Allot Ltd. (ALLT) on Q1 2022 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Allot's First Quarter 2022 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 12123788040 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?
Kenny Green: 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 line 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 the 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 will now like to hand the call over to Erez. Erez, please go ahead.
Erez Antebi: 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 board 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 eight years. As you will have seen from our earnings release, despite overall progress I am confident 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 Smart product line. Our Allot Smart business remains solid. The main use cases we see today in 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 competitors product and are working on expanding such deal that we want 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 costs of 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. 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 the security app, buy it, download it, and install it on every one of their devices. The problem is that regardless how good or bad security app is; more than 90% of consumers do not 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 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 CSP 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 rates, the acceptance and scope of service by consumers and SMBs, the request 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 three 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 force North American operator and selected by AFIN. 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 a 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 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 long term potential as of the yield 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 a 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 translate the contract into 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 forecasts or 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 plan, periods of re-services , the segment targeting the channels, and the market leads strategy. On that front, we have learned a lot, and in some cases, we are able to influence that strategy. We hope those lessons will improve time to revenue and penetration rates. But those could come into play only after the project has been launched. As of March 31 2022 of the 23 signed customers, only nine 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 and 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 the customer, or independently, asking them to integrate with our management platform. The size of the market remains a huge, so while we are still disappointed with the current pace at 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 nine networks we launched, plus the projected revenue of new networks yet to be launched. With nine launch 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 reliable. In addition, we are seeing launch day to get delayed by the CSPs for a variety of reasons. Since we put together our annual operating plan, with 2022 about four to five months ago, our projected launch date for more than 10 SECaaS services was delayed anywhere from one to eight months. Some of the reasons for those delays are, budget allocation, team resource allocation and prioritization within the speed of CSP, especially in the IT departments; two, internal issues between group headquarters and national operating units. Three, requests to shift more responsibilities to Allot, four, product maturity and integration issues with our DNS Secure and HomeSecure. I would like to know that we still expect to launch numerous SECaaS networks during 2022 despite the about delay, 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 a significant contribution to 2020 SECaaS revenue. In addition, the war in Europe has had an on-going negative impact on some of our SECaaS services. In Poland, where we launched with Play, sales and scores 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 and 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 euro. From January till today, the euro fell about 7% to 8% compared to the U.S. dollars. This has a negative effect on our revenues. As a result of all 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 three to four years after launch is an achievable target. But we now believe that the average time and contract to initial revenues after a typical initial group period may extend to 18 months, sometimes longer with the larger operators. I would now like to say a few words on our expectation with the overall company performance in 2022. Two of the factors that affect our SECaaS business in 2022 also affect our CapEx business. One, as the war in Europe continues some projects so CSPs in Ukraine and former CIS countries are being delayed or cancelled. Two, with most of Allot revenues coming from EMEA, a significant portion of revenues are in euros. The significant change in the Euro to USD exchange rate has a significant impact on our total revenues. Bringing into account our reduced guidance on SECaaS revenues and the reduction in CapEx revenues, we are now forecasting total revenues for 2022 to be between $135 million to $140 million. Further through the updated revenue guidance, we are expecting that the revenue in the next three quarters of 2022 will be somewhat lower than the revenues in the comparable quarter of 2021. Our forecast or 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%, this despite our near term headwinds and the slow times to revenue. We believe that enough services will be launched during the second half of 2023 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 or SECaaS and CapEx deals. And we don't report this. As we said previously, we estimate in 2022 on a synthetic fully “loaded basis.” 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 the enterprise business are growing. We are successful in winning deals away from our competitor and unseating them in several CSPs where they are the incumbents. 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 and they sign up for the service. Unfortunately, the war in Europe, SECaaS launch delays, and the Euro to U.S. dollar exchange rate are causing us headwinds and negatively affecting our expected results and consequences. 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: Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. The first question is from Nehal Chokshi of Northland Capital Market. Please go ahead.
Nehal Chokshi: Yes, thank you, obviously, the supporting guidance update. But thank you for the details on various reasons that are driving this guidance deduction here. Let's first focus on the March to incremental ARR. That was 0.7 million, roughly consistent with the past four quarters around 0.6 million per quarter. Can you talk to why there's been no ramp incremental ARR over the past five quarters?
