Allot Ltd. (ALLT) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Allot's Second Quarter 2021 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, www.allot.com. I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin?

Thank you, operator. Welcome to Allot's Second Quarter 2021 Conference Call. I would like to welcome all of you to the conference call and thank a lot 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 a brief opening statement and summarize some of the key highlights of the quarter. We will then open the call for the question-and-answer session, and 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 on the conference call in today's earnings press release. Before we start, I'd like to point out of the safe harbor statement. This conference call may contain projections or other forward-looking statements regarding future events and 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 impacts 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. 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. Today, we are slightly changing the format. In the press release, you will be able to find all the numbers and tables that we typically release as well as those that Ziv previously used to share in the conference call. Therefore, after my remarks, we will jump straight into Q&A, and Ziv and I will be available to answer your questions. Our second quarter was another quarter of solid growth. Revenues grew 8% year-over-year for the second quarter and reached $35.3 million. In the second quarter, we also reduced our non-GAAP operating loss by about 40% compared to the second quarter of 2020 and increased our total cash and equivalents to $105.6 million. This is our 14th straight quarter of revenue growth year-over-year, and I am very pleased with the results we achieved during the second quarter. Also during the second quarter, we succeeded in signing several recurring security revenue deals for several of our Allot secure product lines. I'm very pleased with these results, and I believe it shows we are on track and successfully executing on our plan. Our business is expanding across our product lines and markets, and we are increasing our market share, especially in the cybersecurity business, as I will describe in more detail. As we see our opportunities grow, we continue to invest in order to capitalize on the significant number of opportunities that we are identifying. I want to start by describing what we see in our cybersecurity business and how the market is continuing to change favorably. As I have said in previous calls, Allot is rapidly transforming into a cybersecurity company, and this is where we see most of our future growth coming from. There is a revolution happening in the consumer cybersecurity market. Responsibility on securing the consumer, the family, the small business lies today with the 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 how good or bad a security app is, more than 90% of consumers don't do what I just described and are left unprotected. This means that the current solution with endpoint security apps is not accessible enough to most people. End users, consumers and small, medium businesses are looking for a simple, 0 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. While most people are practically left unprotected, threats such as phishing and others are growing. We recently published a report showing that our consumers protected by Allot Secure in Europe. During a period of 3 months alone, our security software blocked 140 million attacked attempts by the Flubot Banking Trojan. This is just one case, but it clearly shows the level of threats people are facing on the internet. The revolution of shifting responsibility from protecting the consumers and small businesses from the individual to the CSP is indeed happening. I'd like to use the analogy of water. We buy water from the water utility company and expect it to come to our faucet safe to drink. We don't expect it to come dirty and then have to figure out ourselves how to filter and purify the water so that we can drink it. Much the same, the internet access our CSP provides us should be safe for us to use. Currently, we see a growing number of CSPs worldwide that understand that this is no longer a "nice to have", but rather becoming a "must provide". And with this growing understanding, so grows our pipeline of security as a service deals. This is evidenced in the deals we signed and those we are working on. Recently, we announced several security as a service deals. 2 contracts with CSPs in APAC, 1 contract with a CSP in Europe and another contract with a Tier 1 European group with operating entities in Europe and North America. In addition, we have recently been selected by several CSPs in APAC and Europe, with whom we are currently negotiating the contracts. In North America, as I previously discussed, the market change in the past 18 months is very clear. Multiple North American CSPs are considering launching network-based security as a service to their consumer and SMB customer base. They are in discussions with us as well as with others. We see North America as an opportunity and a focus area for Allot. As we previously announced, we intend to sign a security as a service agreement with DISH to protect their mobile and fixed customers on the new 5G network DISH is building. While we cannot be sure that any of the discussions, selections and awards I mentioned will indeed result in contracts, I