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Tufin Software Technologies Ltd. (NYSE:TUFN)
Q4 2019 Earnings Call
Feb 13, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Tufin Fourth Quarter and Full-Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ryan Burkart, Director of Investor Relations. Thank you. Please go ahead, sir.

Ryan Burkart -- Director of Investor Relations

Thanks, operator. Good morning, everyone, and thank you for joining Tufin's final fourth quarter 2019 results conference call. With me on the call today are, Ruvi Kitov, our Chief Executive Officer; and Jack Wakileh, our Chief Financial Officer.

Before we begin, I would like to remind everyone that any statements made in today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the Company's future performance may be considered forward-looking statements, as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Tufin's management team as of today, and involves risks and uncertainties, including those noted in this morning's press release, and Tufin's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Tufin specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

Please note that reconciliation of any non-GAAP number to the most directly comparable GAAP number can be found in the tables of our earnings press release, located in the Investor Relations section of our website. A telephone replay of this call will be available shortly after its completion. You'll find the dial-in information in today's press release. The archived webcast will be available for one-year on the Company's website at tufin.com.

With that, I'd like to turn the call over to Tufin's CEO and Co-Founder, Ruvi Kitov.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Ryan, and good morning, everyone. Thank you for joining today. Total revenue for the quarter was $30.1 million, up 3% relative to the fourth quarter of 2018, and the full-year revenue was $103.3 million, up 22% year-over-year. As we discussed on our preliminary results call in January, Q4 2019 revenue was weaker due to unexpected sales execution challenges, particularly in North America. Since the end of the year, we've been very focused on analyzing our sales operations, and taking actions to improve.

Before I talk about that in greater detail, I want to take a moment and recap 2019. 2019 was a transformative year for Tufin, and I'm proud of all that we've accomplished notwithstanding our challenges very late in the year. We generated 22% revenue growth, and surpassed the $100 million in revenue, while at the same time transitioning to life as a public company.

We continue to grow our customer base, adding world-class Global 2000 companies, while also expanding our footprint within our existing customer base, and maintaining our net renewal rate above 90%. We're confident that there is lots of room for continued growth within our target market, both from new logos and land and expand opportunities. In 2019, we also continued to invest in our products to ensure that we always meet and exceed our customers needs, and further solidify our technology leadership position.

We announced support for Cisco ACI and VMware NSX-T, putting us at the forefront of SDN policy management solutions. We've refined our cloud products. As you may have seen earlier this week, we were happy to announce general availability for Tufin SecureCloud, which I'll talk more about in a minute. In addition to these bigger milestones, we added significant new functionality in three new product versions, all aimed at helping our customers increase business agility and security at the same time.

We also took some important steps on the go-to-market front, starting with building our US federal effort. We're just starting to see green shoots emerge from that investment, and see much more potential over time. We expanded our channel presence, and are engaging more closely with key partners than ever before. We continue to push further into international markets, like Latin America and Japan, and grew our sales team and infrastructure globally. As you can see, we were very busy in 2019, laying the groundwork for doable growth in the future. But we have a lot more work to do, and we're well under way on those plans.

Let me start with how we are fixing the disappointing sales execution issues that held us back in Q4. Since January, we carefully analyzed our sales processes to fully understand the underlying issues, and we've taken steps to improve these processes and drive better execution in 2020. I'm happy to report that we've now hired a VP of Sales Operations. In addition, we've added several new sales managers in North America to better align our North American sales structure with other regions, and allow for the increased oversight over our sales processes.

As I previously discussed, our VP of sales in North America, Jeff Wilmot, who joined us late in Q3 of last year, will oversee the improvements in that region. These actions along with ongoing analysis and refinement of our sales processes, should help us improve sales execution in 2020. We've made some early progress, and we have seen some of the deals that slipped in Q4 closed in Q1. Although, we're not going to share specifics about that today, but we have much more work to do. Regaining our momentum is a critical action for all of us.

Now let me shift to some exciting deals that we have closed in the fourth quarter, which gives me confidence in the long-term opportunity ahead of us. We closed a seven-figure expand deal with a global systems integrator, that has been a large customer of ours for several years. This customer was a heavy SecureTrack user, and wanted to further automate their network change process to reduce risk, reduce cost, and improve efficiency across the business. Their existing process with a homegrown solution that could not really compete with SecureChange, and the customer ended up moving forward with us.

