for the quarter amounted to $1.9 million or $0.05 per share.

This is compared with the $1.1 million loss or $0.03 per share in the third quarter of 2018.

Turning to the balance sheet.

Our cash reserves comprised of cash, cash equivalents and investments as of September 30, 2019, totaled $114.8 million compared to $101.6 million at June 30, 2019.

Our cash reserve included restricted deposits and restricted cash, most of which was created to secure the down payment and the financial activities related to the Allot Smart expansion deal signed in August with an existing EMEA customer.

You may notice also in our balance sheet the increase in deferred revenue primarily related to the same deal.

The average number of basic shares over the third quarter period of 2019 was 34.3 million, and the number of fully diluted share was 36.4 million.

In terms of guidance, as Erez mentioned, we are reaffirming our guidance and expect revenue to grow to between $106 million and $110 million in 2019, representing continued year-over-year revenue growth.

Our revenues for the year will depend on our ability to recognize a couple of significant deals we already won.

Due to the potential opportunities we see ahead, as I mentioned, Allot is increasing its investment in the ops area that will serve the growth of the company, mainly R&D and customer success.

We are recruiting more resources, and as a result of that, we expect the operating expense for the full year 2019 to be slightly above $84 million.

And that concludes my remarks.

Erez, you wanted to comment before the questions.

Yes, Alberto.

I actually wanted to take this opportunity to say a few words of thanks to you.

As we announced a couple of weeks ago, today will be your last day as CFO at Allot.

We have worked together for the past 3 years, and together, we turned the company around.

Allot returned to sustained growth, and I believe is on a clear path to further growth and profitability.

I wanted to take this opportunity to thank you for your dedication, for your professionalism and true partnership during these years.

We could not have achieved what we did without you.

I wish you the best of luck and lots of success in your next challenges.

We will be welcoming Ziv Leitman, who has taken over the CFO role and is joining us in the coming days.

Ziv and I will be at the Needham Conference in New York next week.

So you will have the opportunity to meet him either here in Israel or in New York.

Thank you very much, Erez.

As announced, today is my last day as CFO of Allot.

I would like to say a few words in this regard.

Today, I'm leaving Allot after almost 3 years.

During this period, Allot went through many changes.

During the 3 years, Allot attained significant business achievement.

Management was almost completely changed.

Business process were reviewed and announced.

New significant customers were added.

And overall, we succeeded to bring Allot back to a growth path.

I had the privilege of being part of all of this, I'm really proud of that.

I would like to conclude by wishing Allot and all the team success for the future.

Now we would be happy to take your questions.

Operator?

(Operator Instructions) The first question is from George Iwanyc of Oppenheimer & Co.

Alberto, best of luck with what's ahead.

Erez, when you're looking at next year and potential for accelerating growth, is that including growth in both the visibility and the security segments?

Or is it primarily the acceleration all related to the security deals?

It's hard for me to answer that right now.

We're in the midst of preparing our 2020 annual plan.

I don't really have a good breakdown.

But when I look at the overall picture, I feel fairly confident with accelerated revenue growth next year.

Okay.

And you had mentioned kind of the timing of deal flow in the pipeline.

It sounds like the pipeline and the number of deals are very healthy.

But is it taking longer to realize those deals?

Is that changing substantially?

And is that mostly related to macro?

Or are there some other elements involved there?

I assume you're referring to security OpEx deals?

Yes.

Okay.

It's taking a lot -- yes, it's definitely taking longer to close these deals.

I don't think it's a macro issue.

I think, honestly, I'd say there's probably 2 elements to this.

One is the fact that operators are slow, notoriously slow, even they -- many of them will admit that.

And the second, I think, is that many operators have different things on their plate.

They're transitioning to NFV.

They're rolling out 5G.

They've got agreements to add content and bundle that with their access service and so on.

And this is another piece of new business that they need to deal with.

So while many of them understand the value, see the additional revenues and even decided to provide security service, at the end, it takes them time.