am optimistic. I believe the contracts we signed and the awards we got are strong testaments to the positive change in the market and to a lot strong position in the network-based security market. I would like to remind everyone of the Allot business model in a typical security as a service deal. When we sign such a deal with an operator, Allot takes upon itself to provide all the required hardware, software and professional services to enable the service. We further assume responsibility for the support and maintenance of what we provided and provide significant marketing support to the operator's marketing team. In return, we ask for a share of the monthly revenue generated by the service or a monthly fixed subscription fee. Operators worldwide can typically charge for network-based security services anywhere from 5% to 8% of the consumer's ARPU and much higher rate for the SMBs ARPU, which can reach even 20%. Allot will typically get anywhere from 20% to 50% of what the operator can charge to consumers or SMBs, depending on various factors. This is the preferred business model that most, but not all operators worldwide accept. While each of the CSPs have decide to work with us, may be interested in different parts of Allot Secure product family, we are seeing strong demand for all elements of the Allot Secure enforcement abilities. NetworkSecure in the core network, HomeSecure in the home router, BusinessSecure in the SMB router, DNS Secure and also EndpointSecure. Our ability to provide such a wide variety of security enforcement capabilities together with a unifying management layer of Allot Secure Management or ASM are important differentiators and key to winning many of these CSPS. I am not familiar with other technology companies that provide such a broad, unified experience across access means, devices and threats. While Allot has different competitors coming from different disciplines for each of its product lines, Allot is the only company that offers a comprehensive solution addressing such a broad range of consumer needs with a single unified management platform and with integrated policies. I would like to say a few words about the penetration levels we are seeing with those security as a service offerings that we have already launched. In CSPs that launched the service, we continue to see growth in number of consumers and SMBs that sign up for the service. CSPs that accept security as part of their core offering and offer the service in multiple touch points show high penetration levels even when customers sign up for the service separately. For example, in one of the operators when offered in a store, we are seeing around 80% of new customers signing up for the connectivity service, also signing up for the security service. The lifetime value of customers who sign up for the service is also high. In one of the CSPs, we see that even 1.5 years after signing up with the service, approximately 65% of those who signed up for the service stay with it. This is, in my opinion, very strong evidence that the service is valued by the customers. However, CSPs that launch it as "just another value-added service" with limited sales channels and less aggressive go-to-market plans show lower penetration levels. Allot has set up what I think is a strong marketing support service, where we work together with the marketing departments of the CSPs to show them the value of offering the service in broader sales channels and the right go-to-market plans. As a result, we are seeing CSPs appreciate the experience other operators are having, and some are modifying their go-to-market approaches and significantly improving their results. The number of operators closing deals and planning to launch is growing. COVID, especially with new restrictions imposed with the current outbreak of the Delta variant is causing delays in launches and various marketing activities. While we are very encouraged by the penetration levels of operators who launch the service, these delays have a short-term impact on our revenues. In addition, we are finding operators who decide to launch the security service with several months of free service, despite our view that 1 month of free service would result in very similar take-up rates. The combination of the delay in launches and prolonged free services have contributed to somewhat reduce the initial recurring revenues for us expected during 2021. We expect our recurring security services in 2021 to be around $5 million. When we look at our recurring security revenue growth plan, we see our revenues growing in 3 dimensions: one, signing up and launching cybersecurity services with additional CSPs; two, in a CSP that launched the service, having more end users sign up for this security service; and three, CSP is expanding the security offering to the market from an initial market segment such as mobile, to additional segments such as the home or off net protection or the SMB market. I believe this threefold growth opportunity is what can make our recurring security revenues grow very rapidly. Looking at the existing CSP services growth, as we see it now, the new CSP launches from existing contracts and the expected launches from deals we were awarded recently, we remain confident that in 2022, our recurring security revenues will be around $25 million. I would like to turn our attention now to 5G networks and our opportunities there. Securing internet access actually consists of 2 aspects: the first, that I