Allot Ltd (ALLT) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Allot Third Quarter 2020 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 & Public Relations at 1 (646) 688-3559 or view it in the News section of the company's website at www.allot.com.

I would now like to hand over the call to Mr. Ken Green of GK Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. Welcome to Allot's Third Quarter 2020 Conference Call. I would like to welcome all of you to this conference call, and thank Allot's management for hosting this call. With us on the line today are Mr. Erez Antebi, President and CEO; and Mr. Ziv Leitman, CFO. Erez will begin and summarize the key highlights, followed by Ziv, 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 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 the impact due to the COVID-19 pandemic 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 now like to hand the call over to Erez Antebi. Erez, Please go ahead.

Thank you, Kenny. 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% year-over-year for the third quarter and reached $34.8 million. 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. Ziv 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 2 new product business groups, one for Allot Secure products and one for Allot Smart products. 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 the Allot Secure business group, we are joined by Yael Villa. Yael is a cyber and data science expert. Among her previous roles, Yael was VP Security in Cisco and General Manager and CTO of RSA, Israel. Yael holds a PhD in mathematics and statistics. Keren Rubanenko, who served very successfully in the past couple of years as our senior VP for customer success, will now lead the Allot Smart business group. I believe this change, together with the new leadership, will create a stronger vision forward and will accelerate both product line success. I would like to take the opportunity to wish both Yael and Keren lots of success in their new roles.

Like most everyone else, our way of working has been significantly affected by COVID-19 pandemic. I would like to update you on how we and our customers are adapting to the new situation. Most of our employees worldwide are continuing to work from home. While the numbers change from country to country as rules and conditions differ, in Israel, for example, approximately 25% of employees work from the office and the rest work from home.

Meetings, even for those in the office, are mostly held by video conference to minimize physical contact. We continue to see high productivity across all departments. During the third quarter, R&D released several product releases in both Allot Smart and Allot Secure product lines. They were released on time with the required content and quality. Our customer success group continues to deliver, install and pass acceptance on new installation many times without being physically on site.

Our global service organization is continuing to solve problems and lower the number of open customer trouble tickets. These achievements to sell, to deliver and service according to plan are a result of the spirit and dedication of all Allot employees worldwide. I want to take this opportunity to thank them for all their efforts and fantastic work.

As I mentioned in the previous call, we do see that the current situation of working from home and lack of physical interaction is stressful for many of our employees. In an attempt to help, we maintain a policy where we fully adhere to all local rules and regulations, but allow our employees' personal freedom of choice, whether or not to come to the office where and when this is allowed.

I would now like to turn our attention to our interactions with our customers worldwide and share with you a few broad observations. CSPs are continuing to provide services to their customers, even though many of their employees are working from home. Overall, operators are adjusting well to the situation and, for the most part, have managed to handle the changes in traffic patterns. These changes have, for the most part, stabilized. Most CSPs are continuing not only with the regular business but with new projects as well. While delays in processes and decisions continue, we do see accelerated efforts by CSPs to get back to business as usual despite not physically returning to their offices.

Overall, I think demand, depending on the product, has either remained as it was or grown. I believe, to a very large degree, we are all adjusting well to virtual meetings, replacing physical meetings, and saving much travel time and expense in the process. We are, however, losing some of the informal relationship building that is important to establish long-term trust. So far, the impact of this on the business is limited.

As we discussed on the previous earnings call, the more challenging part is establishing new relationships and generating new leads with operators and people we are not familiar with. To this end, we modified our sales approach to increase our lead generation by using targeted marketing campaigns. We started this with a security services campaign. The result of this approach looks promising as we have generated quite a few new leads for CSPs interested in promoting security services to their customers. I will now try to briefly address each of the different market segments we are active in and provide a bit more granular color on what we see in the market.

Allot Smart traffic management is used to provide operators visibility on their networks and manage their traffic. We are seeing growing interest by CSPs to gain better visibility on the network as well as manage traffic surges and congestion on both mobile and fixed networks. I believe Allot Smart is well-designed to address these needs, and this gives us an advantage.