Another deal I want to mention is a seven-figure deal with a large pharmaceutical company. This company has been a customer for a few years, and own SecureTrack. It was taking them three weeks on average to make a network change, and they decided to automate with Tufin. They were also interested in single pane of glass for visibility, across all of their network security infrastructure. They ended up buying more SecureTrack and added SecureChange to reach Zero-Touch Automation, while maintaining consistency with our internal policies. Both of these deals are good examples of our potential to expand within our existing customer base, as companies look to automate their network change process, and our strong technical position in automation has highly attractive.

Now, let's move to some of the overall developments we're seeing ahead. We expect 2020 to be a year in which several of the long-term growth engines that we've been working on begin to take shape. The first of these engines is SecureCloud, which is now generally available to all of our customers. SecureCloud will allow our customers to gain visibility and control of the security posture of their cloud native and hybrid cloud environments. It establishes Tufin as the first and only vendor to unified security policy management across on-premises, cloud native and hybrid cloud environments. I'm very excited about the possibilities that are ahead for SecureCloud.

The US Federal space is another area that is gaining momentum, which we would like to build on in 2020. We started this effort from scratch in late 2018. And since then, we've signed on some key partners, our products have become generally available on the GSA Schedule 70, and we've closed our first few deals. The US Federal market is large, and given its myriad regulatory and compliance requirements, it's a great fit for our solutions. While breaking into the US Federal market can take time, we are focused on making more progress on this long-term growth driver, with more partnerships and new customers relationships this year.

The international markets have also been a great source of opportunity for us. And we'll continue to look for a growth in these regions in 2020. Our presence and brand in APAC and Latin America regions is growing, and we believe the opportunity there for Tufin is large. 2020 will be another very busy year for Tufin. These initiatives position us well to achieve our goals this year and beyond.

With that, I'll turn the call over to Jack Wakileh to review our financial results and guidance. Jack?

Jack Wakileh -- Chief Financial Officer

Thanks, Ruvi. Let's turn to our fourth quarter and full-year 2019 results, and guidance for Q1 and full-year of 2020.

Total revenue was $30.1 million in Q4 of 2019, up 3% compared to Q4 of last year. Product revenue decreased 16% year-over-year to $14.3 million, and our maintenance and professional services revenue grew 30% to $15.8 million. As I talked about on our preliminary results call in January, our Q4 revenue closed weaker, due to sales execution and sales processes challenges that resulted in lower conversion rates at the very end of the quarter. The revenue recognized from deals at the end of quarter is nearly 100% product, which is why product revenue absorb the miss. For the full-year 2019, total revenue was $103.3 million, up 22%, and as Ruvi noted, crossing $100 million for the first time. Product revenue increased 11% to $47.4 million, and our maintenance and professional services revenue grew 32% to $55.9 million.

Looking at the geographic mix of revenue in Q4, Americas represented 54% of our revenue, EMEA represented 42%, and the remaining 4% came from Asia-Pacific. For the full-year 2019, the geographic mix of revenue was 55% Americas, 40% EMEA, and 5% APAC. We closed 2019 with 568 employees, compared to 424 at the end of 2018.

Moving to margins and expenses. I will discuss our results based on GAAP financial measures, and where applicable non-GAAP financial measures. Non-GAAP numbers exclude stock-based compensation expense, that totaled $4.6 million for Q4, compared to $1 million for Q4 of last year. Full year stock-based compensation expense was $10.9 million, compared to $3.2 million in 2018. Non-GAAP numbers also exclude $0.9 million in costs associated with our secondary offering in Q4. Please note that the GAAP to non-GAAP reconciliation can be found in the tables of our earnings press release located in the Investors Relations section of our website.

GAAP gross profit for the fourth quarter was $24.1 million or 80% of revenue, compared to $25.2 million or 86% of revenue in Q4 of last year. Non-GAAP gross profit for the fourth quarter was $24.8 million or 82% of revenue compared to $25.4 million or 87% of revenue in Q4 of 2018. GAAP gross profit for the full-year 2019 was $83.4 million or 81% of revenue, compared to $71.5 million or 84% of revenue in 2018. Non-GAAP gross profit for the full-year 2019 was $84.9 million or 82% of revenue, compared to $72.2 million or 85% of revenue in 2018.

