Allot Communications (ALLT) Q1 2020 Earnings Call Transcript

Allot Communications (ALLT -1.61%)
Q1 2020 Earnings Call
May 12, 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. Welcome to Allot's first-quarter 2020 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 and 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. Mr.

Green, would you like to begin, please.

Kenny Green -- Investor Relations

Thank you, operator. Welcome to all of you to Allot's first-quarter 2020 conference call. I would like to welcome all of you to the conference call, and I'd like to thank Allot's management for hosting this call. With us on the call today are Mr.

Erez Antebi, president and CEO; and Mr. Ziv Leitman, CFO. Erez will summarize the key highlights; followed by Ziv, who will review Allot's financial performance of the quarter. We will then open the call for the questions-and-answer session.

Before we start, I'd like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and Allot cannot guarantee that they will, in fact, occur. Allot does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as results of the impact due to the COVID-19 pandemic, changing market conditions and 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.

Erez Antebi -- President and Chief Executive Officer

Thank you, Kenny. I'd like to welcome all of you to our conference call, and thank you for joining us today. I would like to start with some highlights for the first quarter. Our first quarter was another quarter of solid growth.

Revenues grew 16% year over year for the first quarter and reached $29.3 million. Non-GAAP gross margin improved to approximately 75%, and our non-GAAP net loss shrunk to approximately $400,000, about 22% of our net loss in the first quarter of 2019. This is our ninth straight quarter of double-digit revenue growth year over year, and I am very pleased with the results we achieved during the first quarter. I believe it shows we are on track and successfully executing on our plan.

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

Ziv will provide more details on our financials and forecast later. The last couple of months have been challenging as the COVID-19 pandemic is changing both the way we operate and the way our customers operate. I would like to start and discuss what is happening inside Allot and then turn to discuss what is happening with our customers and where we see the market going. As the pandemic and restrictions started, we set for ourselves two primary goals with equal importance: one, to maintain and safeguard the health of our employees and their families; and two, to continue to meet our commitments to our customers in a timely manner and achieve the goals we set for ourselves.

Like most companies during the past couple of months, over 90% of our employees worldwide are working from home, and we are, of course, not traveling internationally. We adjusted to this situation quickly and are continuing product development, sales and customer support remotely from people's homes. While we initially did have some temporary challenges in supply of components and servers, etc., those were overcome with no measurable impact to customer commitments so far. As part of our efforts to lower delivery risks to our customers, we expedited some inventory orders when the pandemic started, which resulted in some inventory growth at the end of the quarter.

Overall, we did not see significant degradation i performance, and this situation did not cause us, so far, to miss commitments to our customers. We are continuing to deliver products, we are continuing to develop products, we are continuing to install past acceptance and we are continuing to serve our customer base. For example, just last week, we released a major software general availability release of Allot Smart that was being worked on for over seven months with a negligible two working-day delay. Allot has not laid off people as a result of COVID-19, nor have we forced any of our employees to go on vacation with or without pay.

We view this time, when people are being let go elsewhere, as an opportunity to hire qualified people. I would like now to turn our focus to our customers worldwide. Our CSP customers are, obviously, open for business as they cope with the increased demand of communications to serve their end users, consumers and businesses worldwide. While most CSPs we are working with are also working from home, many of the projects and services we are involved with continue as planned.

A notable example would be Rakuten in Japan, which went live with commercial launch April 8, despite almost everyone working from home. We are seeing some [Inaudible] projects, but many projects, including new projects, are continuing as planned. We have seen several new opportunities as operators launch new RFPs or decide to launch new initiatives even after the pandemic started. I would say that while this situation poses certain challenges, it is also creating new opportunities for Allot.

I will try to briefly address each of the different market segments we are active in and provide a bit more granular color on what we see in the market. Working at home and working remotely have significantly increased the use of online applications, such as Zoom, Microsoft Teams and others. In addition, many people staying at home are watching significantly more over-the-top entertainment apps, such as Netflix. As a result, this created a sharp rise in network traffic volume by as much as 40% worldwide on fixed networks and about 15% to 20% on mobile.

As bandwidth demand increases worldwide, this is driving growth in the operators' need to have good visibility into the traffic on their networks and the need for better traffic management. As the pandemic really hit and we saw our customers scrambling to add capacity to their networks, Allot came up with campaigns to provide operators and existing customers with additional licenses on a loan basis, free of charge for the first few months, so they can focus on solving the burning issues first and deal with commercials later. I believe this was the right thing to do as good corporate citizens and in a spirit of partnership with our customers. As we all adjust to what will end up being the "new normal," it might be that part of those licenses will be acquired for use beyond the loan period.