And they're doing a few things in parallel.

And I think both of these, their nature and the amount of things that are on their plate is causing an overall delay.

Are there any competitive developments or contributions to the longer sale cycles?

We're seeing more competition.

We're seeing more competition, I would say, on mainly from competitors offering DNS security-based services, we're seeing more of that.

I don't think it's contributing to lengthening the sales cycle.

I think it's equally long for everyone as far as I can judge.

But yes, there's -- we're seeing that DNS security is emerging as a more -- I would say, a more prevalent competition that we're seeing.

We're winning nicely, I think, against them, but still, it's out there.

The next question is from Alex Henderson of Needham & Company.

The commentary about 2020 profitability, I assume you're implying you will reach profitability at some point over the course of the year, not for the full year.

Is that correct?

Again, yes, it's correct that we will -- that I expect to reach profitability at some time during the -- through the course of the year.

And more details, I really prefer to wait until we have our operating plan for 2020, and we'll give guidance for the full year 3 months from now.

All right.

In terms of the pipeline, while it may be taking a little longer for deals to mature into announceable events and revenues, are you seeing a much steeper ramp in the number of deals that are in the pipeline and the scale of those deals?

And can you talk a little bit about the mix between the portion that is perpetual and the portion that would be OPEX related?

I don't know if we're seeing the ramp.

There's an increase in the number of deals that we're seeing and there's an increase in the pipeline.

I don't know to answer the question, whether the ramp is getting steeper or not.

It's -- but it's continuing to grow and it continues to grow nicely.

Most of the deals we're talking to CSPs about are either revenue share or OPEX type deals.

There are some that are CapEx, but that's a smaller number of deals out of the mix.

And relative to the penetration rates, it sounds like the penetration rates of deals which you've already done is higher.

How would you expect the penetration rates of OPEX deals that were closed in '19 to look as we go through '20?

Is it reasonable to think that you could add 10 percentage points of penetration in -- over what you had in '19 on the '20 $100 million MAR target?

It's -- look, it's a hard question to answer.

The -- as I told you, the variability in penetration rates, for example, in Vodafone over 10 markets, is anywhere from 15%, 1-5 percent to 60%, 6-0 percent.

So it's clear that there is a very, very large variability between different instances.

Now I think that the major reason for this variability is the go-to-market strategy of that specific operator and how he goes to the market.

How does he advertise this?

How does he push this to the customers?

Does he offer -- is this to -- only to new customers or does he offer it to the existing installed base?

How aggressively do they go about it, not in terms of pricing, but in terms of bringing it to the attention of consumers?

And it's hard for me to comment on a specific number of penetration in a given year when so much is dependent on the operator.

I'm encouraged by the initial results we're seeing.

And I think everybody has the same interest at heart.

But still -- look at the variability in Vodafone, it's wide.

I don't want to indicate that I really know what the penetration is going to be next year.

I don't.

And 1 last question, and I'll see the floor.

Is it reasonable to think that your MAR target for next year would be considerably higher than your MAR target in terms of new deals closed in '19?

Is that target a rising bogey?

I would -- look, I'll put it this way, Alex.

I didn't.

We don't have -- again, we don't have our 2020 plan.

And I don't want to bring a number that I'm not responsible, but it will not be a reduced number.

The next question is from Marc Silk of Silk Investments.

Alberto, good luck, and hopefully, you have a ton -- a lot of options over the next few years to make you very wealthy.

Thank you.

My first question is on Hutchison Drei, Austria.

Basically, you've said you want to protect the company's mobile and home users against various cyber threats.

Since that announcement, has that generated more interest in that product area for you guys?

I don't -- well, as I said, I think the interest in what we're doing is growing generally around the world.

I'm not sure I know how to specifically tie the announcement on Hutchison Drei to the growth and opportunities worldwide.

I think you know that it's part of the trend.

Did I misunderstand the question?

No, you're fine, you're fine.

The -- it sounds like you're in a bunch of CFPs as you mentioned.