Gross margins compressed in 2019, primarily due to the planned expansion of the professional services teams to support faster time to value in deploying our solutions with our Global 2000 customers.

Total GAAP operating expenses for Q4 were $31.5 million, up from $21.7 million in Q4 of last year. On a non-GAAP basis, operating expenses for Q4 were $26.7 million, up from $20.9 million in Q4 of 2018. GAAP operating expenses for full-year 2019 were $110.4 million, up from $73.5 million in 2018. On a non-GAAP basis, operating expenses for full-year 2019 were $100.2 million, up from $70.9 million in 2018.

Breaking out non-GAAP expenses into line items. R&D expense for Q4 was $8 million or 27% of revenue, compared to $6 million and 21% of revenue in Q4 of 2018. Full-year R&D expense was $29.2 million or 28% of revenue, compared to $20.6 million and 24% of revenue in 2018. R&D expense has increased, as we continue to invest in our product development to maintain our strong technological leadership position in the markets.

Sales and marketing expenses for Q4 2019 was $15.3 million or 51% of revenue, compared to $12.5 million or 43% of revenue in Q4 of last year. Full-year sales and marketing expenses was $59.1 million or 57% of revenue, compared to $44.6 million and 53% of revenue in 2018. As we've talked about since our IPO, we believe we are addressing the large primarily greenfield opportunity, and we've invested in sales and marketing and R&D in 2019 to position us to capture this opportunity in the future.

G&A expense for Q4 was $3.4 million or 11% of revenue compared to $2.2 million and 7% of revenue in Q4 of 2018. Full-year G&A expense was $11.8 million or 11% of revenue compared to $5.7 million and 7% of revenue in 2018. The increase in G&A expenses was primarily driven by expenses related to becoming a public company.

GAAP operating loss for Q4 2019 was $7.4 million, compared to an operating profit of $3.5 million in Q4 of 2018. On a non-GAAP basis, operating loss for Q4 was $1.9 million, compared to an operating profit of $4.5 million in Q4 of 2018. For the full-year 2019, GAAP operating loss was $27 million, compared to an operating loss of $1.9 million in 2018. On a non-GAAP basis, full-year 2019 operating loss was $15.2 million, compared to a non-GAAP operating profit of $1.2 million for last year.

GAAP net loss was $7.2 million in Q4 of 2019, compared to net income of $2.8 million in Q4 of 2018. For the full year GAAP net loss was $28.1 million, compared to $4.3 million in 2018. On a non-GAAP basis, net loss for the fourth quarter was $2.4 million, compared to a net profit of $3.8 million in Q4 of 2018. For the full year, non-GAAP net loss was $17.1 million in 2019, compared to $1.1 million in 2018.

Turning now to our balance sheet. As of December 31, we had cash, cash equivalents and deposits of $121.7 million, compared with $125.9 million, as of the end of Q3, 2019, and $17.6 million as of December 31, 2018. Deferred revenue on our balance sheet as of December 31, 2019 was $35.6 million, compared to $31.5 million as of December 31, 2018. These figures represent the deferred revenue balance after netting off the portion of the deferred revenue that has not been collected as of December 31, 2019 and 2018, respectively. The gross deferred revenue as of December 31, 2019 was $57.6 million, compared to $56.6 million as of December 2018. Going forward, we will provide gross deferred revenue only on an annual basis.

In the fourth quarter of 2019, we used $6.6 million of cash from operating activities, compared with generating $6.6 million in cash from operating activities in Q4 of 2018.

Turning to guidance. For the first quarter of 2020, we expect total revenue of $23 million to $26 million. We expect non-GAAP operating loss to range between $10.5 million to $13 million. For the full-year 2020, we expect total revenue in the range of $117 million to $123 million. We expect non-GAAP operating loss to range between $22.5 million to $27.5 million.