I believe that in both the short term and long term, the increase in bandwidth requirements of operators worldwide should drive demand for network visibility and traffic management solutions. Given the increase in time spent on the Internet, we are seeing a growing need for governments to protect their citizens from malicious or illegal activity. As a result, we are seeing growth in the number of opportunities for our regulatory compliance use case. At this point, I would like to expand a bit on our enterprise segment, which in 2019 was roughly 19% of our revenues.

Typically, we sell to enterprises which are large and, to a degree, look and act like a CSP. Example of such customers are the Italian Post Office or state or local governments. The sector of the large enterprises does not seem to be significantly affected by the COVID-19 pandemic. While some deals are getting delayed, the interest that we see coming from this sector continues as it was before.

However, where we sell to smaller businesses, we do see larger delays in projects and hesitancy to spend money now. One of our main competitors in the enterprise segment was a product line called PacketShaper, originally developed by a company named Packeteer. Through a series of acquisitions, this product line was recently acquired by Broadcom. During March, we were chosen by Broadcom as the recommended vendor to offer a transition pass from their PacketShaper line of products to the Allot Secure Service Gateway, or SSG, and we signed an agreement with Broadcom.

As part of the partnering agreement, Broadcom began the end-of-life process to the PacketShaper product line and referred their customers to Allot. Also, as part of the agreement, we are offering attractive financial terms and discounts for product replacements to help customers transition from PacketShaper to equivalent Allot products. As a result of this, many value-added resellers and distributors of PacketShaper are now engaging with Allot to deliver the Allot enterprise product to their customers. I will note that the PacketShaper product line revenues in 2019 were somewhat larger than Allot 2019 enterprise revenues.

While this is a very promising deal for us, we should remember that many of the PacketShaper customers are small businesses. Some of them will transition to other technologies, so that not all the PacketShaper customers will indeed move to Allot products. It is too early to tell what the size of our enterprise business will be going forward, but we expect that in the next year or two, our enterprise business may grow as a result of this agreement. To summarize, I believe demand for the Allot Smart product line, including congestion management, traffic management, steering, visibility, regulatory compliance and enterprise use cases will remain solid for Allot in 2020 and beyond.

I would now like to turn our attention to the security segment. We see a significant increase of cyber-attacks on both consumers and SMBs. This is giving rise to growing awareness on behalf of consumers as the need for protection. It is also contributing to a growing awareness on behalf of operators that they should provide a secure broadband connection.

Our security segment is seeing good traction. During the first quarter, we signed several new security deals, two of which were recurring security revenue deals with operators in Asia Pacific and Latin America, neither of which were Allot customers before. While we did see some projects getting delayed as operators focused on delivering basic connectivity services, we also saw new projects initiated and new RFPs published after the pandemic and even after lockdown started. I remind everyone again that working with CSPs takes time, with sales cycles typically exceeding 12 months.

The current COVID-19 pandemic may delay some sales cycles by even a few months more, taking more time than we would like to close deals. As we discussed previously, it typically can take about nine months from contract signing to launch of the service. As may be expected, with the effect of COVID-19, we are seeing some delays in the launch of the services, probably no more than several months. This may reduce a bit the amount of recurring security revenues in 2020 we previously expected to be a few million dollars.

As I have discussed in the past, Allot is endeavoring to sign security deals in a recurring security revenue deal model. While not all operators will accept this model, we are encouraged to see that more and more operators do accept it. I will remind everyone again that as we sign recurring security revenue deals, we do not book anything nor do we recognize any revenues. Only when the service is launched by the operator and consumers or small businesses begin to use it, will a revenue stream to Allot gradually build up.

Our goal, therefore, is to build a substantial base of CSPs which will launch security services to their customers and work with them to help a large number of end users sign up for the security service. These are the type of deals that will ensure longer-term growth and success of Allot. It is too early to accurately assess the impact of the epidemic and behavioral changes on recurring security revenues, both in terms of number of operators and in terms of take-up rate of customers. Currently, we do not see an adverse impact on the interest from operators to launch security services, and there are even signs of growing interest.

In services that were already launched, we continue to see growth in the number of consumers and SMBs paying for the services, but the growth is lower during the weeks of lockdown compared to the period before. While it is too early to tell how this will play out as we return to the "new normal," we do expect growth rates to go back up. To track our performance, we use a metric internally that we call Maximum Annual Revenue or MAR for short. This number reflects the potential annual revenue Allot will receive should 100% of the CSPs' relevant customer base sign up for the security service.