described till now, is securing the end user access to the internet. But in addition, we also need to secure the operator's network itself, mainly the user plane from DDoS or BOT attacks. As I discussed in previous calls, Allot has a unique position to play in securing the user claim in 5G networks. Our combination of being able to analyze in real time, the full traffic flow, ability to mitigate DDoSs 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 our 5G NetProtect product and future 5G deployments. Working with an operator to protect the growth of the network itself and the access by its customers is a powerful combination. This is what we are planning to do, for example, in the DISH network. Earlier this year, we announced that we signed a contract with the U.S. operator, DISH, to use Allot 5G NetProtect to help secure the user plane of the 5G networks they are building. The DISH design of a 5G cloud-native network is the most advanced we are familiar with. I view vicious selection of Allot technology to help protect their network as testimony to our technology and implementation capability, which will serve as a great reference for other operators, especially in the North American market. During the second quarter, we announced that we closed another 5G NetProtect deal with a Tier 1 CSP in APAC. I can share with you today that we have been awarded yet another Tier 1 5G network, and we are currently negotiating that contract. I believe the growth of 5G networks worldwide and the need for securing the network itself could become another powerful growth engine for Allot. To summarize, I believe the market for cybersecurity services by CSPs to consumers and SMB is taking off, and our pipeline is stronger than ever. I believe Allot is uniquely and very well positioned to take advantage of this and grow significantly. New deals with CSPs still take time, usually between 12 and 18 months and with COVID, some even take 24 months. One sign, it usually takes 9 to 12 months to launch the service and start gradually building a revenue base. Ongoing COVID-19 impact may cause further delays of several months launching the services after the deal is signed. Factoring all this, as I explained earlier, we expect recurring security revenues from security deals in 2022 to be around $25 million and to keep accelerated growth year after -- year-over-year after that. We also expect that in 2021, we will sign new recurring security revenue deals totaling at least $180 million of MAR. Finally, I would like to turn now to discuss our visibility and control business addressed by our Allot Smart product line. Revenue from this business is continuing to grow well for us in 2021. The main use cases we see today in CSPs are in traffic management, congestion management, quality of user experience, especially for video, policy and charging control and digital enforcement. During the first half of 2021, we were awarded several deals with operators requiring traffic management or visibility. In some of these deals, we will be replacing a direct competitor's product that is installed or we are being added to the network where the CSP had until now used our competitor's product exclusively. 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 last year. 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, trial pornography or terrorism. We are seeing growing interests in our products in this area as well. Our enterprise business is continuing to grow. During the first half of 2021, our enterprise revenues grew about 70% compared to the first half of 2020. The deal we signed in the beginning of 2020 with Broadcom to position Allot as the replacement for their Packeteer product, which is at End of Life, is contributing a significant portion of this growth. We are signing new distributors for our enterprise products in multiple countries, including North America and Japan. One example is a deal we announced with the North American government agency, which was broadcast by a distributor who previously worked with Broadcom. We expect continued double-digit growth of the enterprise business in the remainder of this year and probably in 2022 as well. To summarize, I believe demand for Allot Smart product line, including congestion management, traffic management, analytics, digital enforcement and enterprise use cases will remain healthy with single-digit growth for Allot in the years ahead. 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. In the Allot Smart product line, we see a strong pipeline. Multiple use cases such as congestion management, digital enforcement and the enterprise business are growing. Overall, we see a solid demand for Allot Smart. 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. We signed significant deals for our various products. While these deals always take time to close, COVID-19 pushed the close of several deals a bit more. It is also postponing services commercial launch in some of the deals that we already signed. Overall, the number of operators we are closing deals with is growing worldwide, and our pipeline of potential future deals is growing as well. 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 2021 between $145 million to $150 million, which includes about $5 million of recurring security revenues. We further expect to sign additional recurring security revenue deals in 2021 with a total MAR exceeding $180 million. 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 Alex Henderson of Needham & Company.