Many 4G and fixed networks already have a DPI system, either from Allot or a competitor. Usually, stickiness with a DPI product is high, and operators do not tend to replace their current provider easily. During the third quarter, however, we were selected by a large Tier 1 operator in EMEA to replace our competitor system. We are currently involved in several processes with other operators considering to do the same. While we cannot be assured of success in these processes, we view them as encouraging opportunities. In addition, there are also new RFPs for DPI systems in operators that do not have such systems in place.

As we discussed in the last earnings call, we are seeing a growing need for governments to protect their citizens from malicious or illegal activity. As a result, we are seeing growth in the number of opportunities for our digital enforcement use case. The growth we see in this use case is worldwide, and we are very encouraged by the growing pipeline we are creating.

In the enterprise market, larger enterprises, which are the focus of our business, seem to be less affected by the COVID-19 pandemic than smaller businesses. While we see some delays in projects, overall, our enterprise business is doing well, and we see it growing.

As you may recall, during the first quarter, we signed an agreement with Broadcom to provide Allot products to enterprise customers currently using the PacketShaper product, which Broadcom chose to discontinue. Since signing the agreement, our enterprise pipeline has seen a strong double-digit growth as a result of this agreement. We have signed new distributors that previously worked with a competing product, and we closed deals to replace our competitor's product. I am very optimistic about the growth our enterprise business may enjoy as a result of the Broadcom deal.

While some deals take longer to materialize, and it's a bit more challenging to bring new deals into the pipeline, several of our use cases are showing demand growth. So overall, on balance, I think the market demand for Allot Smart product family is similar to or even a bit larger than pre-COVID-19 demand. To summarize, I believe demand for the Allot Smart product line, including congestion management, traffic management, analytics, regulatory compliance and enterprise use cases will remain solid for Allot for the remainder of 2020 and the years ahead.

I would now like to turn our attention to the security market. We continue to see an increase in cyber attacks, most notably phishing attacks on both consumers and small/medium businesses, or SMBs. This is giving rise to growing awareness on behalf of consumers and SMBs of the need for protection. It is also contributing to a growing awareness on behalf of operators that they should provide a secure broadband connection.

One result of this is that our security business is seeing good traction. During the quarter, we signed an agreement with a major Tier 1 operator in APAC to provide our HomeSecure product to protect the routers and WiFi connected to devices in customers' home. When deployed, HomeSecure will protect millions of homes, making this the largest HomeSecure deployment till now.

In addition, since the previous conference call, we were selected by several operators worldwide throughout EMEA, APAC and Latin America to provide them with our security products and launch services to their consumer and SMB customers. We are currently in contract negotiations with these operators and believe we should be able to sign recurring revenue contracts with most of them before the end of the year. Additional operators we previously signed with, decided to expand the use of Allot Secure to either additional products in the Allot Secure family or to expand the service to an additional country in which they operate.

Since the previous earnings call, MEO Portugal and other European -- and another European operator with whom we previously signed recurring security revenue deals launched the service to the public. While only a short time has passed since launch, the penetration rates we see are very encouraging and consistent with the high penetration rates we see in other security services that were launched. We consistently see that customers are willing to pay a premium of 5% to 10% over the access charge to get security services, and we see the take-up rates are high.

Another European operator who launched the service to customers physically entering stores recently sees the number of customers signing up for the services grow to a majority of those to whom it is offered. Yet another operator who is offering the service to SMBs reached over 30% penetration in a year, and the penetration is continuing to grow month by month. These numbers are very encouraging, and I believe they validate the value security services bring to customers and the willingness to pay for them.

We are continuing to see more projects initiated and new RFPs published for security service for consumers and SMBs. Interest by CSPs to deliver secure broadband connectivity to their customers looks to be growing worldwide. We continue to see new opportunities worldwide, and our pipeline for recurring security revenue deals is growing and encouraging. It is worth noting that we see a large growth specifically in the number of opportunities we have to provide security-as-a-service to SMBs.