Of course, we do not expect 100% of the CSPs' relevant customers to actually sign up for the service, so Allot revenues will actually be the MAR multiplied by the actual penetration level achieved. Looking at the initial recurring security revenue deals we signed, the healthy pipeline we have in hand and the growth in tenders and RFPs that were issued, I am confident that we are heading in the right direction, and I'm very optimistic about this market segment and our future growth in it. I would now like to summarize the overall picture and key messages. Despite the COVID-19 pandemic, most people working from home and inability to fly to customers, we are proceeding according to plan and growing our business.

We are continuing to deliver to our customers and serve them in a timely manner. In the visibility and control area, we are seeing some delays in some of the projects. However, the growth in bandwidth requirements is creating demand for our products and new opportunities are emerging. In the security area, the increased cyber-attacks are contributing to increased awareness from both operators and end users.

While sales cycles are somewhat longer and the launch of new services may be delayed, we see the need for security service to protect consumers and SMBs continuing to grow. Looking at our backlog entering 2020, 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 2020 to be between $135 million to $140 million. I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2020 to exceed an MAR of $140 million. This will be, of course, on top of the $85 million MAR deals we signed in 2019.

In addition, we expect to become profitable during the last quarter of this year. And now I would like to hand the call over to Ziv Leitman, our CFO. Ziv, please go ahead.

Ziv Leitman -- Chief Financial Officer

Thank you, Erez. Before we begin reviewing the financial results for this quarter, unless otherwise noted, I will refer entirely to the non-GAAP financial measures when discussing operational results. This is what we use internally to measure ongoing performance of our non-GAAP financial measure differ in certain respects from generally accepted accounting principles and exclude share-based compensation expenses, expenses related to M&A activity, amortization of certain intangible assets, exchange rate differences and changes in deferred tax. And now to the financial results.

Revenues for the first quarter of 2020 were $29.3 million, growing by 16% compared to those of the first quarter of 2019. Generally speaking, the coronavirus pandemic didn't have a significant effect on the first-quarter revenues. However, as we explained in the press release we issued three weeks ago, during the first quarter of 2020, some deals which were expected to book were delayed as a consequence of the COVID-19 pandemic and are now expected to close during the second quarter. I would like to give you more color regarding the revenue breakdown and diversification.

The geographic breakdown for the first quarter was as follows: Americas with $1.5 million or 5% of revenues, EMEA was $23.1 million or 79% of revenues; and Asia Pac with $4.7 million or 16% of revenues. The breakdown between products and services in the first quarter of 2020 versus the comparable quarter last year was as follows: product revenues were $18.9 million, compared to $16 million last year. Professional services revenues were $2.6 million, compared to $0.8 million last year. Support and maintenance revenues were $7.8 million, compared to $8.5 million last year.

The portion of communication service provider revenues out of the total revenues in the first quarter were 87%, compared to 83% in the comparable quarter last year. I know that the revenue breakdown may fluctuate from quarter to quarter, depending on the specific revenues and deals we recognize in the specific quarter. Our top 10 end customers made up 75% of our revenues in the first quarter of 2020, compared with 62% in the first quarter last year. Gross margin for the quarter was 74.8%, compared to 72.4% in the first quarter of 2019.

The variation between the quarter reflects the product mix or deal mix sold in the particular quarter and is not indicative of any specific trends. Operating expenses for the quarter were $22.5 million, compared to $20.2 million as reported in the first quarter of 2019. The total worldwide number of full-time employees as of March 31, 2020, were 633. This is an increase of 39 full-time employees, compared with that of the end of 2019, which stood at 594.

I know that due to the COVID-19 pandemic, our expenses were slightly lower than what we had planned on. This was in part due to the abstinence of international travel by employees since mid-February, and the cancellation of the Mobile World Congress Trade Show in Barcelona, as well as other marketing activities. Furthermore, the pandemic had an impact on our face of hiring new employees. At the same time, the majority of Allot global workforce is working from home, and we invested in resources in ensuring an effective platform to enable this.

Non-GAAP operating loss for the quarter was $0.6 million, compared with non-GAAP operating loss of $1.8 million in the first quarter of 2019. Non-GAAP net loss for the quarter was $0.4 million or $0.01 per share versus $1.9 million or $0.05 per share in the first quarter of 2019. For the three months ended March 31, 2020, the weighted average number of basic shares was 34.6 million and the weighted average number of fully diluted shares for the same period was 36.8 million. Turning to the balance sheet.