So I wanted to just hit the enterprise piece a little bit first. Can you remind me what percentage of that business is coming from -- of the traditional businesses coming from the enterprise piece?

Last quarter, it was 20%. Year-to-date, it's 24%. And last year, it was 16%.

Right. So if 24% of your business is growing at a 70% clip, that seems like the other portion of the business would actually have to be declining in order to be at mid-single digits. I assume that you've done very well with the Broadcom stuff, but that's a diminishing tailwind over time. Can you talk about kind of the shape of that benefit and how that transitions? I assume that -- a good chunk of that installed base has already been converted.

It's actually taking -- yes, first of all, you're right. The growth in the enterprise business is primarily related to the Broadcom deal, but it is taking -- I'll confess longer than I had expected. It's -- we're -- it takes us time to convert the distributors that the as far as -- yes, to sign up with us, be convinced of the technology to go back to their customers. And we didn't see as much -- even though we signed a deal with Broadcom early in 2020, we didn't see this much conversion or this much growth in the enterprise business in 2020. We are seeing the effect really now, which is about 1.5 years after we signed the deal with Broadcom. So it's taking longer. And I believe that we'll still see significant growth in the enterprise business for the remainder of this year. Now once we have these channels developed, comfortable with us and so on, I believe they'll continue to bring us deals either as a convert from Broadcom or from other areas that simply were maybe dealing with other customers or they had access with other -- sorry, other technologies or they had access to previously, and they weren't talking to us at all because they weren't working with us, et cetera. So let's say, I think the -- to summarize, I think we'll see the most significant effect this year. We're not going to continue a 70% growth rate next year, no way. But I believe it will still continue to grow, and it's taking longer than I had originally expected, but still it's good.

So if I were to look at the traditional business and take out the enterprise piece, is the rest of the service provider piece still growing? Or is that actually declining?

I don't think it's declining. And it really, really changes. It fluctuates from quarter-to-quarter because enterprise business is sort of ongoing. It's many small deals. The CSP, the traditional traffic management for CSP is much more lumpy in nature. So I don't see a decline, at least in what I see the business in general. It could be that in the specific quarter, it may have gone a little bit up or down, depending on revenue recognition with the lumpiness of the deals.

When you have an installed base with a customer of that technology, does that give you an advantage in doing the security business? Or is there no correlation between who you win on security and the installed base of traditional?

Okay. I assume you're talking about CSPs now. Is that --

Right. On the CSP side, right, clearly.

It gives us some advantage because the customer is familiar with us. We know the network people. They have a reference already in-house, so to speak, for themselves on how we are as a partner, how we are as a technology company and so on. So it definitely gives us some advantage. But many of the operators that we're signing, we're signing up, I don't know off the top of my head to tell you if it's the majority of them or not, but a significant portion of the operators that we're signing up for security are not VPI customers for us.

Two more quick questions. One, the $5 million outlook for the year in profit -- on the revenue from security, that's not a material change. I mean I think we were at 6 before. So I mean it's a pretty de minimis change in the outlook. Is that correct? I mean, it looks like $1 million kind of thing?

Yes. You're absolutely right.

Okay. So not a big deal one way or the other. That's probably statistical noise. The -- I wanted to go to the Open RANs wins. We don't really have a handle on this business in terms of the size of the opportunities, the timing of the ramp of those businesses and sort of the mechanics around it. Could you go through some of that, give us some sense of when you sign a deal, how big is it? How long does it take to get to revenues? And what is the slope of the revenue growth post installation?

When you said Open RAN, are you referring to the 5G network?

The 5G, yes.

It's -- it depends. Supposedly, it will be similar to, say, our DPI business, right? Let's assume we're talking about NetProtect -- 5G NetProtect for 5G networks. It should be similar to our DPI business in the sense that, okay, we get a contract, and we go and install it. We integrate with to the rest of the stuff, and then we pass acceptance. I would say that depending on the operator, how fast they are, how much testing they want to do before they turn to operational, it could take anywhere from 6 to 12 months in a regular deal. In 5G, the added factor to that is that some of these networks don't yet exist, right? DISH is not running a commercial 5G network yet. So we sold them software that -- and we're working with them to integrate that into the network that they are building. So it could potentially take longer. But I would say that still, 6 to 12 months for regular DPI deal, probably another 3 months or so for a 5G network because eventually, they put it on, it's probably reasonable.

