Welcome to Allot's Second Quarter 2020 Results Conference Call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. You should have 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 Web site, 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 all of you to Allot's second quarter 2020 conference call. I'd like to welcome all of you to the conference call, and thanks 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 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 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. I'd like to welcome all of you to our conference call. And thank you for joining us today. Our second quarter was another quarter of solid growth. Revenues grew 23% year-over-year for the second quarter and reached $32.8 million.

This is our 10th straight quarter of double-digit revenue growth year-over-year, and I am very pleased with the results we achieved during the second quarter. I believe that shows we are on track and successfully executing on our plan. The number of opportunities, we see continues to grow.

And we continue to close new deals, win against competition, bring more business and grow our revenues. We expect revenue growth in 2020, to accelerate compared to our revenue growth rate in 2019. As we see our opportunities grow, we are continuing to increase our investment to capitalize on the significant number of opportunities that we see.

Ziv will provide more details on our financials and forecast later. Like most everyone else, over the last five to six months, our customers, our employees and our way of working has been affected by COVID-19 epidemic. I would like to discuss how this is changing the way we operate, and then turn to see how we see our customers reacting.

As the pandemic and restrictions started, we set for ourselves two primary goals. With equal importance that have remained our goals throughout. One, to maintain and safeguard the health of our employees and their families. And two, to continue to meet our commitments to our customers in a timely manner and achieves the goals we set for ourselves.

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 those in the office are held by video conference to minimize physical contact.

We continue to see high productivity across all departments. For example, on July 31st 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 installations.

Our global service organization is constantly lowering the number of open customer trouble tickets. Our ability to continue to sell, deliver and service according to plan is a testament to the spirit and dedication of all Allot employees worldwide. I want to take this opportunity to thank them all for their efforts and fantastic work.

We do, however, hear from our employees, that the current situation is stressful for them. This is a result of working from home, lack of physical interaction, and also due to the fact that communications are very structured in video conference meetings. The lack of the informal coffee room and corridor type interactions is starting to show.

This is an issue we plan to address over the next few weeks as the holiday season will come to an end. As I mentioned in the previous call, Allot has not laid off people as a result of COVID-19, nor have we forced any of our employees to go on vacation with or without pay.

In fact, we are continuing to invest in our products and capabilities, and we are taking advantage of opportunities to hire talent as they as they present themselves. It is worthwhile to note that while some companies are laying people off, voluntary attrition is lower these days, both in our Allot and from what we can see in other companies as well.

Voluntary resignations and net income Allot during the second quarter. We're about half of those in the first quarter and we're also lower compared to 2019. 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. While initially we saw significant traffic growth in the network, traffic has now stabilized and even come down somewhat.

However, we now see the networks experienced higher than normal traffic surges as conditions in the countries change. Overall, operators are adjusting well to the situation, and for the most part have managed to handle the change in traffic patterns. Most CSPs are continuing not only with the regular business, but with new projects as well.

While delays and 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. Interaction with existing customers and people we know is continuing.

And I think to a very large degree, we are all adjusting well to virtual meetings, replacing physical meetings, this is going very well, and we are able to actually do more than we used to, as we are saving significant travel time.

The more challenging part is establishing new relationships and generating new leads with operators we are not familiar with. To this end, we are modifying our sales approach to increase our demand and lead generation.

We are also increasingly transitioning our demo and proof-of-concept capabilities to the cloud to enable us to show our customers more with less physical presence. This approach is evolving, but we are already seeing new opportunities coming from it.

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 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.

Given the increase in time spent on the internet, 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.

For example, the Department of Internal Affairs in New Zealand recently awarded us a bid to enforce the prevention of child exploitation by blocking sites that contain exploitative content. The growth we see in this use case is worldwide.

And the enterprise market larger enterprises, which are the focus of our business, do not seem to be significantly affected by the COVID-19 pandemic. However, in smaller businesses, we do see larger delays in projects and hesitancy to spend money.