Our cash reserves, comprised of cash, cash equivalent and investment, as of March 31, 2020, were $110.7 million, compared to $117.6 million on December 31, 2019. $33 million out of the total cash balance is restricted due to advanced payment from customers, margin required for foreign currency hedging activities and other collaterals. The decrease in cash level was due to three primary aspects. First, I know that toward the end of last year, we received large upfront payments from various large new deals we had signed.

Second, given certain supply constraints in the market due to COVID-19, we have strategically increased our inventory level to ensure we have the parts and components we need to fulfill commitments to customers. I know that inventory have risen from $10.7 million at the end of 2019 to $15.1 million as of March end. A portion of those purchases are expected to be also paid in the second quarter of 2020. Third, payment of accrued expenses, which were booked in the previous quarter.

Finally, in terms of guidance, as Erez mentioned earlier, we continue to expect revenue to grow significantly in 2020 to between $135 million to $140 million, representing accelerated year-over-year revenue growth of 25% at the midpoint. We expect gross margin for the remainder of 2020 to average around the same level as we have seen in previous years, at around 70%. However, I reiterate it's on a quarterly basis, the gross margin may fluctuate as a result of deal mix and revenue recognition. Our plan for 2020 is that the opex would be in the range of $95 million to $98 million, mainly due to investment in sales and R&D to facilitate the future growth of the company.

We expect to return to profitability on the quarterly basis before the end of the year. We're expecting a negative net cash flow for a few million dollars for the entire 2020, of course, excluding any M&A activity. However, the net cash flow in the first half of 2020 is expected to be less than the net cash flow toward the end of the year, mainly because we received high level of advanced payments the year-end of 2019. We are currently more focused on signing additional recurring security revenue deals rather than security capita deals.

There are slight delays in the rate of signing those deals due to the COVID-19 pandemic, but we do believe that in 2020, we will sign deals with MAR of at least $140 million. As we take some time from contract day to commercial launch, I note that the new deal we signed this year will produce little to no recurring revenues in 2020, but will build a strong foundation to future revenue growth in the coming years. Overall, we are pleased with our financial performance in the quarter. As things appear from today's perspective, we continue to stand by our financial plans for 2020.

That concludes my remarks. We would be happy to take your questions now. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] The first question is from Eric Martinuzzi of Lake Street. Eric, please go ahead.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Thank you. I'd like to get a little bit more detail on the linearity over the past few months. I understand the quarter was, as you anticipated with the April 16 news, and you've reiterated your commitment to the year. But just how things progressed in March and April and to this point in May, if we're seeing where things turned south and then maybe where things turned north.

Erez Antebi -- President and Chief Executive Officer

Look, I'll try to give you that level of granularity. Typically, when we book orders, or I'd say most of the orders that we book in a given quarter are booked in the last month of the quarter. That's sort of typical for our business. That was no different in Quarter 1, I don't expect it to be any different in the second quarter.

So if you ask me how I look at the new business coming in and what does it look like in April, then I go back to look at the pipeline and what the projections are. And like I said, generally, we think we're on track, and that's why we reiterate the yearly guidance.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

You talked about not seeing as much of a contribution from the SECaaS deals that were signed in the first quarter. Is there any chance that that comes back and maybe your -- let me rephrase the question. Is that due to consumer demand? Or is that due to your partners and their focus on that part of their business? What's behind that? Because you also talked about an increased demand or a heightened level of cybersecurity threats as a result of COVID.

Erez Antebi -- President and Chief Executive Officer

I think it's a couple of things, OK? And it's a bit early to dissect it to exact reasons. But I think deals that -- if I look at services that were already launched, like I said, the number of customers is continuing to grow. But during lockdown period, it grew less than before. So I expect that to change as situations ease up and people start going back to some kind of normality.

Part of that is due to the operators focusing on other things, and part of that may be due to consumers being, at this point in time, focusing on other stuff as well. Deals that we signed toward the end of '19 and that are expected to launch this year are getting a bit delayed. So the revenues that we see from them this year will probably be a bit less. So overall, I think we'll see a bit less of the recurring revenues that we expected this year.

But overall, we see the guidance for the year stands as it is.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Yes. And that's what I wanted to finish my questions with. I was surprised that the robustness of the outlook -- your business is still, I think, about three-quarters on the visibility side and about a quarter on the security side. What is behind that? Because we've, obviously, got a robust second half built in here to get to the $135 million to $140 million.

Is this more on maybe perpetual license side of the security business? Is this more increased demand on DPI licensing, maybe where those free licenses or complementary licenses turn into revenue events? What's driving that second half robust outlook?