While motivations vary, I think this is a result of operators viewing SMBs as part of the enterprise customers that see both growing cyber attacks and are willing to pay more. While our pipeline is growing nicely, we are seeing some projects getting delayed as operators are more focused on delivering existing services rather than new services. I remind everyone again that working with CSPs takes time, with sales cycles typically exceeding 12 months and the time from signature to launch of the service around 9 months. The current COVID-19 pandemic may delay some sales cycles by even a few months more. And even though the -- delay the launch for some of the deals we already signed.

As I discussed in the past, Allot is endeavoring to sign security deals in a recurring security revenue deal model. While not all operators will accept this model, we are encouraged to see that more operators do accept it. Our goal, therefore, is to build a substantial base of CSPs who accept the recurring security services model, which will launch security services to their customers. We will work with them to help a large number of end users sign up for the security services. These are the type of deals that will ensure the long-term growth and success of Allot.

I would like to address briefly 5G networks and where we fit in. An increasing number of operators are moving ahead with their 5G plans and are rolling out 5G services. We expect this trend to continue, and we see a very large opportunity for Allot here. 5G networks have significantly higher bandwidth and will have a very large number of IoT devices on them as well as many breakout points connecting to the Internet. This results in higher vulnerability of the network itself to cyber attacks.

As I discussed in our previous call, Allot has a unique position here to play in securing the user plane in 5G networks. Our combination of being able to analyze in real-time the full traffic flow, ability to mitigate DDoS attacks in line very quickly and protect the network from Rogue IoT devices puts us in a unique position to help operators secure their 5G networks.

Allot comes to the 5G world with a very strong telco-grade technology, products that scale easily to the 5G bandwidth requirements and full multi-tenancy support to enable differentiated services. These abilities are key differentiators for us in future 5G deployments.

As I mentioned previously, we are currently active in several major opportunities including in several Tier 1 carriers. In some of them, we passed POCs successfully and are advancing to commercial discussions. Overall, we view 5G as a potentially significant growth engine for Allot.

As I mentioned today, we see significant opportunities in the market across multiple products and use cases. We believe there's a market opportunity here we should take advantage of. Given the strong opportunities we see even in the current environment, we remain committed to leveraging our strong cash position to invest for future growth. As we work with more Tier 1 operators worldwide, we take upon ourselves additional commitments that span product development, delivery and customer support. In order to take advantage of these opportunities, we are temporarily increasing our R&D investments this year by using subcontractors to help us close product gaps quickly. In 2021, we expect R&D expenses to be lower than those in 2020.

I would now like to summarize the overall picture and the key messages. We are proceeding according to our plan and continuing to grow the business despite seeing delays in several -- in different projects. In the Allot Smart product line, we see a strong pipeline. Some use cases such as digital enforcement, congestion management and the enterprise business are growing. Overall, we see a solid demand for Allot Smart at similar or even higher levels to pre-COVID-19. It is in the security area that we see our long-term growth. We are very encouraged by the pipeline growth we see and by the consumer and SMB take-up rates as they sign up for the service.

We signed a significant deal for our HomeSecure product and were selected by several other operators for recurring security revenue deals. While these deals always take time to close, COVID-19 has pushed the closure of several deals a bit more. It is also postponing services' commercial launch in a couple of the deals that were already signed. Overall, the pipeline is robust, and I am confident we will meet our goal for recurring security revenue deals this year.

Looking at our backlog, the market demand as we see it now and the pipeline of deals that we are working on, I would like to reiterate our revenue guidance for 2020 to be between $135 million to $140 million. I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2020 to exceed an MAR of $140 million. This will be, of course, in addition to the $85 million MAR deals we signed in 2019. In addition, we expect to be profitable during the last quarter of this year.

And now I would like to hand the call over to Ziv Leitman, our CFO. Ziv, please go ahead.

Thank you, Erez. Before I begin reviewing the financial results for this quarter, unless otherwise noted, I will refer entirely to the non-GAAP financial measurement when discussing operational results, which is what we use internally to judge the ongoing performance of our business. Non-GAAP financial measures defer in certain respects from the generally accepted accounting principles and exclude share-based compensation expenses, expenses related to M&A activity, amortization of certain intangible assets, exchange rate differences, changes in deferred tax and tax-related items.