Erez Antebi: I think I mean, when you think of total ARR, then obviously the combination is always up. And when you look at the difference between the ARR, in one quarter and compared to ARR in the previous quarter, it's consistent, the growth and number of subscribers with the services already launched. If there's an addition of whatever new operators were launched, if they affect the revenues at all, usually somebody that an operator that launched during that quarter will not affect the revenue because of free time periods and so on. 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 or the 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 within the last quarter on the internal growth of the already other services already launched. And with the headwinds of the exchange rate.
Nehal Chokshi: For the services that have launched and that you're generating incremental ARR from what does that Mar represent?
Ziv Leitman: I don't have that number off the top of my head and I don't want to give you a wrong number. I'd have to get back to you.
Nehal Chokshi: Okay, all right. And then the updated SECaaS ARR implies 7 million per calendar 22 which then implies about 2 million per quarter incremental ARR for the remaining three quarters. How do you see the shape of that incremental ARR through those three quarters?
Erez Antebi: Let me see if I understand, if I understand the question. You're comparing, you're comparing the projected December 22 ARR, with the March 22, ARR. And that leads me to linear path and divided that by three. That was…
Nehal Chokshi: Effectively yes.
Erez Antebi: Okay, so it's 12 months, okay. I would say it would be, because literally what we're seeing with, with most operators that have launched, we're seeing a linear growth. With a pace that is, I would say, it's not always exactly the same, and so on. But it's sort of growth, each one individually grows at the same pace. So if there's more growth to the various, any type of acceleration from the 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 services, it will probably not accelerate, like I discussed before, but if we do it should accelerate and grow faster. So I would expect it to grow faster over time as we go through the fourth quarter than we will in the second quarter.
Nehal Chokshi: Okay. 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?
Erez Antebi: Look, I've been burned by project by making projections and not enough. So I like to try and try not to 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's definitely what it looks like.
Nehal Chokshi: I’d prefer to call it no expectations of incremental launches within the second quarter, then and then…okay.
Erez Antebi: Sorry, maybe I didn't explain myself. I just said that, I would rather err on the side of caution. But we do expect additional launches in the second quarter. Yes, we do.
Nehal Chokshi: Okay. Alright. I'll leave the floor. Maybe I'll get back in the queue. Thank you.
Erez Antebi: Thank you.
Operator: The next question is from Alex Henderson of Needham & Company. Please go ahead.
Alex Henderson: Thanks. Can you hear me okay?
Erez Antebi: Yes. Great.
Alex Henderson: So my question really is on penetration rates. I get it that if you launched in 21, you're probably not getting a lot of revenues from those launches of 193 million in MAR in 2021. Okay, that's reasonable. I can even make an argument that launched in 2020, because of COVID it delayed; we have essentially nothing in our forecasts 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 timeframe. If I assume just the hair from the other two tranches that suggests to me that your penetration rate between 21 and 22 really hasn't changed at all. It's about 5% and 21% and about 6% or so and 22. And so, the slope of that penetration improvement becomes the primary issue in forecasts and 23, 24, 25 timeframe. If we were assuming that that slope is as flat as that looks, was that a real challenge to get the ramp in revenues? Can you explain to me why that tranche has not ramped any further?
Erez Antebi: I'll try. And look it consists of two main reasons. One is that the number of operators is small like the with small like the so anything that one operator does has a material effect, for better or for worse on the numbers. Unfortunately, in this case, we're worse. Now the operators have launched on a lower bass than their entire base, which is exactly what we discussed when we said okay, the MARs the end, it's roughly they're launching on average to probably happier base realistically. Then when you look at the penetration rates it's a different number. The second point is we had one operator with a relatively large MAR, which launched with a, I would say, a very weak go-to-market strategy. And it took us close to about a year to convince them to change the way in which they had virtually no additional customers were very few additional customers and revenues. It took us almost a year to work with them to change their go-to- market to change their marketing strategy, and so on. And now we're starting to see them pick up. So while I fully understand the question, this is how we got the numbers we are.
Alex Henderson: But if the case is that the customer didn't launch to the target MAR that you're forecasting, then shouldn't you be adjusting the target bar down to reflect that smaller day? I mean, you've left the target MARs unchanged for at 85, 192 and 193. Yet, we don't see a measure ramp on that revenue, even with the issues that you're talking about a year of delay on 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 is being able to get to 10% or 15% in 23? Or do I need to be flattening that to maybe a percentage point or two increase as we go forward. And similarly if 192 million in 2020 almost no penetration in the revenues in 22, which is two years later, or at least a year and a half later, 18 months comment we’ve 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 is the critical issue of whether this entire business model works?