Are these all perpetual?

The 5G NetProtect deals are all perpetual license or at least -- yes, they are of CapEx based deals, right, perpetual licenses. The -- when we do and hope, for example, hopefully, we will do shortly, security as a service deal on 5G, those will be recurring security revenues.

Okay. One last question. On the MAR calculus for the year, are you ahead of your target? On target? Feeling better about the outlook in line with the outlook, worse than the outlook? Any granularity on terms of where you are on that $180 million plus target?

Alex, as you remember, also last year, we did say that most of the MAR contract of the secret contracts were signed towards the second half of the year. There is a kind of seasonality or trend in the market that most of it, it’s signed in the second half of the year. And I think this year also will be similar to last year, the same trend. However, we feel confident that we will meet our guidance of $180 million of MAR.

The next question is from Eric Martinuzzi of Lake Street.

I have a question also regarding the slight revision in the security revenues for 2021. If I had it right, there was -- it was in part driven by delays due to COVID and then, in part driven by marketing choices made by the carriers. Just wondering -- and I know we're talking small numbers, but just the difference between the 2. What's weighing more on the revenue ramp for those [CCAs] 2021?

It's -- the changes there is so small. It's not -- it's hard for me to relate to differentiate between the 2. They're about the same order of magnitude.

Okay. And then focusing just on the marketing side. You guys have a ton of experience with this. You've done it globally. As you're working with new customers who are signing up with CCAs, what's the change in -- are you changing how you're communicating with those marketing departments so that they can benefit from your experience?

We are. It's -- I think it's -- we're changing the way we communicate with them, yes. The benefit from our experience is available to them before we sign the deal. And after we sign the deal with us, it's our vested interest, right, to share as much experience as we can with them and get them on board and show them how great they and us can do together with this. I think with the change in the way we are approaching that is we're spending more time today than we did in the past on showing them good and bad examples of go-to-market. And we're trying to get their management's commitments to a more aggressive growth even to go-to-market plan, even prior to signing the deal because we think that's really key to getting the successful result. It's also -- we have an operator, for example, that started with the go-to-market plan that we didn't feel comfortable with and it took them several months and they said, okay, okay, we understand it's not doing that well. So tell us how to do it differently. And we kept telling them all the time how to do it differently. Now they're changing and they're doing better. We would rather them sign up for doing better from day 1. So we're trying to work with these operators to actually set very ambitious goals for themselves day 1 because that drives a lot of the changes that they are a lot of the go-to-market plans and how they address it just to begin with. So I think that's the main change.

Okay. And then with these new wins that you're landing, and congratulations on that, it's really a string of pearls that you're assembling here. Are most of these operators of these carriers -- what -- were they doing something previously using their own product or a competing product or nothing at all?

Some of these operators were not doing anything, and some of them were reselling their endpoint security apps from various customers -- from, sorry, from various companies, such as McAfee or F-Secure or multiple other alternatives. None of them were doing anything on their own technology. I'm not familiar with any operator that has their own technology to provide security as a service.

Okay. All right. And then my last question has to do with the operating expenses going forward. I'm looking at the GAAP OpEx for Q2 of $28.3 million and trying to figure out what's the right number to be using in Q3 and Q4 outside of the variable comp and the sales and marketing. Is this a good run rate to assume? Or are there other things to consider?

I would say this -- the OpEx in Q3 and Q4 will be higher than the OpEx in Q2, since we have many open positions that we didn't recorded yet. So -- and we hope to record those details in Q3 and Q4.

And these are engineering or sales?

Mainly R&D people.

The next question is from Marc Silk of Silk Investment Advisers.