With that, I will turn it back to Ruvi for his closing remarks. Ruvi?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Jack. I'd like to wrap up by saying that overall 2019 was a transformative year for us. We didn't execute to our potential in the fourth quarter, but we're working very hard to improve execution in 2020. And we believe that several of the long-term growth drivers are starting to take shape. I continue to feel very optimistic about the large market opportunity ahead of us, and our ability to capture that opportunity. I'd like to thank our customers, our partners, our investors, and all of the Tufin employees, for helping us to achieve our goals.

Now, let's open up the line for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Sterling Auty from JPMorgan. Your line is open.

Sterling Auty -- JPMorgan -- Analyst

Yeah, thanks. Hi guys. So Ruvi, as you went back and scrub the pipeline, post the quarter and setting up for the new guidance, anything that's really popped out at you in terms of the health of the pipeline or change in the pipeline? Or where may be some of the larger deal set in terms of the different stages of the close process?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Hey, Sterling, good morning. So when we're looking at Q4, the pipeline was there in Q4. We just weren't able to execute on it. We applied the same process we had in the past. And have we converted the pipeline and closed deals at the historic rates that we've seen, we would have met our guidance. So I think it's an execution issue in Q4, and not a pipeline issue. And like I've said before, the vast majority of the slipped deals are still in the pipeline. And the 2020 pipeline is healthy compared to the same time in 2019.

Sterling Auty -- JPMorgan -- Analyst

Okay. And then one follow-up. You mentioned the hiring of the VP of Sales Operations. Any other critical open positions that you need to fill, to be able to deliver on the 2020 outlook?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

So in terms of structure, I think hiring the VP of Sales Ops was a significant change. We also added a few more line managers in the Americas for better span of control, and geographic spread. So just want to keep in mind that, Jeff, our VP of Americas, only started in September last year. So he was still learning Tufin and ramping through Q4. So when I compare our sales organization now, especially in the Americas to 2019, it's a much stronger in terms of management and oversight.

Sterling Auty -- JPMorgan -- Analyst

Understood. Thank you.

Operator

Your next question comes from the line of Saket Kalia from Barclays. Your line is open.

Saket Kalia -- Barclays -- Analyst

Okay, great. Hey Ruvi, hey Jack, how are you guys doing?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Hi.

Saket Kalia -- Barclays -- Analyst

Hey, thanks for taking my questions here. Maybe first for Ruvi. Ruvi, can you just talk a little bit about the competitive environment a little bit in the fourth quarter? Again, sort of a post-mortem question. Did anything changed in terms of competitive win rates? And maybe just as part of the answer, if you could just touch on some of the news out of -- one of your competitors, and some of the work that they're doing with some of the large networking companies out there? That would be helpful.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Sure. Thanks, Saket. So when we're looking at the competitive environment in the fourth quarter, we haven't seen any significant changes. The win-loss ratio remained steady, and I think we executed well. We'd lost some deals, but I think overall, we won the vast majority of deals. And that was not the reason for the miss in Q4. Specifically, when I'm looking at other competitors, I'm not privy to their results, they're private companies. One of our competitors, I think made a -- made noise about being on Cisco's price list or -- for one of the business units. From our perspective, we have not seen any effect on our business from that perspective. So no changes on the competitive environment that I'm seeing at this point.

Saket Kalia -- Barclays -- Analyst

Okay, got it. That's really helpful. Maybe, if my follow-up for you, Jack. Clearly, the growth guidance -- growth rate guidance for next year on revenue is lower than what Tufin has grown out historically. Especially with a healthier pipeline entering the year, can you just talk about some of the assumptions you've made? I mean, conversion rates was one metric that you've mentioned. Here in Q4, there was a little bit different than what you've seen. Maybe any assumptions on sales cycles, for example, anything that you were assuming that is significantly different in fiscal '20 versus what you saw in '19 or Q4, that would sort of drive kind of that slower growth rate?

Jack Wakileh -- Chief Financial Officer

Yeah, thanks Saket for the questions. So you are right. The way we presented it, we're showing lower growth than in the past. But when coming to plan in 2020, we cannot ignore the fact that by the end of the day we missed our Q4 numbers. So the guidance does take into account the execution challenges that we had in Q4, plus the fact that the quarters are back-end loaded. And this is still there, with concentration of large deals toward the end of quarters, that's still inherent in our business. And from my perspective, we still need more time to gain visibility and confidence about fixing what needs to be fixed, and this is also reflected in the guidance. In terms of conversion rates, yeah, so that covers that as well. We're still looking to gain more visibility and confidence, but we did factor some improvement in conversion rates based on already, what we have identified at start of the mix [Phonetic].