Now, we are seeing very positive signs from the agreement we signed with Broadcom to serve PacketShaper customers. In the few months, since signing the agreement, our enterprise pipeline has seen a strong double-digit growth as a result of the agreement. I am very optimistic about the growth this deal may bring to our enterprise business.

While some deals take longer to materialize, and it is a bit more challenging to bring new deals into the pipeline. Some use cases are showing strong demand growth. So overall on balance, I think the market demand for Allot Smart product family is similar to pre COVID-19 demand.

To summarize, I believe demand for the Allot Smart product line, including congestion management, traffic management, steering visibility, digital enforcement and enterprise use cases will remain solid for Allot in 2020 and beyond. I would now like to turn our attention to the security side, we see it a significant increase of cyber-attacks.

Most notably phishing attacks on both consumers and SMBs, Small Medium Businesses. 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.

Our security segment is seeing good traction. Since the previous conference call, we signed several security expansion deals, two of which are recurring security revenue deals with operators in APAC and EMEA that already had recurring security revenue deals with us and decided to expand them.

These operators saw the commercial benefit from providing security services to their customers and decided to go ahead and provide additional services to an additional customer base. This is very encouraging indeed. We are also seeing new projects initiated and new RFPs published during the pandemic. And even after lockdown started.

Interest by CSPs to deliver secure broadband connectivity to their customers' looks to be growing worldwide. We see new opportunities in EMEA, in APAC, in North America, and even in Latin America, despite the COVID-19 situation there, our pipeline for recurring security revenue deals is growing and I'm very encouraged from it.

However, at the same time, 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 the service around nine months, the current COVID-19 pandemic may delay some sales cycles, but even a few months more. And even though the delay, the launch of 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 and 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 service. These are the types of deals that will ensure the long-term growth and success of a note.

It is still challenging to accurately assess the impact of the epidemic on behavioral changes on recurring security services, both in terms of number of operators and in terms of take-up rate of Allot customers. Currently, we see a growth in our pipeline of operators looking to launch security services.

And while there are delays in decisions and implementation attributed mainly to COVID-19, the pipeline growth is very encouraging And services that were already launched, we initially saw some lower growth during the weeks of lockdown compared to the period before, however, as countries open up, we see a return to pre COVID-19 growth rates.

One of the operators that launched the consumer services to customers that physically entered their stores is reporting that more than 40% of the customers that are offered the service sign up for it.

In another operator who launched the service to SMB, Small Medium Business customers, more than 30% of the entire SMB customers signed up for the service within a year of service launch. A third operator who launched the service to fix customers is showing that 17% of the customers exposed to the service chose to sign up for it.

These numbers are very encouraging. I would like to say a few words about 5G networks and where we fit in. And increasing number of operators are moving ahead with our 5G plans and 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 we'll have a very large number of IoT devices on them as well as many breakout points connecting to the internet. When asked in surveys, telecom operators and industry experts, overwhelmingly agree that security will be a bigger challenge in 5G networks.

And most would say that core network security is very important. Allot has a unique position here to play in securing the user plan and 5G networks.

Our combination of being able to analyze in real time, the full traffic flow, our ability to mitigate DDoS attacks in line very quickly and to 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, great 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, we are currently active in several major RFPs and technical trials of 5G networks, including, and several tier one carriers. And 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 and the Allot smart product line, we see a strong pipeline.

While some deals take longer to close; some use case such as digital enforcement are growing. Overall, we see a solid demand for Allot Smart at similar 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 rate as they sign up for the service. While these deals always take time to close, COVID-19 has pushed the closure of several deals away by several months. It is also delaying services launch in a couple of the deals that were already signed.

Despite these delays, 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 demands, 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 2022 to exceed an MAR of $140 million. This will be of course, on top of the $85 million MAR deals we signed in 2019. In addition, we expect to become 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 the quarter, unless otherwise noted, I will refer entirely to the non-GAAP financial measure when discussing operationally results, which is what we use internally to judge the ongoing performance of our business.

Non-GAAP financial measures differ in certain respects from the generally accepted accounting principles and exclude share-based compensation expenses, expenses related to M&A activities, amortization of certain intangible asset, exchange rate differences and changes in the sales tax. And now to the financial results.

