Allot Ltd (ALLT) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Allot's First Quarter 2022 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 (212) 378-8040 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. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. Welcome to Allot's First Quarter 2022 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. Ziv Leitman, CFO.

Erez will provide an opening statement and summarize the key highlights of the quarter. We'll then open the call for a question-and-answer session, where both Erez and Ziv will be available to answer those questions. You can all find the financial highlights and metrics, including those we typically discuss, in today's earnings press release.

Before we start, I'd like to point out the safe harbor statement. This conference call contains 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, delays in the launch of services by our customers, 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. 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 first quarter revenues were slightly higher than the comparable quarter. Revenues grew 2% year-over-year for the first quarter and reached $31.9 million. This is our 17th straight quarter of revenue growth year-over-year, and I am pleased with the results we achieved during the first quarter, which met our expectations.

In March '22, our SECaaS ARR was $5.9 million, and our total ARR, inclusive of maintenance and support, was $48.4 million, up 20% from March 2021. We announced last week the appointment of Raffi Kesten to Allot world and a cooperation agreement with our investor Outerbridge and their group. Raffi has over 30 years of senior executive business and management experience in the high-tech and cybersecurity industry from companies such as NDS, Cisco and RadWare. We believe this will be an excellent addition to our Board.

Raffi will be replacing Ronnie Kenneth, who served on our Board for 8 years. As you will have seen from our earnings release, despite overall progress and confidence in our long-term vision, we are facing short-term headwinds that have led us to lower our forecast for this year. I will address these headwinds and their impact in more detail as I discuss our forecast later in the call.

I would like to start by discussing our traffic management and analytics business addressed by our Allot's Smart product line. Our Allot's Smart business remains solid. The main use cases we see today and CSPs are continuing to be in traffic management, congestion management, quality of user experience, especially for video, policy and charging control and digital enforcement.

During the last few months, we were awarded several deals where we will be replacing a direct competitor's product that is installed. We are discussing multiple other opportunities with other CSPs currently using our competitor's product and are working on expanding such deals that we won before. We are continuously increasing the number of CSPs that we work with, either by replacing competition in [DPI] or by our security offerings. This growth in our CSP customer base creates new opportunities for both Allot Secure and Allot Smart product line.

As governments look to fight crime and terrorism, we see a growing interest globally to be able to block illegal activities such as drug trafficking, child pornography or terrorism. We are seeing growing interest in our products in this area and save on their cost to expansions.

To summarize, I believe demand for the Allot Smart product line, including congestion management, traffic management, analytics, digital enforcement and enterprise use cases will remain healthy.

I want to turn our attention now to what we see in our cybersecurity business and how the market is developing. As I said in previous calls, Allot is transforming into a cybersecurity company, and this is where we see most of our future growth coming from, where it would be individual. Each person is responsible to protect himself or herself and their families and small businesses. To do this, they need to find a security app, buy it, download it and install it on every one of their devices.

The problem is that regardless of how good or bad security app is, more than 90% of consumers do not do what I just described and they're left unprotected. This means that the current solution with endpoint security apps is not accessible enough to most people. End users, consumers and SMBs are looking for a simple "zero-touch" cybersecurity service. They prefer a simple security service and not have to do anything technical like downloading an app to each device and configuring it. Network-based security is the solution that makes this possible.

We are engaged worldwide with CSPs that are looking to provide their customers with such network-based SECaaS security. As we look at the market, we clearly see that the direction and momentum are very positive. We see that the number of engagements, the level of engagements, the total addressable market size of our pipeline, Allot win rate, the acceptance and scope of service by consumers in SMB, the requests we are getting from customers and vendors to integrate more products to our management platform are all improving and getting stronger. We see evidence of all of these in the rate and size of deals we are awarded and in the networks that have commercially launched.