So to date, how many recurring revenue deals have you signed? I have a number in my head, but I just want to make sure I have the right number, not necessarily that you're generating revenue, but that you've -- that are signed and ready to go in the future?

We have signed 15 pickup deal, but less than 50% of them really launched the services.

Okay. And then -- that's actually more than I thought, so that's great. How many of these do you think will be able to launch a service before the year is over?

I guess this is by the beginning of next year, 2/3 of them will launch the service.

Okay. And then out of these 15, how many of these do you think are going to basically have been taking your advice as far as how to market this?

Yes. We cannot give you an accurate answer because we don't know the answer yet. Think about a customer that's -- the few customers that signed agreement in Q2. Now we are starting the process of implementation. And as you recall, we said this process might take even 1 year. Part of the process is the go-to-market strategy. So we don't have a definitive answer for those customers.

Okay. I'll ask that sometime next year. And then on the 5G, after your first few deals with DISH and others, has that maybe increased your exposure as far as basically maybe getting inbound calls or making it easier for your sales team to sell this product?

I'm not familiar with anything that makes it easy to look for the sales team, but it definitely --

That's difficult.

Yes. It definitely gives no reference to say, okay, this is – others have tested it and trusted us and so on. So it makes – it gives them more credibility when they walk into an account.

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

Yes, I just wanted to go back to the outlook on the MAR stuff for a second. So as we look at the size of the transactions that are in the pipeline, have you seen any shift in terms of the number of Tier 1s that are engaged versus Tier 2, Tier 3s? What is the scale of the people in the pipeline looks like?

I think the -- Yes. I'll answer it almost intuitively because I don't have such a breakdown number in front of me. But I think the number of Tier 1s we are talking to is growing. So the mix is still there, right? We're talking to smaller operators, larger operators and so on, but I think the number of Tier 1s is growing.

And when you answered that question about the number of deals that you've done, did that include both shared deals is whether OpEx deals as well as CapEx deals?

No. Just OpEx deals. Just the [indiscernible] in starting from 2000, I think the first one will.

And when you look at those companies that are in the pipe, one of the key variables here is the degree to which they're willing to take your advice on the marketing side. Do you see an increased willingness among the people in the pipeline to listen to the marketing knowledge that you've built? Or are they less willing to -- I would assume that, that's actually improving in terms of quality.

I think it's improving somewhat. It's not where I would want it to be there. We still have the way to go, but I think it's improving.

Okay. And then just going back to the sizing of these 5G. Is there -- does it -- do we think about that as having any relationship back to the MAR opportunity once you've signed a 5G? Does that give you an opportunity in that space as well to sign up for the security as a service to their customers? Or is that independent?

It's independent. But I think like what I said on the 4G or other DPI deals, once we get into an account, we start working with them. Then they become more familiar with us. They feel more comfortable with us as a vendor. They see our technology. They see our people and so on. So it's an easier in route for us to discuss other products as well. It doesn't guarantee anything, but it does give us an opening. On 5G, I think even a little bit better because we are almost always discussing a new network that's not there. In 4G, we're always discussing of it. With an existing 4G network, they're putting something in place. It's the technical team that's dealing with it. Marketing people are not interested in DPI for 4G, right? They don't see that. In 5G, everybody in the company and the operator is interested in what's happening with this 5G. What are they going to do with it? How is it going to be put together? What's their schedule for building it? How is it going to be safe? What's their differentiations, et cetera. So giving us a wider reach of people, I think, when we talk to an operator on their 5G network, then that could then give us a -- if we talked on securing for DPI on a 4G network. So in that sense, it's a bit better. So it doesn't guarantee on it.

Just to be clear, when you talk about 5G here, you're talking about 5G core as opposed to 5G RAN, 4G core?

Yes. When I talk about 5G, I mean the "real 5G", where the 5G is the core network, not just when an operators uses the same 4G network and just replaces the frequency and the ramp to expand and really provides 4G services.