Revenues for the second quarter of 2020 were $32.8 million growing by 23% compared to those of the second quarter of 2019. I would like to give you some more color regarding the revenue breakdown and the diversification. The geographic breakdown for the second quarter was as follows.

America was $2.8 million, or 9% of revenues; EMEA was $23.6 million or 72% of revenues; and Asia PAC with $6.4 million, or 19% of revenue. The breakdown between product and services in the second quarter of 2020 versus the comparable quarter last year was as follows. Product revenue was $22.3 million compared to $16.8 million last year.

Professional Services revenues were $3.4 million compared to $2 million last year. And support and maintenance revenues were $7.1 million compared to $7.8 million last year. The portion of communication service providers revenues out of total revenue in the second quarter were 84% compared to 86% in the comparable quarter last year.

I know that revenue breakdown may fluctuate from one quarter to another depending on the specific revenue to deals we recognize in a specific quarter. Our Top 10 end customer made up 71% of our revenue in the second quarter of 2020 at a similar level towards [Indiscernible] 0:23:06.7the second quarter last year.

Gross margin for the quarter was 70.7% compared to 69.8% in the second quarter of 2019. I would like to reiterate that our gross margin over the year is expected to average at around 70%.

However, I remind you, that the variation between the quarters reflect the product mix or deal mix sold [Indiscernible] 0:23:37.4 in the particular quarter and is not indicative of any specific trend. Operating expenses for the quarter were $25.4 million, compared to $20.6 million in the second quarter of 2019.

During the current quarter, we booked an expense of $1.5 million due to a doubtful debt, which impacted our G&A operating costs. This was due to a system integrator in Latin America and financial difficulties due to the COVID-19.

Particular, I want to highlight that our R&D expenses were $9.9 million of 30% of revenues versus $7.3 million or 28% of revenue in the second quarter of last year.

Given the emerging opportunity in our target market, we have decided to accelerate our development plans and increase our R&D at a faster rate than originally planned when we issued our expectation at the start of this year.

We have taken this decision as we believe it will enable us to take better advantage of the market opportunities we see and build on our competitive advantages. Total number of full-time employees at Allot worldwide as of June 30, 2020, was 674.

This is an increase of 41 full time employees compared with debt of the end of the previous quarter and we stood at 633. Non-GAAP operating loss for the quarter was $2.3 million, compared to $2.1 million in the second quarter of 2019.

Non-GAAP net loss for the quarter was $2.4 million or $0.07 per share versus $2.1 million, or $0.06 per share in the second quarter of 2019.

For the three months ending June 30th, 2020, the weighted average number of basic shares was 34.9 million, an increase of 700,000 [Indiscernible] 0:26:07.3 compared with the same period last year, and the weighted average number of fully diluted share was 37 million.

Turning to the balance sheet, our cash reserve comprised of cash, cash equivalents, and investments as of June 30th, 2020 were $109.2 million compared to $110.7 million on March 31st, 2020.

$23.6 million out of the total cash balance is restricted due to advance payment from customer, margins required for foreign currency hedging activities and other collaterals. Our inventory increased in the second quarter by $2 million, up to $17 million due to equipment waiting at customer site for revenue recognition term to be fulfilled.

Finally, in terms of guidance, as Erez mentioned earlier, we continue to expect revenue to grow in 2022 between $135 million to $140 million, representing accelerated year-over-year revenue growth. Our original plan for 2020 was for OpEx to be in the range of $95 million to $98 million.

However, given both the doubtful debt expense in this quarter, as well as our decision to accelerate our development plan, which would increase our R&D in the coming quarter, our OpEx will likely be few million dollars above this range. We mentioned the expectation to be profitable in the fourth quarter of the year.

Finally, our focus is to sign additional regarding acuity revenue. While the pandemic is slowdown business development, and there has been a delay in the rate of signing those deals. We remain optimistic and mentioned our expectation that in 2020, we will assign deals with MAR of $140 million.