Ziv Leitman: Hi Alex, this is Ziv. As we said before, and I think we mentioned in the first time, two 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 the beginning in 2019 2020 and some 2021 we can calculate the MAR on the entire install base. As Erez said, roughly speaking, the applicable number is about 50% of the total installed base. Again, we are talking about a small number.
Alex Henderson: Okay, Ziv if that's the case, then do I need to cut the 85 million in half? 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 MAR. You need to restate the MAR, if that's the case, is that the case is the 85 and 192 off by a factor of 50%?
Ziv Leitman: 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've woke up subscribers might have less subscribers, the revenue might go up 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%. And for 2021, I would say maybe 75%. So if you take 50% of 2019, 50% of 2020 and 75% of 2021, you'll get to an aggregated mile, 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.
Alex Henderson: Right. That's exactly what we were looking for. Thank you.
Ziv Leitman: By the way, this is the question you asked in previous quarter and the time we didn't have the answer for it.
Alex Henderson: Understand. Thank you.
Operator: The next question is from Tal Liani of Bank of America Merrill Lynch. Please go ahead.
Madeline Brooks: Hi, 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?
Erez Antebi: If you'll recall, last year, we disclose about a deal just one example, a deal to dish for 5G NetProtect. And we said that we are not expecting a major deal this year. But we are expecting a new deal.
Ziv Leitman: I'm talking about capital.
Erez Antebi: Yes, I’m talking about capital, yes. 5G NetProtect is always a . And we said that we are expecting for growth with this product line starting next year. So this is one of the reasons why you see reduction year-over-year in the revenue in Americas.
Madeline Brooks: 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? Just wanted to know how we should frame thinking about that?
Erez Antebi: No, no connection between 5G NetProtect and the SECaaS. 5G NetProtect is supposed to protect the network itself. And as was explained in the previous conference call it's relevant only to operate those that are launching full 5G network including the core while most of the operators are starting with the radio equipment and the frequencies and only and later stage, the implement the whole 5G core. This is why we said that we see the potential from this market but only starting next year. But it's not connected to take us revenues on the 4G or 5G network.
Madeline Brooks: Got it. Thank you. That's it.
Operator: The next question is from Eric Martinuzzi of Lake Street. Please go ahead.
Eric Martinuzzi: 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?
Erez Antebi: No, we said that, we are going to launch in 2022 at least 12 new products.
Eric Martinuzzi: Okay, so that's consistent with last quarter. Okay. The cash used in operations this quarter was roughly $7 million. You've talked about $35 million to $38 million cash burn in 2022. Is that to say that we will be a stepping up the cash burn in the out quarters or am I mixing cash from Ops and free cash flow?
Erez Antebi: No, as mentioned we're still behind the same guidance of cash flow around the $35 million to $38 million cash reduction including the CLA, which means we will end the year around the $90 million including the…
Eric Martinuzzi: Yes. That cuts to the chase. Okay. And then the DPI business from what I would call the CapEx business did have some seasonality. You would enter 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
Erez Antebi: It's very hard to predict this say on a quarter-by-quarter basis. It's a very lumpy business. We win a project or we 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, single project of $5 million to $8 million. So it's a big suite of plan, including quarter. I think, overall for the year, we should be roughly where we put where we thought we would be as roughly flat with I think a few million dollars less. And that's why we guided that way now, because of the war in Europe. And because of the exchange rate, and the currency which we get some significant portion of our deals. So the business itself, I think, is roughly flat, as we said, the beginning of the year.
Eric Martinuzzi: 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. The reset if I put those three issues into if I put those $12 million into the three buckets, SECaaS delays, bucket number one, war in Europe, bucket number two, and then FX headwinds, bucket number three, how do you allocate that $12 million reset.
Erez Antebi: So let's start from the easy path, which is the SECaaS, the midpoint of the SECaaS in the previous guidance was 12.5. Let's assume now it’s 7, so 5.5 are coming from the SECaaS .Then the rest, you can assume few million dollars from the and few million dollars from opportunities that will be performed or cancelled in Eastern New York.
Eric Martinuzzi: Got it. Thank you for taking my question.
Erez Antebi: Thank you.
Operator: The next question is from Marc Silk of Silk Investments. Please go ahead.
Marc Silk: Thanks for taking my questions. 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 of Management is optimistic about your long term prospects?
Erez Antebi:
Ziv Leitman: So having said that, now that your stocks 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 skin in the game and start buying some stock back some stocks for themselves. Because again, we have it's like we're taking all the risk. And we kind of like 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'll show confidence to the investment community. So thank you.