I would like to say a few words on the North American market. As we previously announced, Allot has already signed SECaaS deals with 3 operators in North America, one of which is DISH. None of these operators have launched yet. I would like to inform you that we have been awarded by a fourth North American operator and selected by a fifth. We are currently in contract negotiations with both of them. And while we cannot assure you the contracts will be signed, we are very optimistic. These potential contracts represent the mark of dozens of millions of dollars. In addition, we are in serious discussions with additional operators.

North America is the largest telecom market globally. Allot was traditionally much stronger in other regions and the advanced -- advancements we are making with the North American operators represents a significant change for Allot and will be key to generating SECaaS revenues in 2023 and beyond.

We introduced the M-A-R or MAR as a simple metric to allow us to estimate the loss from potential of the deal we sign. As we indicated in previous calls and was already reflected in the second half of 2021 MAR numbers, we apply MAR not to the full subscriber base, but only to our best estimate of the relevant segments that the CSP is going to initially address. Examples of such segments that are not initially addressed may include prepaid customers, government or corporate lines or just the CSP strategy to prioritize a specific set of customers.

It differs from CSP to CSP and it may change over time as we are working with the operators to extend that reach. It's important that those are our best estimates at the time when the contract is signed. But from our experience and on the average, we can say that they represent about 50% of the CSP customer base. It is important to note that while MAR is a good indicator for long-term market opportunity, it is not a good predictor for short-term revenue.

As we indicated in previous calls, our main challenge is to transfer into contract and through revenues. The first challenge is to launch the service. This process involves many stakeholders, technical, operational, marketing, purchasing and more. Often, this requires integration with our products as well as with many internal IT systems. We have increased our efforts to assist in those processes and in some cases, we can help. This also gives us more visibility into the actual progress of the launch process. Unfortunately, we have limited control over the final outcome and the process can be subject to many unforeseen delays. Those delays have a material impact on our short-term revenues, and we believe it is prudent to adopt more conservative forecast for services that have not been launched yet.

The second stage is the go-to-market strategy. Here again, there are many strategies from bundling price plans, periods of free services with segments targeted -- targeting the channels and the marketing strategy. On that front, we have learned a lot. And in some cases, we are able to influence that strategy. We hope those investments will improve time to revenue and penetration rates. But those could come in to play only after the project has been launched.

As of March 31, 2022, of the 23 signed customers, only 9 launched commercially, most of them only to a portion of their subscriber base. In addition, we expect to sign additional deals that have been awarded. We see that the quality and size of the operators is increasing. We have the most extensive array of products in the market from network-based security to home security, DNS security and integration with endpoint solutions.

But maybe the most important an integrated management platform that offers a unified policy that is crucial as more operators are moving into converged networks and want a unified solution that they can grow with. A good indication for that approach is that we see growing signs of vendors either requested by its customers or independently asking to integrate with our management platform. The size of the market remains huge. So while we are disappointed with the current pace of which it is materializing, we remain confident in our ability to achieve our long-term goals and continue to invest in it.

Looking ahead, I want to summarize our expectations for 2022. A number of factors have changed during the last few months that have led us to modify our outlook for the year. The SECaaS revenues and ARR in 2022 are composed of the projected performance of the 9 networks we launched, plus the projected revenue of new networks yet to be launched. With 9 launched networks, any change in the timing of an expected new launch or any change on the manner in which it is expected to be launched or marketed would result in a significant impact to the overall SECaaS revenue number for the year.

As I noted, unfortunately, launch dates are hard for us to predict reliably. In addition, we are seeing launch dates get delayed by the CSPs for a variety of reasons. Since we put together our annual operating plan for 2022, about 4 to 5 months ago, our projected launch date for more than 10 SECaaS services was delayed anywhere from 1 to 8 months. Some of the reasons for those delays are budget allocation, team resource allocation and prioritization within the CSP, especially in the IT department; two, internal issues between group headquarters and national operating units; three, request to shift more responsibilities to Allot; four, product maturity and integration issues with our DNS Secure and HomeSecure.