If it takes some time from contract date to commercial launch, I know that the new deal we have recently signed and expect to sign this year will produce little to no recurring revenue in the current year. We'll build a strong foundation for revenue growth in future you.

Overall, we continue to stand by our financial plan for 2020 and remain clear without financial performance, even more so, given the unique macro background, we all find ourselves in 2020. That concludes my remarks. We would be happy to take your question now.

Operator?.

[Operator Instructions] First question is from Alex Henderson of Needham & Co. Alex, please go ahead..

Thank you very much.

So I wanted to drill down a little bit on the OpEx line commentary, you suggesting that you're going to accelerate the R&D spend, was the most of that acceleration captured in the near $10 million number that you posted in 2Q? Or should I be expecting moderate acceleration again in the September and December quarters? And if that's the case, to get to profitability, should I be assuming fairly modest spending on sales marketing and G&A given the lack of travel? And then finally the kind of stringing those three thoughts together, as we look out into 2021, you commented that OpEx for R&D would be down year-over-year, would that imply that the offset would be a rebound in sales, marketing and T&E travel expenses that would offset that decline.

So you're flattening out the overall spend sequentially.

Can you talk a little bit about how those interact?.

So, initially, our guidance will -- the OpEx this year would be between $95 million to $98 million. And now we are saying that it will be few million dollars more than this range. So you can expect that there will be increasing the OpEx in Q3 and Q4. But having said that, we still stand by the guidance that will be profitable in Q4.

Regarding 2021, we didn't prepare the plan yet. So we cannot share with you the numbers of objects that we are expecting for 2021..

Yes, I just add to that, Alex, let me add a couple of comments. Okay. Yes, like Ziv said the OpEx will still grow a little bit in Q3 and Q4.

But also look at the revenue line, right? Where, if you look at our first half revenues, and we're guiding to total year revenues of $135 million to $140 million means our revenues in the second half, we expect them to be higher than those are the first half.

So that's why we believe when we run all the numbers, we believe that we will be profitable in the fourth quarter. And like Ziv said, I mentioned in my comment that what we're doing in increasing R&D this year in 2020 is we're using subcontractors on a temporary basis to accelerate some developments and close some gaps.

And we expect those to go down next year. And hence we believe that year-over-year in 2021, we will have lower R&D expenses. As for the rest, we can't comment any further because we didn't really build yet the plan. The annual operating plan and budget for 2021. And we'll be giving guidance on that as usual beginning of February next year..

Okay, so one of the questions I get fairly frequently is, it was great that you guys came in with such a big backlog increase into 2020. I think the book-to-bill, if I remember correctly, was up 1.6. It was 1.6 in the prior year. And I think that was the second year in a row of building your backlog.

Are you able to sustain that? Are you refilling the backlog pipeline as we go through the year or is part of the growth here coming from a work down of a building the pipeline, the backlog that will leave us with less visibility? Because obviously you had the year in hand in your backlog coming into this year.

Can you talk a little bit about whether you're in fact able to deliver enough orders to hand them out that as opposed to could be working down backlog go over the course of the year?.

Sure. I believe we even guided to that in the beginning of the year.

We said that we're coming in with a very strong backlog and then booking off of 2019, like you've mentioned, but we also said that we expect that this year in 2020, our bookings will be lower than our revenues and we guided to a book-to-bill of under one for the year but still maintaining a higher booking level in 2020, versus the revenue level of 2019.

And I still believe that's the case..

Right. And then one last question, and then I'll cede the floor. When you looked at the security transactions that you've done, I was actually expecting you would be lowering the MAR numbers because of the inability to get deals done in the COVID world that we find ourselves in.

It sounds like what has happened is you've actually found it pretty normal to get deals done, but the execution is the primary issue, which means that the timeline from the time you close the deals to the time you revenue recognize them in the ramp of existing deals is a little slower.

Is that the right spin to what you're seeing here that you're still able to get a pretty, pretty hefty attention around closing deals, but it's just an execution issue on ramping them?.