And then when you were talking about the security transactions, you'd said that you were seeing a number of competitors in the bids. Can you talk to what kind of products are those people offering? Is that just simply DNS services? Is that the McAfee installation software product type offerings? Is there anybody else doing anything remotely like what you guys are doing? In line security cleaning?

I think there's -- we have good 2 sentences of background and all just as a question. Just as a reminder, we have the ability to provide security and filtering in multiple locations and multiple, what we call enforcement points. One is in the core of the network, which is our NetworkSecure. One is in the router. It's the HomeSecure, if it's a home router. It's a BusinessSecure, if it's a SMB router. DNS Secure on the DNS query line. And of course, we can augment that with an off network protection with EndpointSecure. Now in each of these enforcement point products, there is -- there are different competitors. In HomeSecure and BusinessSecure where we secure the router, we're competing with companies like Kugou, McAfee and we're seeing there's a start-up also. And there are various companies that compete and build a solution for that. When we compete -- when we talk about enforcing the security in the core network, I'm not familiar with anyone else that actually does that. We end up typically competing conceptually with either securing it in the core or securing the DNS access line. DNS access line are different competitors. Yes. Typically, it's Akamai and [Inforos], so the 2 main ones that we see there. But we don't see anybody that takes the holistic -- that has the holistic -- that has the holistic capability of having all these multiple enforcement points and a unifying management layer to make sure that regardless of what the enforcement point is, the online/offline has the same management, say, a single plane of glass for both the user and the operator has the same policies and so on. So we're seeing different companies compete with us in different areas, but nobody has the -- sort of the whole package like we do.

Do you have a sense of what your hit rate should look like, given those -- that context?

It’s now – it depends how you count it because at the end, there are operators that decide to go anyway for just reselling endpoint security, in which case, we don’t have it. We’re – that’s not our game. We think that endpoint security could augment network-based security, but the essence has to be network-based security. I think in network-based security, our hit rate is – I would – I think it’s very high.

[Operator Instructions] The next question is from Rory Wallace of Outerbridge Capital.

I was just wondering, it seems that we're seeing a lot more marketing and consumer cybersecurity solutions here in the U.S. For example, AT&T ActiveArmor and other types of products. And I was just wondering if you think that's accelerating deal activity specifically with some of the CSPs you're speaking with? And how you're feeling in general about those opportunities?

As I said, I think that's the deal activity in the U.S., as you call it, has changed -- it's rolling. There are more operators in the U.S. are looking to launch network-based security services. When I say more, it's like 18 months ago, they were almost not interested. And today, there are quite a few operators that understand that they need to do something. Now some of them are moving faster, some slower. Hopefully, some of them will close this up. But I think that what you're seeing in marketing all kinds of solutions in the U.S., mostly are still not network-based, that I think that the operators are seeing the necessity to provide a security solution to their customers. What you're seeing is a part of that.

Got it. And then I just wanted to confirm. You said I believe that you had signed some additional deals after the end of the quarter that hadn't yet been, I guess, commercially termed out. Is that right? And were those with Tier 1s?

No, I'm not. I'm not sure I -- I'm not sure I follow. You said that we were selected by -- maybe you're referring to this. I said that we were selected by several operators in -- for security as a service deal, and that we're negotiating those contracts. Is that what you were referring to?

Yes. That was what I was asking about. Just -- and so those haven't yet been announced, but they're in final discussions now?

Correct. Well, because we have not signed the contracts. And like I said, there’s no guarantee that we will sign the contracts, but I’m optimistic.

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

Thank you, operator. Yes, I want to thank you all for joining us on this conference call and listening in. We are unfortunately not yet traveling, but we will be happy to hold virtual meetings with investors. So if you’d like to meet with us, please be in touch with our Investor Relations team. Beyond that, I look forward to talking to you in our next quarterly call and stay safe and healthy. Thank you very much.

Thank you. This concludes the Allot Second Quarter 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.