I would like to note that we still expect to launch numerous SECaaS networks during 2022, despite the above delays. But as we are getting closer to year-end and given that usually there are also a few months of free service and ramp time, we do not expect them to have significant contribution to 2022 SECaaS revenues. In addition, the war in Europe has had an ongoing negative impact on some of our SECaaS services. In Poland, where we launched with play, sales in stores were significantly lower than expected in the last few months, due to the stores and salespeople focusing on providing for the millions of refugees entering Poland.

In Ukraine, where we were expected to launch a SECaaS service, this launch has been understandably suspended. Most of our SECaaS revenues are tied to the Europe. From January to up-to-date, the euro fell about 7% to 8% compared to the U.S. dollar. This has a negative effect on our revenues. As a result of all of the above, we are modifying our forecast of SECaaS revenues for the whole of 2022 to be larger than $7 million and our December 2022 ARR to be larger than $12 million.

As explained earlier, despite the more conservative method for calculating the MAR, we still expect to achieve over $180 million of new MAR in 2022. We still believe that a target of 25% penetration rate of the relevant segments, 3 to 4 years after launch is an achievable target. But we now believe that the average time and contract to initial revenues after a typical initial free period may extend to 18 months, sometimes longer with the larger operators.

I would now like to say a few words on our expectations for the overall company performance in 2022. 2 of the factors that affect our SECaaS business in 2022 also affects our CapEx business. One, as the war in Europe continues, some projects of CSPs in Ukraine and in former CIS countries are being delayed or canceled. Two, with most of Allot revenues coming from EMEA, a significant portion of revenues are in euros. The significant change in the euro, the USD exchange rate has a significant impact on our total revenues.

Bringing into account our reduced guidance on SECaaS revenue and the reduction in CapEx revenues, we are now forecasting total revenues for 2022 to be between $135 million to $140 million. Further to the updated revenue guidance, we are expecting that the revenue in the next 3 quarters of 2022 will be somewhat lower than the revenues in the comparable quarter of 2021.

Our forecast for support and maintenance revenues remains at $41 million to $43 million. Regarding our expected loss, as security launches are being delayed, we can also delay some of the expenses. We also benefit from the euro exchange rate and we're able to adjust other costs and expect our OpEx for the year to be between $119 million and $121 million. We believe our loss for the year will remain as previously forecasted between $23 million and $25 million. Likewise, we believe our net cash reduction for this year will also be as previously guided between $35 million to $38 million, not including the convertible loan.

We expect our gross margin for the year to remain about 70% despite our near-term headwinds and the slow time to revenue. We believe that in mass services will be launched during the second half of 2022 and during '23 that will allow us to reach profitability during 2024.

As we discussed in the previous call, we don't manage our business on separate P&L for SECaaS and CapEx deals and we don't report this. As we said previously, we estimate in 2022 on a synthetic fully loaded basis "that the CapEx business" has about 10% to 15% operating profit and the SECaaS business is expected to lose tens of millions of dollars. This estimate has not changed.

I would now like to summarize the overall picture and the key messages. In the Allot Smart product line, we see a healthy pipeline. Multiple use cases such as congestion management, digital enforcement and enterprise business are growing. We are successful in winning deals away from our competitors, and I'm seeking them in several CSPs where they are be encumbered. Overall, we see a solid demand for Allot's market. The security area is where 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.

Unfortunately, the war in Europe, SECaaS launched the way and the Europe to U.S. dollar exchange rates are causing us headwind and negatively affecting our expected results in 2022. We believe the network-based cybersecurity market is emerging as a high-growth market. We are winning most deals, and I am confident of our future success and the direction we are pursuing. We are working better with CSPs to achieve high penetration rates, and we remain optimistic on our recurring revenue outlook.

And now I would like to open the call for questions and answers, and Ziv and myself will be available to take your questions. Operator?

(Operator Instructions) The first question is from Nehal Chokshi of Northland Capital Markets.