First of all, definitely there is an execution issue on rapid ramping them which is pushing out a couple of the launches that we have already signed. And it's pushing out a couple of the launch dates where the execution actually begins and revenues start flowing. But it's also pushing out actual closures the deals themselves.

Now, despite that, the pipeline is growing and we're seeing more interest and we're getting more and more operators involved. And given where we are and looking at what we've signed so far this year. And what we expect to sign in the coming months. I feel confident it was meeting or exceeding the $150 million MAR number this year -- $140.

So the different -- I am sorry $140 million MAR a target for this year..

Next question is by Eric Martinuzzi of Lake Street. Eric, please go ahead..

Yes, Erez, I also wanted to visit the delayed sale cycles and the delayed launches.

Are we talking about issues where the -- because of maybe facility closures, customers aren't available to maybe run proof-of-concepts or aren't available to install equipment? And that's what's delaying here or is it something beyond that?.

That's part of it. But I think it all stems from the fact that the operators, they're not working from the offices and from their facilities as usual. So now they prioritize things a bit differently than they would have 6 or 12 months ago.

So that means that and honestly what they prioritize as they should is being able to deliver the current services, the current products and so on into the market doing that as best they can. And then new things while they're definitely getting back to new projects, they're signing new deals, and getting new products out to their customers.

They're getting a slightly lower priority when they have to prioritize. Some of that means, okay, when they send people to the labs, what are the projects that those people deal with? When they have people go and test things, what are the things that they test et cetera, etcetera.

So I think a lot of it has to do with not being physically on site, but I wouldn't say that's 100% of the picture. However, the other side of it, I think what we saw in the first month like in March, April, we saw really them telling us, guys, we're focusing on what we've got now. And we'll deal with new stuff later.

And now we're seeing much less of that now. They're trying to get back to business. They understand I think like most of us around the world understand that this COVID-19 situation in one flavor or another is here to stay for a long time. It's not going away in the next few weeks.

And we have the best to do things and we have to do everything we used to do before in a different way. So deals are getting delayed a bit; implementation is getting delayed, but the interest is there.

The necessity to do it is there, so I think we will be able to meet our targets and sign-up the deals, but it will just take us a bit longer than we expected..

Okay and then diving a layer deeper on your outlook for the third quarter. You did and you spoke in general that you do anticipate sequential growth in the third quarter versus the second quarter. Curious to know right now consensus is at $35.1 million, that would imply about a 7% sequential growth rate.

Do you view that as realistic?.

As you know, we don't give guidance on a quarterly basis, but it seems realistic..

I'm sorry, I didn't catch it..

We don't give guidance on a quarterly basis. But relating to your question, it seems realistic..

Okay, and then lastly on the bad debt issue or the doubtful account write-down, just curious to know do we have any other exposures like that in the accounts receivables there, either Latin America focused or system integrator focused or do you feel like this is the house cleanings done for the near-term?.

Of course, we have accountancy with open accountancy, well, you see it in the balance sheet, but I think that this case was really exceptional. It was a combination of the specific company, the specific customer, the geography. And I don't think that we have such an exposure in that scale..

Next question is by Marc Silk of Silk Investments. Mark, please go ahead..

Thanks for taking my questions.

In the two recurring security revenue expansion deals that were signed with existing customers, what percentage of the customers will offer the service initially? And then and what percentage are being offered the service now?.

I'm not sure I have a percentage number. I would -- as a broad comment, I would say it's a difference of 10s of percent, but I don't know to give you a more accurate number..

Okay. In the past, you've talked, you've talked about having discussions with U.S.

based telcos, have these discussions intensified after the effects of COVID-19?.

They've actually continued, I think, as they were before, obviously, remotely and without the physical meetings and so on because operators in the U.S. don't meet people on the general sense. I'd say they don't meet people face-to-face but beyond that they've just continued as they were before along the same track and I'm quite positive about that..

Okay, so if there's a new a new President in the United States in the fall, and they once again change the net neutrality laws, how will this impact the DPI part of your business?.