Saket Kalia -- Barclays -- Analyst

Okay, got it. That's helpful. Thanks guys.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Saket.

Operator

Your next question comes from the line of Brent Thill from Jefferies. Your line is open.

Joe Gallo -- Jefferies -- Analyst

Hey guys. This is Joe on for Brent. Thanks for the question. Cisco noted last night, it was seeing longer decision-making cycles across customer segments for a variety of reasons, including macro as well as an unique geo issues. Just curious, if you guys are seeing this at all? It seems like you've been pretty clear at execution, and you've been looking at it for a month-and-a-half, but how confident are you that it was just execution, and then it's been rectified.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

So -- hey, Joe, thanks for the question. So we're looking at the execution challenges. Obviously, we're taking multiple actions in parallel, in terms of sales processes and oversight. And these changes, they take time to be internalized by the sales organization. So I hope to see some initial improvements quickly. But in terms of fully recovering, ultimately moving to higher levels of productivity, I don't have an exact timeline. When we're looking at macro, there is nothing on macro that I can report on Q4. Q4 was not a macro issue. But looking forward, potentially the impact from coronavirus is something that we're looking at. I think right now, it's primarily confined to APAC. So there is some risk there, but things might be moving slowly and heavily in impacted region. But other than that, we're not seeing any -- anything else on the macro environment.

Joe Gallo -- Jefferies -- Analyst

Okay, thanks. That's helpful. And then just kind of a follow-up on the previous question. Jack, understanding the caveat for the perpetual model on a quarterly basis, what's your level of visibility or confidence on the full-year 2020 guide? Thanks.

Jack Wakileh -- Chief Financial Officer

I can tell you that the methodology and approach to our forecasting has not fundamentally changed, right. So it's the way we -- we had it in the past and we came into 2019 with that. If you're looking 2019, over the quarters we met and did better than our numbers in the first three quarters, and the miss is in Q4. And that's what I referred to in terms of -- it was looking at gaining more visibility and confidence. So we did -- as I said there's a [Phonetic] little bit of improvement, just based on what we did in the last month. But basically, it's still a perpetual model and it's based on the same methodology and approach that we've been having in the last year.

Joe Gallo -- Jefferies -- Analyst

Okay. Thanks, guys.

Operator

Your next question comes from the line of Jonathan Ho from William Blair. Your line is open.

Jonathan Ho -- William Blair -- Analyst

Hi, good morning. I just wanted to start out with, I guess, the US federal government opportunity. Are there any specific frameworks or maybe compliance mandates that maybe would fit pretty well with some of your solutions? And maybe how quickly can you sort of take advantage of that?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Hey, John. Thanks for the question. Yeah, so I think we covered that on the last call as well. There is new regulations in the US Federal market that have actually gotten to lock. So payroll organizations need to comply with new standards. They actually need to show that they are checking their policies all the time that every change that is made does not violate their policy. So that's relevant for us and that's driving more and more demand in the US Federal market. So that's one thing that we're seeing. We're also seeing more engagement from partners. There is more partnerships in the works. Ultimately, we're seeing a lot of pipeline that's being created. So I don't have anything specific to report on that, but we're seeing very good early signs in this market.

Jonathan Ho -- William Blair -- Analyst

Great. And then how should we think about the SecureCloud contribution for 2020? Is this primarily going to be pipeline build? Or should we expect some conversion? I just want to get a sense for how you're thinking about that for this year?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks. So it's -- and maybe it's a good opportunity to address SecureCloud a little bit more broadly. So SecureCloud really addresses the unique challenges of cloud security, right. Taking a hyper automated and agile environment, and making them more secure really without compromising either security or business agility. So in the EA, we found that customers were using and benefiting both from Orca and Iris. They want to visualize flows and security policy, both at the cloud layer like, security groups and IM [Phonetic] profiles, as well as Kubernetes controls in the same view. So in large companies, many of the applications have the footprint, both on the on-premise network and in the cloud, which is a definition of a hybrid cloud application. So in a hybrid cloud application, the ability to view connectivity and security controls end-to-end is critical. And that's why SecureCloud is important, not just in terms of the integration that we've done between Iris and Orca, but the integration that we're doing with SecureTrack and SecureChange.