Can you kind of let us know like when you -- like the amount of competitors that are in the CFPs, it's like 2-tier like, it starts with 10 and then after they do an analysis, they break it down to 2. Just I want to kind of look at the competitive landscape, if you could make that a little clear?

No, when they start to look at security options, providing security as a service to their -- to the mass market, I would say that, at most, the number of competitors is a handful.

And then they typically would narrow it down to 2 or 3, something like that, and then they take it from there.

I got you.

And I know in telco, it's not just a lot specific.

They just -- they take their time without a doubt.

Then lastly, and I brought this up on the last conference call where I -- I love your cash balance.

In late September, your stock was $8.28, then it dipped to $7.21.

Again, if you had a modest buyback in place, especially if you're going to start turning profitable next year, retiring some stock in the low $7s a bit of, I guess, back there, I always think that, that's not the worst idea with a modest $5 million to $10 million buyback.

But anyways, it sounds like you guys have a lot of irons in the fire, and I'm looking forward to the next few years.

Thank you very much.

Thank you.

(Operator Instructions) The next question is from Rory Wallace of Outerbridge Capital.

Congratulations on the new opportunity.

(technical difficulty)

Rory?

Ladies and gentlemen, I assume the questioner has disconnected.

We'll move on to the next question.

The next question is from Shawn Boyd of Next Mark Capital.

And my apologies if I missed this, but I want to go back to the cash flow generation.

Very strong cash flow generation, and you had the deferred come up considerably.

I think when you talk about that in script, you mentioned something on the deposits.

So I'm sorry, if you could just go back and just speak to this ramp-up on the deferred debit?

Maybe I will go again through what I described in the -- during the script.

I think that what I said is that our restricted cash and restricted deposits grow for activities that were related to deals that were closed lately, mainly, but not only, but mainly the substantial deal that was announced back in August.

So that's one of the reason of the increase in cash and as a result of that also for the deferred revenues.

Okay.

And so as these -- as the OPEX deals layer on, we should continue to see -- I mean, maybe not quite like this quarter, but we should continue to see the ramp-up in deferred.

Is that correct?

OPEX deal is booked and recognized at the same time.

We're not booking and then recognize after that.

So no, we are not expecting increase in deferred revenue because, I mean, at the same time, once a subscriber will use our services, we will entitle actually to book and to recognize revenue at the same time.

So no, no increase or no change in deferred revenue is expected as a result of the OPEX deal.

Got it.

Okay.

I appreciate that clarification.

And just one other thing is on the DDoS.

Again, real tight management on the balance sheet here.

Is this -- anything kind of one-off in the quarter that's bringing that down so much?

Or is this sort of as the business is trending more towards OPEX deals, we should continue to see that come down?

No, I think that we had quite a good quarter in terms of collection, revenues went up again, and this impact also the [DSO] so altogether is normal course of business.

There was no any major event except for good execution.

(Operator Instructions) The next question is from Jeff Bernstein of Cowen.

Glad to hear about the increased implementations of NFV.

Are you actually seeing any competitors who have an NFV capability yet?

Well, we are seeing competitors with NFV capability, I mean, in the visibility and control domain, which is really most of where these implementations are.

Obviously, the NEPs, the large equipment providers, such as Ericsson, Huawei, which compete with us in part of this market, they offer DPI capabilities, albeit significantly reduced to ours, but they offer some DPI capabilities as part of their packet gateway, and they, of course, have NFV capabilities.

We're -- from our main competitors, stand-alone competitor, we're seeing -- I think we're seeing more -- we're hearing that they have it, but I don't see it happening yet, but I may have missed something.

There are no further questions at this time.

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

I would like to thank everybody for participating on the call, and thank you for your support, and I look forward to meeting you again on the next conference call in a few months.

Thank you very much.

Thank you.

And this concludes Allot's Third Quarter 2019 Results Conference Call.

Thank you for your participation.

You may go ahead and disconnect.