And now to the financial results. Revenue for the third quarter of 2020 were $34.8 million, growing by 26% compared with those of the third 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 was $1.9 million or 6% of revenue, EMEA was $28 million or 80% of revenue, and Asia Pac was $4.9 million or 14% of revenue.

The breakdown between products and services in the third quarter of 2020 versus the comparable quarter last year was as follows: product revenues were $24.4 million compared to $16.6 million last year, professional services revenues were $2.9 million compared to $2.4 million last year, support and maintenance revenues were $7.5 million compared to $8.7 million last year. A portion of communication service providers' revenues out of total revenues in the third quarter were 86% compared to 82% in the comparable quarter last year.

I note that the revenue breakdown may fluctuate from quarter-to-quarter depending on specific revenues and deals we recognized in the specific quarter. Our top 10 end customers made up 76% of our revenues in the third quarter of 2020 compared with 64% in the third quarter last year. Gross margin for the quarter was 69% compared to 70.2% in the third quarter of 2019. I would like to mention that the fourth quarter gross margin is expected to be at around 70%. However, I remind you that the variation between the quarter reflects the product mix or deal mix sold in that particular quarter and is not indicative of any specific trend.

Operating expenses for the quarter were $25 million compared to $21.7 million in the third quarter of 2019. In particular, I want to highlight that our R&D expenses increased to $11.3 million or 33% of revenues versus $7.5 million or 27% of revenues in the third quarter of last year. The increase is in line with our strategy.

If you remember, last quarter, we discussed that given the emerging opportunities we see in our target market, we had intended to accelerate our development plans and increase R&D at a faster rate than originally planned at the start of this year. We are fortunate in that, that our strong cash position, especially in the current market environment, enable us to pursue growth, further enhance of our competitiveness and take advantage of opportunities.

The total number of full-time employees at Allot worldwide as of the end of the quarter were 684. This is an increase of 10 full-time employees compared with that of the end of the previous quarter and an increase of 90 since the end of 2019.

Non-GAAP operating loss for the quarter was reduced to $1 million compared with $2.2 million in the third quarter of 2019.

Non-GAAP net loss for the quarter was $1.2 million or $0.03 per share versus $1.9 million or $0.05 per share in the third quarter of 2019.

For the 3 months ended September 30, 2020, the weighted average number of basic shares was 35.2 million, an increase of 815,000 compared with the same period last year. The weighted average number of fully diluted shares was 37.5 million.

Turning to the balance sheet. Our cash reserve comprised of cash, cash equivalents and investment as of September 30, 2020, were $107.2 million compared to $109.2 million on June 30, 2020. The restricted cash balance was reduced to only $1.7 million versus $24 million in the previous quarter. The current restricted cash is due to margin required for foreign currency hedging activities and other collaterals. Our inventory in the third quarter was $15.5 million, which is a reduction of $1.7 million from the prior quarter, but still $4.9 million above the level as of the end of 2019. This is primarily due to equipment weighting at customer site for revenue recognition terms to be fulfilled.

Finally, in terms of guidance, we maintain our full year 2020 revenue guidance to be between $135 million to $140 million. We continue to maintain our expectation to be profitable in the fourth quarter of the year.

Finally, as you know, our focus remains to sign recurring security revenue deals. While the ongoing pandemic delayed closure of some of the deals, we believe that by the end of the year, we will achieve our target of closing a total MAR of at least $140 million. Of course, this number is in addition to the 2019 MAR of $85 million.

I note that the new deal we have signed this year and expect to sign until the end of the year will produce little to no recurring revenues in 2020, but will build a strong foundation for revenue growth in the coming years. Overall, despite a much more challenging environment than when we started the year, we remain pleased with our overall financial performance.

That concludes my remarks. We would be happy to take your questions now. Operator?