We're the only vendor that provides end-to-end application connectivity visibility across heterogeneous networks and hybrid cloud environments. So specifically on the pipeline, you're right. We're not -- we have a healthy pipeline. We are not expecting a very significant contribution in 2020. But in Q4, I mentioned that previously, we booked the first deal ever for SecureCloud, right. So that was a six-figure annual subscription deal with a large retail in Europe. And they needed SecureCloud for two important things. First, to gain visibility over cloning of applications, deployed across public cloud and Kubernetes. And they wanted to have insight into the overall security posture. Second, they wanted to significantly lower business risk, by defining and continuously enforcing strict micro-segmentation, essentially controlling how the different compute instances, and micro services can connect to each other within the cloud applications. So that is very exciting. It's very important validation from the first deal, and the opportunity ahead of us on the cloud.

Jonathan Ho -- William Blair -- Analyst

Great. Thank you.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thank you, Jonathan.

Operator

Your next question comes from the line of Andrew Nowinski with D.A. Davidson. Your line is open.

Andrew Nowinski -- D.A. Davidson -- Analyst

Okay. Good morning. Thank you for taking the questions. It sounds like you're hiring more line managers and as opposed to quota-carrying sales reps. So there really, I guess, shouldn't be any delay in terms of those hires getting up to full productivity. So I guess, is it fair to assume that these issues are now fixed or could this go beyond Q1?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

It's a good question. So we're obviously looking at things. We believe we have identified the issues and working to fix them. On the timeline, are we going to be able to fix everything that we need to fix within one quarter? Sometimes it takes time to implement change across the sales organization. So I'm not sure I can commit to that, but we're seeing some early signs of improved execution, and we're working on it. Now in terms of line managers and quota carriers, we're continuing to grow quota carriers as well. I think also when you look at the spend, we're growing sales and marketing, and R&D. Because when we're looking at the long-term opportunity, we think it's still very significant, which is why we're continuing to invest.

Andrew Nowinski -- D.A. Davidson -- Analyst

Okay. Thanks, Ruvi. And then, I guess, may be tough. But I guess, can you give us any color with regard to how much of the annual outlook is based on renewals versus sort of new customer revenue? We're just trying to get understand kind of how conservative the guidance might be. Thanks.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

So I think for us, if you think about us in a perpetual model, always the majority of the year is new business, right. So we have a growing -- growing part of the business is renewals, and we also have some subscription deals. So we have more and more revenue visibility as we start each year. But still, I would say, the majority of the revenues in the year are going to be new business deals.

Andrew Nowinski -- D.A. Davidson -- Analyst

Okay. Thanks, Ruvi.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Andy.

Operator

Your next question comes from the line of Gur Talpaz from Stifel. Your line is open.

Gur Talpaz -- Stifel -- Analyst

Okay, great. Thanks for taking my questions. Ruvi, starting with you, can you talk about what you're seeing within SDN environments like NSX and ACI? And when you think about SecureCloud, how do you think about that in relation to the work you're doing in SDN?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Hey, Gur, thanks for the question. So SDN is interesting. We're seeing more and more customers looking at Cisco ACI specifically, as SDN, the next-generation network. It's interesting. I actually met a customer this week and spoke to them and they asked me, is Cisco ACI, the only game in town? Anybody else is using anything else? Interesting question. We're seeing large enterprises and standardized on Cisco ACI as the next-generation network overlay. And then when they are looking to provide actual security controls within it, well, other times they need -- they need other things within ACI to plug in. So people are using Palo Alto, or CheckPoint or Fortinet or VMware NSX on top of Cisco ACI. Because Cisco ACI does have contracts. But I think customers are finding that if they need advanced security, a lot of times they need an advanced security firewall even if it's virtual on within Cisco ACI environments. So that's a trend that's growing. And with NSX-T, obviously, there is a lot of NSX-V customers, and customers that are buying NSX now are buying in NSX-T. So a lot of customers are thinking how do I migrate from NSX-V to NSX-T. We can actually help them with that migration from everything that has to do with security policies. So a lot of work going on with customers moving to the next-generation network SDN. So I would say, the forward-thinking companies are all either already implementing it or have acquired or about to acquire an SDN solution.