Obviously, the supplying guidance update, but thank you for the details on the various reasons are driving this guidance reduction here. Let's first focus on the March Q incremental ARR that was $0.7 million, roughly consistent with the past 4 quarters of around $0.6 million per quarter. Can you talk to why there has been no ramp in incremental ARR over the past 5 quarters?

I think -- I mean when you see the top of ARR then obviously it's a combination always, I mean when you look at the difference between the ARR that's in one quarter and compare to the ARR previous quarter, it's consistent the growth in number of subscribers with the service how will be launch. If there is an addition of whatever new operators were launched, they affect the revenues that all, usually some of these are operators that are launched during that quarter will not affect the revenues because of pre-time period and so on (inaudible) is minimal and of course, exchange rate differences and so on.

So I think what we're seeing is mainly the effect that we haven't launched, and now I don't remember exactly the numbers for every quarter last year, but we've been growing with the existing customer base for a primary customer base for quite a while. If you take the last quarter, we've launched one service which did not contribute anything to the numbers. So the growth was basically in the last quarter on the internal growth of the -- always other services already launched and with the headwind of the exchange rate.

Are the services that have launched and that you're generating incremental ARR from? What does that MAR represent?

I don't have that number off the top of my head, and I don't want to give you a wrong number. I'll have to get back to you on that.

Okay. All right. And then maybe update SECaaS ARR implies $7 million for calendar '22, which then implies about $2 million per quarter of incremental ARR for the remaining 3 quarters. How do you see the shape of that incremental ARR through those 3 quarters?

Let me see if I understand the -- if I understand the question. You're comparing the projected December '22 ARR with the March '22 ARR and simply made linear revenue and divide that by 3 or was...

Effectively, yes.

Yes. Okay. So 12 months, okay. I would say it would be -- because look, what we're seeing with most operators will have launch we're seeing a linear growth, with a pace that is, I would say, not always exactly the same and so on, but it sort of grows -- each one individually grows at the same pace. So if there's more growth to the -- there is any type of acceleration comes from new operators that will get launched, that means that the ARR growth should accelerate from quarter to quarter as we launch new services. If we don't launch new servicing, we will probably not accelerate, like we discussed before. But if we do accelerate and grow faster. So I would expect it to grow faster or as we go through the fourth quarter than we will in the second quarter.

And right now do you expect -- do you have a high degree of confidence that any new services will indeed launch within the second quarter?

Look, I've been by making projections are not making this. So I'd like to try and not use the word highly confidence on my forecast at this point with your permission, but yes, we project that there will be additional services launched in this quarter. That definitely whether it looks like.

I would prefer to recall no expectations of incremental launches where in the second quarter been. And then the if you can update us -- okay.

Sorry, maybe I didn't explain myself. I would say that -- I would rather err on the side of caution, but we do expect additional launches in the second quarter. Yes.

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

So my question really is on penetration rates. I get it, if you launched in '21, you're probably not getting a lot of revenues from those launches of $193 million in mark in 2021. Okay. That's reasonable. I can even make an argument that launched in 2020 because of COVID, it's delayed, we have essentially nothing in our forecast for that. But what I'm having trouble with is the '18, '19, $85 million mark, which now in 2022, which is quite a long time generating only $5 million in revenues or so for the '22 time frame, if I assume it's just a here from the other 2 tranches.

That suggests to me that the penetration rate between '21 and '22 really hasn't changed at all. It's about 5% in '21 and about 6% or so in '22. And so the slope of that penetration improvement becomes the primary issue in forecasting '23, '24, '25 time frame. If you're assuming that slope is as flat as that looks, we've got a real challenge to get the ramp in revenues. Can you explain to me why that tranche has not ramped any further?