(Operator Instructions) The first question is from Michelle Waller from Needham & Company.

I'm on for Alex. Quick one for you guys. R&D declining in 2021. 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 FX hedging strategy there and how FX impacted the quarter and maybe even looking out to the December quarter, if you can? And I have a follow-up.

Okay. I'll take the first question. We don't yet have a budget for 2021. So honestly, I don't think we can address exactly what the various elements of expenses we expect to have or not have and so on. I really think we'll have that by the end of the year. And then in the next conference call, we'll, of course, provide guidance on where we see our 2021 numbers go. But I think that's about all we can say right now, Ziv?

So 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 1% change in the Israeli currency, the effect is less than $1 million. So it's not a significant...

For a full year.

Yes, yes, for full year. So it's not a significant effect on each one of the quarters.

Okay. That's helpful. And for my follow-up, you guys had some pretty good traction in announcing deals 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 to win new deals despite some delayed 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 -- like prolonged project launch delays that have seemed to have extended more than you previously thought? Or areas where you're not seeing as much deal activity as you would have expected that might be offsetting factors for -- to the pipeline? Or is it just -- is there no negative impacts in pipeline, so to speak, outside of what you guys already mentioned on the prior year 2 -- second quarter call?

Look, I think I tried to help to address it during the call. I think when we look at each market segment separately, we're seeing mostly growing demand, okay, across the various segments. Now like I mentioned, and 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 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 into the future, I think the pipeline is very robust. And I think that's particularly true for the security product line, but I think it's also true for the Allot Smart product line. It's not defined to one segment. So overall, I think we see a very healthy pipeline. And so that looks promising.

Okay. That's helpful. And congrats on the quarter, again.

Thank you.

The next question is from Eric Martinuzzi from Lake Street.

My congrats on the quarter as well. You're looking at -- right now, I've got consensus at $39.2 million for Q4. If I back off the 9 months from the full year revenue guidance, we'd be talking about $38 million to $43 million. Just a clarification, is that correct, $38 million to $43 million?

Yes. You subtracted correctly. This is correct.

I've got an MBA, so I just wanted to -- okay, so when I look at the backlog exiting 2019, we had -- you talked about $138 million backlog exiting 2019 and that 70% of that would translate into revenue in 2020. Is that still correct assumption?

Roughly speaking, it's correct assumption.

Okay. All right. And then as we look at the COVID impacts, the delays here, your expectation of the $140 million MAR, are we winding up with kind of a log jam here in Q4 because of COVID in that -- in order to hit the $140 million MAR, we need to sign a bunch of business? Or are there transactions maybe that you haven't announced that translate into that $140 million MAR?

I think we can say that the significant portion of the $140 million should be signed in Q4.

Okay. Will you be able to announce them? Or is it a situation where because of the operator's preference, maybe you won't be able to do that?

Hopefully, we'll announce. But if we will get the pushback from the customers, we will not be able to announce it. Maybe we will announce it without mentioning the name. But I guess that by the beginning of February, when we will finalize our yearly results, we will announce.

Announcing the deals there is a bit tricky because operator's tendency is to agree to make announcement when they actually launch the commercial service. It's for their own reason. They don't want to alert the market, their local market of customers and their local competition to what they're up to, what they plan to do and so on. So it's their tendency. It's not always correct, but the tendency of many operators is not to allow us to announce when they sign the contract, but to announce when they actually launch the service itself, which is typically, say, 9 months later. So we try and we don't always succeed.

Yes. Understand. And then last question for me. I'd like to dive a little bit deeper into the organizational announcement that you opened the call with. Certainly, you brought on a skilled executive there. What should we be looking for, given this -- the bifurcation of R&D into 2 kind of -- or maybe product into 2 different executives as well as them having their own R&D but not controlling their own sales force.

Look, the reason -- the rationale behind that is pretty simple. I think that the R&D and the product management was, to a large degree, segregated previously because product manager, just, for example, product manager of the HomeSecure product is a different person than the product manager for our DPI product, okay? And same, of course, for the R&D group. There's a bunch of guys who're working on the -- on continuing developing and supporting the DPI product and other people are supporting NetworkSecure or HomeSecure products.