Gur Talpaz -- Stifel -- Analyst

That's really interesting. And then maybe Jack for you or for Ruvi. When you look at the projected operating loss, you're clearly calling for increased spend here. Where should we think about increased investments? Is it primarily sales and marketing, R&D? How should we think about the balance going forward?

Jack Wakileh -- Chief Financial Officer

Yeah, I'll take that, Gur. So when you're looking at our model, we said that 2019 and 2020 are going to be investment years. And we executed on 2019, and ramped up the business, prepared it for the market opportunity that we are seeing ahead of us to capture. So a lot of our ramp up reflects in 2020. This is to begin with. So significant part of our 2020 operations are going to be ramp up from 2019. And then when we're looking at 2020 itself, there are investments that we are still doing. At this point of time, as we see the opportunity, and we feel confident about it. There are some expense increases also in 2020. So what you see in the guidance, if you like, it is -- call it the balance between continuing to invest in the opportunity at hand, against some prudent [Phonetic] as we progress.

Gur Talpaz -- Stifel -- Analyst

That's helpful. Thank you.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Gur.

Operator

[Operator Instructions] Your next question comes from the line of Rob Owens from Piper Sandler. Your line is open.

Rob Owens -- Piper Sandler -- Analyst

Thanks for taking my question. As you talked about bringing on additional sales capacity, could you remind us how long it takes them to reach full productivity? And how ramped your existing sales force is right now?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Hey, Rob, good morning. So, it typically takes us between six months to seven months to ramp a sales manager. Obviously, it depends on how much background they have in the domain. And we're working on that, right. So one of the things that we're going to do in sales operations is, actually focus on better sales enablement, getting people trained better and faster, getting them up to speed. So with the addition of line managers and having better span of control, especially in the Americas, we think that's actually going to work hand in hand. So we're going to have more managers that have less direct reports. So they will have their ability to manage those people, and get them up to speed, while at the same time improving the training and onboarding programs that we have.

Rob Owens -- Piper Sandler -- Analyst

And relative to the base of sales folks, how ramped are they would you say? Or how -- what percentage is fully productive at this point?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

So I don't want get into specifics, but I can say that we hired quite a few people in 2019, both R&D and sales including quota carriers. We're hiring more people now. The fact that we grew significantly in 2019 is actually reflected. If you look at the total number of people in Tufin, in end of 2018 and end of 2019, it's a significant growth in terms of total headcount and specifically within sales as well. So I think, we've got a good number of quota carriers, and we're adding more this year.

Rob Owens -- Piper Sandler -- Analyst

Great. And then one more quick one. If you look at the federal pipeline and some of the optimism around that, should that fall into the traditional federal spending cycle? So would you expect a lot of those deals to come Q3 or should that be throughout the calendar year?

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

I think it's going to be throughout the calendar year. Obviously, the calendar Q3 is a bigger quarter, because there is more a flesh spending. But we have a nice pipeline that's been built, and I expect some of the business to start coming in earlier, not just in Q3, but before that.

Rob Owens -- Piper Sandler -- Analyst

Great. Thank you.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, Rob.

Operator

There are no further questions at this time. I'll turn the call back to the presenters.

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Thanks, everyone. So just to recap. 2019 was a transformative year for us, and we are very busy. We're going to be very busy in 2020. And we look forward to implement all the sales process changes, and work changes, and get back on the stronger growth soon. Thank you very much. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Ryan Burkart -- Director of Investor Relations

Ruvi Kitov -- Chairman, Chief Executive Officer and Co-Founder

Jack Wakileh -- Chief Financial Officer

Sterling Auty -- JPMorgan -- Analyst

Saket Kalia -- Barclays -- Analyst

Joe Gallo -- Jefferies -- Analyst

Jonathan Ho -- William Blair -- Analyst

Andrew Nowinski -- D.A. Davidson -- Analyst

Gur Talpaz -- Stifel -- Analyst

Rob Owens -- Piper Sandler -- Analyst

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