Look it consists of 2 main reasons. 1, is that the number of operators are small right to have lunch. So anything that one operated thus has a material effect for better approvals of the numbers, unfortunately, in this case, for the words. Now the operators have launched on a lower base than the entire base, which is exactly what we discussed when we say it okay, the MAR has, the end it's roughly, they're launching on average to probably have to base in realistically, which may and then when you look at penetration rates it's a different number. The second point is we have one operator with the relatively large MAR, which launched with, I would say, a very weak go-to-market strategy, and they took us very close to about a year, they convince them to change -- in which they have virtually no additional customers with very few additional customers in revenue. They took us almost a year to work with them, they change their go-to-market and change their marketing strategy and so on. And now we're just trying to see them pick up. So while I fully understand the question, this is how we got the numbers we are today.

The cases that the customer didn't launch to the target MAR that you're forecasting, then shouldn't you be adjusting the target MAR down to reflect that smaller base. When you've left the target MARs unchanged for at $85 million, $192 million and $193 million, yet we don't see a measure ramp on that revenue even with the issues that you're talking about a year delay on a 2019 launch still should be more than $5 million in revenues by 2022. And if we're looking at that now I mean can I think of that MAR as being able to get to 10% or 15% in '23? Or do I need to be flattening that to maybe a percentage point or 2 increase as we go forward. And similarly, of $192 million in 2020, almost no penetration in the revenues in '22, which is 2 years later or at least 1.5 years later or 18 months comment, we have virtually no revenues from it. So how do I think about the ramp of that business sequentially into '23 and '24 in terms of its penetration rate. That strikes me a critical issue of whether this entire business model works.

This is Ziv. As we said before, I mean, I think we mentioned the first time in 2 quarters ago. Now we are calculating the MAR in a more conservative way. We are taking only the applicable market. While in the beginning of the -- in beginning in 2019, 2020 and in some 2021 will calculate their MAR and the entire installed base. As I said, roughly speaking, the applicable number is about 50% of the total installed base. Again, we are talking about the small number.

Okay. Ziv, if that's the case, then do I need to cut the $85 million in half -- and you cut $192 million in half because if that's the case, you should not be putting those up as the continued estimation of your prior mark. You need to restate the mar if that's the case. Is that the case? Is the 85 and the 192 half by a factor of 50%?

Yes. So first of all, as we said before, the MAR is calculated only one at the time we signed the contract. And after that, the CSP might have no subscriber might have less subscriber of the revenue might go up, it might go down and so on. But if you want to estimate the MAR of 2019 and 2020, according to the new conservative way of just the applicable addressable market. So you should cut it by 50% -- 60%. And for 2021, I would say, maybe to 75%. So if you take 50% of 2019, 60% of 2020 and 75% of 2021 regard to an aggregated MAR of let's say around $280 million rather than $470 million, which was the MAR at the end of December 2021. If you want to put it on the same scale.

Right. That's exactly what we were looking for.

By the way, this is the question you asked in previous quarter and that time we didn't the answer for you.

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

It's Madeline Brooks on for Tal. Just wanted to dig into the revenue by geography breakout. So noticing that Americas is significantly down sequentially and then year-over-year as well, can you explain why Americas are down so much and what the outlook is?

If you recall, last year, we disclosed about the deal, just for an example, due to this for 5G NetProtect. And we said that we are not expecting a major deal this year, but we are expecting new deal…

I think it is CapEx deal.

Yes, I'm talking about CapEx deal. 5G NetProtect is always a CapEx deal. And we said that we are expecting for growth of this product line starting next year. So this is one of the reasons why you see reduction year-over-year in the revenue in the Americas.

Got it. And just a follow-up on that. Do you think that is -- I guess, just looking at the negative growth, do you think that's a reflection on the ability to sell value-added services on 5G in America? I just want to know how we should frame thinking about that?

No, no, no connection between 5G NetProtect and the SECaaS. 5G NetProtect is the border to protect the network and that was explained in the previous -- in the previous conference call. It's relevant only to operators that are launching full 5G network, including the core while most of the operators are starting with radio equipment and the frequency of the on the later stage the implement the full 5G core. This is why we said that we see good potential from this market but only starting next year. But it's not connected to SECaaS revenue on whole 5G network.

The next question is from Eric Martinuzzi of Lake Street.