I think the big difference here is bringing leadership to both these groups that is focusing on each one of them, both Keren and Yael are focusing on a, I would call it, a more well-defined and targeted use case, customer audience, type of business, I would say, and therefore, they're in a better position 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, 2, 3 years down the road. And that's why we made this difference.

Now we didn't do it in sales and support, honestly, because of scale. We are -- we don't have many people in each different geography. We have many people spread around the world. But if you want, in Australia, we have a very small team, and in Japan, we have a small team, and et cetera, et cetera, go geography by geography. And had we segregated them and made an Allot Smart team for sales and an Allot Secure team for sales and for support, we would have, number one, have to increase significantly our expenses because we would have had to duplicate. And number two, which is even a lot more important, we would have lost a lot of leverage on dealing with 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 we keep the sales and customer support globally and regionally targeted as they are today. Hope that explains it a bit more.

The next question is from Marc Silk of Silk Investments.

And congratulations on continued success in your strategy. So in the last few calls, you've said that on the recurring revenue models, some customers will accept it, others won't. So the 2 recent deals you've mentioned, MEO and then the Tier 1 HomeSecure in the APAC, were those recurring revenues?

MEO, it was recurring revenue. But the latest deal which we announced in APAC, it was a CapEx deal.

The HomeSecure deal in the...

The HomeSecure, yes. You asked about the HomeSecure, right, yes.

So because the MEO deal was announced, I'm assuming that, that has been launched?

Yes. It was launched just recently, but yes.

Okay. 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?

I don't think that structurally, much will change as a result of COVID, at least not that I see right now. As we're working through the -- our operating plan for 2021 and as we'll see later on, once COVID has finally left us at some point, I hope it will, I do expect that some of the practices that we have learned in coping with COVID will continue with us.

I believe that long term, we will know how to work better with much less travel than before. 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 call is the way we generate leads. If -- before COVID broke out, most of our lead generation with operators was done really with physical meetings, face-to-face meetings, through introductions and so on. Like I mentioned, 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, we're still learning it, but it looks very promising. It looks effective. We are generating 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.

So to add on to that, so I get e-mails 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?

No, no. 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 -- these are companies that we're now talking to that we didn't talk to before.

That's great. And I see that you have one tomorrow. On the -- actually, I'm a long-term player. So on the 5G, would that be maybe a second half 2021 story or more of a 2022 story?

I think it's starting these days. So I don't know if it's a first half or second half 2021 for initial deals or not, but it's definitely starting now. We're really active in this area right now. But I think it's going to grow. If you look at where the projections for 5G are and how -- and the number of operators that are expected to launch over the next years and how they expect to grow their networks over the next 5, 6, 7 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.

That will be exciting to watch. In the past, you've answered my question that you've had discussions with U.S. telcos. Are any of these -- are you talking to any of these companies about a recurring revenue model or it's something different?

We are talking to them, to the U.S. Telcos, and we're talking about recurring revenue models. But we're not at the stage that I can say much further on that.

And then you mentioned on the -- in your press release, management continues to expect to close additional recurring security revenue deals in 2020. Would you be upset if it's less than 2, greater than 3?

Well, I'm always upset that it's not one more than whatever it is we closed.

But it sounded like more than one, you have 4 or less, though, I'll use my imagination. And last thing, your stock is down 25% 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 management and the Board to know it would really boost the stock if they showed some confidence and took a few shackles out of their pocket and were able to buy some shares, it would just show a lot of confidence. And good luck going forward. And congratulations on continued success.

Thank you, Marc.

(Operator Instructions) There are no further questions at this time. Mr. Antebi, would you like to make your concluding statement?

Yes. Thank you. So on behalf of Allot 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 Needham on November 17 and at the Ideas Conference on November 18. And beyond with 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 in the next quarter. Thank you very much for joining us today. Have a great day, and stay healthy. Thank you.

Thank you. This concludes the Allot Third Quarter 2020 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.