The DPI part of our business in the U.S. is very small. So that's on -- that's one, and number two. Even the fact that they opened-up or rescinded net neutrality and allowed operators to put in DPI. Most operators in the U.S. did not change their stance and then didn't really install anything as a result of that, at least nothing significant.

So, I don't see that -- I don't see any measurable effect on our business if there's a change on the net neutrality rules..

That's what I thought I just figured we get it out there just in case, there's no sell after the election.

Can you talk more about 4G? Like, for instance, like when did you start having discussions with 5G? When did you start having discussions with 5G providers because obviously that's such a buzzword now and people want companies that are exposed to 5G? So maybe if you can talk more of that those opportunities, I think that would be interesting..

Well, we started talking to two operators, I think last year sometime but these things are they accelerate overtime, right? You start discussions in a broad sense. And then the operators start thinking about it more so.

So discussions intensify; you get more into technical issues, and more into details and then they issue some modify and you respond to that. And they issue an RFP and you respond to that, then they run proof-of-concepts and you participate in that. And all the time the interaction is accelerating and intensifying. So this is a long process.

This is not an easy one. It doesn't have a very, very definitive start. And hopefully, we'll have a definitive and positive end. We're seeing -- we're talking to operators today really that are launching 5G networks, either have launched or are planning to launch in the U.S., in Europe, in APAC.

There's really -- there are more and more operators are committing to 5G now. Each one has very different timelines. U.S. is pretty much ahead of the game here. And you're installing faster than most other countries.

I think that recognizing our value in delivering user plan security to the network, and not necessarily the traditional type of traffic management. I think that's been an important factor in the evolution of our discussions with the various operators around the world of what is the value that we could bring them.

Because 5G is simply, it's not 4G on steroids. It's something different. Yes, it's much faster than 4G. And in that sense, you, one may think, okay, it's like 4G was faster than 3G. So, now 5G is even faster than 4G. But that's only one element. It's the architecture of the network is driven dramatically changing in 5G.

Where previously in the 4G networks, all the traffic from the phones, devices and so on what went from these devices that are spread all over to and brought into a central core. And from that core, they were connected to the internet.

And the same, obviously backed traffic from the internet went into the core, and then was sent over the network to the devices. In 5G, the core is going to be distributed; it's going to be in many, many locations. You can have an operator in the U.S.

with dozens of locations for the core, if not more than that, if not many dozens, and then many dozens of breakouts and connection to the Internet. So as the topology changes and the architecture changes around that. The challenges also change. So many connections to the internet, so many IoT devices that could be affected.

If you remember the Mirai incident a couple of years ago, where somebody took control of many IoT devices and created disruptive a cyber-attack on sites and locations. This is something that couldn't be significantly intensified with 5G.

And it's harder to protect against and I believe that our technology, our ability to sit in the core and look at traffic at very high volume, understand the difference between legitimate traffic and illegitimate traffic, manage the illegitimate traffic and suppress it immediately, wherever, wherever it hits the network first and so on.

These kinds of things enable us to protect the 5G networks probably better than competitors. And I think that's something that is starting to resonate with operators that we've talked to..

It sounds like an exciting opportunity, and I can't wait to hear more about that. I want to go back to my first question on the recurring security revenue, the expansion. So when you said, again, you didn't really have the number, but you're thinking about a 10%.

So what you find analysis is even more --?.

Marc, I said 10 and 12..

Okay.

So, am I right to assume that there could be even more opportunities for those two customers beyond this one extension?.

I'm thinking, yes, there could be. There could be, I don't know if it'll take them or not, but there could be..

There are no further questions at this time, Mr. Antebi.

Would you like to make your concluding statement?.

Yes. Thank you. On behalf of the management of Allot, I would like to thank you for your interest and support. As we are currently not traveling, we will be holding virtual meetings with investors. So if you're interested, please be in touch with our investor relations team beyond that. Thank you very much for participating.

And I look forward to talking to you in the next quarter. Thank you..

Thank you. This concludes the Allot's second quarter 2020 results conference call. Thank you for your participation. You may go ahead and disconnect..