The launching of new SECaaS customers in 2022. I think last quarter, you talked about 12 to 18 new SECaaS customers in 2022. Did you update that number? Did I miss that?

No. We said that we are going to launch in 2022, at least 12 new projects.

Okay. So that's consistent with last quarter. Okay. The cash used in operations this quarter was roughly $7 million. You talked about $35 million to $38 million cash burn in 2022. Is that to say that we will be stepping up the cash burn in the out quarters? Or am I mixing cash from ops and free cash flow?

No, we are -- as I have mentioned, we are still behind the same guidance of cash flow around $35 million to $38 million cost reduction, excluding the CLA, which mean we will end the year around $90 million including...

Yes... That's to the chase. Okay. And then the DPI business, from what I recall, the CapEx business did have some seasonality. You had entered the year saying it may be flat to down slightly. Do we have any seasonal adjustments. In other words, if it's flat to down slightly each quarter? Or could we see a recovery maybe in Q4 on seasonal strength?

It's very hard to predict this on quarter-by-quarter basis, it's a very lumpy business. We were in a project or do not win a project or a project gets delayed or cancelled. It's very hard to look at it that way, because each project -- a single project of $5 million to $8 million. So you can understand it's a big suite of -- for any quarter. I think overall for the year, we should be roughly where we thought we would be, as roughly flat with, I think, a few million dollars less and that's what we're guiding that way now because of the war in Europe and because of the exchange rate were and the currency which we got some significant portion of our deals. So that's the business itself, I think, is roughly flat as we said at the beginning of the year.

Okay. And then maybe I should have started with this. But the revenue, you've reset the revenue midpoint from $150 million down to $138 million, so roughly $12 million of the reset. If I put those 3 issues into -- if I put those $12 million into the 3 buckets, the SECaaS delays, bucket #1; war in Europe, bucket #2; and then FX headwinds, bucket #3, how do you allocate that $12 million reset?

So let's start from the easy part, which is the SECaaS. The midpoint of the SECaaS in the previous guidance was $12.5 million, now is $7 million. So $5.5 million is coming from the SECaaS. Then the rest, you can assume a few million dollars from the franchise, a few million from opportunities that will be postponed or canceled in Eastern Europe.

The next question is from Marc Silk of Silk Investments.

Most of the topics have been covered. So the one thing I wanted to just bring up. So do you still feel that the Board and management is optimistic about your long-term prospects?

Absolutely.

So having said that, now that your started down over 75% from last year, then I think all the shareholders would expect that management and the Board kind of step up and have some in the game and start buying some stock back some stock for themselves because, again, we have -- it's like we're taking all the risk. And we kind of like to see management and the Board take some risk as well and plus also show the investment community that you're very optimistic because money talks. So that's just my comment. And hopefully, you'll let them know. I know they can -- it's their money, but I think it's the right thing to do, and it will show confidence to the investment community.

We'll definitely convey the message.

The next question is from Rory Wallace of Outerbridge.

I just wanted to ask on the 5G NetProtect side, it seems like that opportunity is going to be much, much larger than the historical leadoff business has been for you, just thinking about how operators are going to rely less on scrubbing centers with their architectures on 5G. So is there any -- I know there's not going to be significant revenue from that this year, but is there any pickup in sales activity around potential NetProtect deals?

We are talking this year to more operators on 5G networks than we were talking to last year. And now I'm just talking about the CapEx side, right? And we're doing that on SECaaS side as well, but current the CapEx side and them both of our DPI and 5G NetProtect, which tends to come products together. So yes, we are seeing some growth in the opportunity we're talking to, but right we said at the beginning of the year, we don't expect to have any material new revenues obviously at this point too.

Okay. And how's that for even the sort of nation-state type of use cases around secure Internet? Are you seeing any demand hold out from the geopolitical landscape around that?

We're seeing demand fall from countries that want to have some control over the context of slowing on the internet to try and block -- the chain block terrorism stuff like that. We're seeing both legislation coming into place in various countries and we're seeing more and more requests to see -- to discuss what can we do to help them gain some measure of control on that.