Erez Antebi: I will definitely convey the message. Thank you.
Operator: The next question is from Rory Wallace of Outerbridge. Please go ahead.
Rory Wallace: Hey Erez and Ziv, I just wanted to ask on the 5G NetProtect side, it seems like that opportunity is going to be much larger than the historical SECaaS 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?
Erez Antebi: We are talking this year to more operators on 5G networks that we were talking to last year and now I'm just talking about the CapEx side right. We’re talking about SECaaS side as well but referring to the CapEx side and regarding to the growth of both DCI and 5G NetProtect which tends to come together so yes, we are seeing some growth in the opportunities in the opportunities we're talking to but like we said the beginning of the year, we don't expect to have any material new revenues on
Rory Wallace: Okay, and how about for even the sort of nation state type of use cases around secure internet, are you seeing any any demand all from the geopolitical landscape around that?
Erez Antebi: We're seeing demand pull from countries that want to have some control over the content that's going on the internet to try and block child pornography to try and block block terrorism and stuff like that. We're seeing both legislation coming into place in various countries and we're seeing more and more requests to see now to discuss what can we do to help them gain some measure of control on that.
Rory Wallace: Okay. And then just drilling down into some of the issues you’ve identified for why these deals are being delayed? I think one interesting one is just on the home secure router integrations, 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, you could have some pretty large HomeSecure deals that stand 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 timeframe, because it seems like those could be pretty big opportunities.
Erez Antebi: I think we have signed several HomeSecure deals. And we were awarded some others that have not been signed. And we definitely have high hopes for them. And we believe that they will be launched in some reasonable or wrong, reasonable for operators, perspective, the timeframe. But unfortunately, they are being delayed. But once they are lost, I have high hopes for what they will result with.
Rory Wallace: Okay. And those some of those issues are progressing, as far as I think there's specifically with the router integration, and getting making sure that you have all that groundwork in place.
Erez Antebi: Yes, yes, we're getting more and more routers integrated. I think we went public was the cooperation agreement was technical. We haven't. We're working with router integrators, we're working with other manufacturers to be part of their development program. So we are we can integrate before we, we need to for specific operators. We're not doing that with all of them. But we're talking to several of them. It's a hard process. It's very, very, it's very specific to many different routers, but we are definitely progressing there.
Rory Wallace: Okay, 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 plug in kind of adding 100 or 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 the new customers. Is that a fair way of looking at that?
Erez Antebi: Yes, most of the expected launches take place in the second half of the year. And if you take into account most of them will have free period of three months, means new customers new launches, new project will generate little revenue this year. Most of the revenues are coming from existing customers.
Rory Wallace: Got it. And I think it sounded like in the script, you talked about having won two new North American deals which, 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 with anything else you're able to share about those.
Erez Antebi: Well I'll repeat I think what I said. I said that we signed already was three, one of which is DISH and the other two we have not announced and that we were awarded by one and selected by another. Now the reason I'm saying the word isn't selected, neither of them are signed. Okay, neither of these two additional ones are signed. I'm saying awarded by one because there was an RFP process and we were awarded and the other one just selected us without having worked with him for a long time, but there was no formal competitive RFP process. But, neither of them was signed. So you understood that we assigned one and working on another than that's, that's not correct. I agree with you that overall, the way we see the market in North America is very positive. And the costs are significant. And we're also talking to other operators. So I think we'll we will have, we will have hopefully, promises, or hopefully we'll have even additional deals.
Rory Wallace: Okay, well, congratulations on being awarded. And hopefully, you can get those contracts signed, and then the OpEx was, was lower than I think anyone would be modeling for this quarter. So, I think historically, you've seen, 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 are you planning a lot of hiring, specifically in the second quarter or just trying to understand the ramp to get to the OpEx number for the year based off of the Q1 numbers?
Erez Antebi: We have many open slots that we haven't quoted yet and we are planning to do it during the year. This is the main reason for the expected increase in OpEx. Other the types of expenses are correlated to the revenue. So once the first quarter revenues are low the first quarter revenue, also the associated expenses, lower selling commission agent commission…
Rory Wallace: Okay, great. Well, thanks for taking all those questions. I really appreciate it.
Erez Antebi: Thank you.
Operator: There are no further questions at this time. Erez Antebi, would you like to make your concluding statement?
Erez Antebi: Yes. On behalf of myself and the management of Allot, I want to thank you for your interest 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.
Operator: Thank you. This concludes the Allot first quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.