Okay. And then just drilling down into some of the issues you get down from [I4], why these deals are being delayed, I think one interesting one is just on the HomeSecure router integration, which I think you've mentioned and then the sort of integration issues between national units and group headquarters. I mean, I think it sounds like you could have some pretty large HomeSecure deals that tend to be ramped up at some point, but it sounds like those are being sort of pushed out, are you confident that those large HomeSecure deals will eventually go into deployment in some reasonable time frame. It seems like those could be pretty big opportunities?

I think we have signed several HomeSecure deals, and we were awarded some other that have not been signed, and we definitely have a high hope for them, and we believe that they will be launched in some reasonable run that reasonable for operator perspective time frame. But unfortunately, they're being delayed. But once they are launched, that have high hope what they resulted.

Okay. And some of those issues are progressing as far as, I think, specifically with the router integration and getting -- making sure that you have all that groundwork in place?

Yes. Yes. We're getting more and more routers integrated. I think we went public with a well those in cooperation agreement with technical. We haven't but we're working with routers integrators, we're working with the manufactures to be part of the development program. So we can integrate up really before we need for a specific operator. We're not that recall of them, we're talking to several of them. It's a hard process. It's very, very -- it's specific to many different routers, but we are definitely progressing there.

And then when I look at the new guidance for $7 million of SECaaS revenue for the year, it seems like if I just linearly plugging and kind of adding 100,000 to 200,000 of sequential revenue per quarter, I get to that number. And that's kind of what you've been achieving over the last year or so. So is that mostly -- it sounds like it's mostly reliant on continued ramp from the existing base of customers with kind of a very limited assumption around new customers. Is that a fair way of looking at that?

Yes. As we said, most of the expected launches to take place in the second half of the year. And if you take into account that's most of them will have a free period of 3 months, it means that new customers, new launches, new projects will generate rental revenue this year. So most of the expected revenue was coming from a different customers.

Got it. And I think it sounded like in the script, you talked about having 1, 2 new North American deals, which is pretty positive in my opinion. So could you elaborate on those at all? I think you said one was already signed and one was still awaiting commercial sign-off, but anything else you're able to share about those?

So I'll see I think what I said at that we signed already with one of which is DISH and the other 2 we have not announced. And we were awarded by one and selected by another. Now the reason I'm saying awarded and selected, neither of them are signed, or say, neither of these 2 additional ones are signed. When I'm saying awarded by one because there was an RFP process that we were awarded, and the other one just selected us without having -- we've worked with them for a long time, but there was no formal comparative RFP process. But neither of them were signed. So you understood that we have signed one and working on another and that's not correct. I agree with you that, overall, the way we see the market in North America is very positive. And the cost that there are significant and we're also coming to other operators. So I think we will have -- we will have hopefully, can't promise it, but hopefully we'll have an additional deal.

Okay. Well, congratulations on being awarded and hopefully, you can get those contracts signed. And then OpEx was lower than I think has been modeled for this quarter. So I think historically, you've seen kind of less -- you've seen a ramp in leverage over the year as revenues increase. But this year, you're forecasting the opposite. So I guess are you planning a lot of hiring specifically in the second quarter? Or just trying to understand that the ramp to get to the OpEx number for the year based half of the Q1 number?

So we have many open slots that we haven't recorded yet, and we are planning to do it during the year. This is the main reason for the expected increase in OpEx. Other - there are other types of expenses that are correlated to the revenue. So once the first quarter revenues are low, the first quarter revenue low also the associated expenses are lower, like sales commission, making commission and so on.

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

Yes. On behalf of myself and the management of Allot, I want to thank you for your interest and for taking the time to participate in this call. Thanks for joining us, and I look forward to talking to you in the next quarter and hopefully seeing you sometime soon wherever you are. Thank you very much.

Thank you. This concludes the Allot First Quarter 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.