Ziv Leitman -- Chief Financial Officer

Hi, Eric. This is Ziv. As you recall, we started the year with a backlog of $138 million. And we said that at least 70% of the backlog will be recognized in 2020.

So most of the revenues in 2020 will not come from new orders. And we feel comfortable that we will be able to deliver those projects in the coming quarters.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Got you. OK, very helpful. Thanks. Go ahead.

Ziv Leitman -- Chief Financial Officer

And as we said, most of the revenues in 2020 will come from visibility and control, this kind of business, rather than from security since the growth engine of the company is the security coming from the SECaaS deals, but we will see those kind of revenues only in the coming years and not in 2020, when the SECaaS deals will be just a few millions of dollars, as explained before.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Got it. Thanks, and congratulations on the robust outlook relative to other data center and communication equipment companies that I follow.

Erez Antebi -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Alex Henderson of Needham and Company. Please go ahead.

Alex Henderson -- Needham and Company -- Analyst

I wanted to just dive into the mix in orders that you expect over the course of 2020. Obviously, when you do opex deals, that doesn't really show up in book-to-bill or anything of that sort. But you entered the year with an exceptional backlog. And I was wondering if you expect to be able to sustain that backlog even as your mix shifts to more contracts coming in on an opex relation or whether we should be anticipating the backlog will gradually diminish as the visibility shifts from the traditional business to more of the opex-related security-type business.

So it's more of a conceptual thought than a request for guidance.

Ziv Leitman -- Chief Financial Officer

So Alex, as you recall, we said that our guidance, we didn't give a specific number, but we said that the booking in 2020, we expect them to be higher than the 2019 revenues. However, they will be lower than the expected 2020 revenues. It will be in this range. And one of the explanations is that we don't put focus anymore on security capex deal, but on opex deals.

And as Erez explained, we will see it in the booking, we will not see it in the backlog, but we will see it in the booking and in the revenues only in the coming year. And this is the reason why we are using the MAR as a metric to follow, internally and externally, our progress in this business. And right now, we feel comfortable with the guidance of additional $140 million of MAR. And again, this $140 million MAR will not generate revenues in 2020, but will generate revenues in the coming years.

Alex Henderson -- Needham and Company -- Analyst

Yeah, totally understand. Just wanted to make sure everybody understood the mechanics behind it. Going back to the gross margin, obviously, a very nice software mix in the quarter to get that 74.8% gross margin, is it reasonable to think that the remaining three quarters should be modeled pretty consistent to the 2019 average, which was just at 70%?

Ziv Leitman -- Chief Financial Officer

Yeah. As you recall, that's what I said in my comments before, that the gross margin depends on the product mix, on the customer mix. And we think that for the rest of the year, the gross margin will be the same as was in previous years, which means around 70%, but there might be fluctuation from one quarter to another.

Alex Henderson -- Needham and Company -- Analyst

One more question, if I could. The exchange rate, the shekel really fell out of bed when COVID started happening. It then promptly rebounded most of that decline. Were you able to take advantage of that decline? It sounds like you stepped up, given your comments about the balance sheet on FX expenses.

So can you give us some sense of what you did during that window?

Ziv Leitman -- Chief Financial Officer

Usually, we do some hedging activity for the coming four quarters. So it's not 100% of our operation. But once you have change in the exchange rates for one month, as it was lately, so you can hardly benefit from it. Because part of your operation is already covered, and it goes both ways, if it's going up or going down.

So I wouldn't say that there is a significant change due to the exchange rate fluctuation.

Alex Henderson -- Needham and Company -- Analyst

OK. So no change despite that decline. OK, one more question, if I could. The enterprise business, the Packeteer stuff, how do you see that feathering in? I mean, obviously, that takes a little while for those type of programs to kick in.

It was just announced recently. Is that more of a back-half dynamic? Or do you expect it to be more of a '21 dynamic? How does the timeline look on realization there?

Erez Antebi -- President and Chief Executive Officer

Well, honestly, we're still looking at it and trying to figure out how it will play out. Look, we've had approaches from many dozens of value-added resellers of Packeteer that are talking to us and discussing now how they can work with us, what are their end users' needs, what type of products, when do they need them and so on and so forth. So we think there's a very nice potential in that deal for us. But I don't see anything significant happening in the next few months.

It takes some time. So think of the end user or a small business or a large business that has a Packeteer product and this requires a swap. These kinds of things take time. So I don't see anything significant happening in the next few months.

But we'll see in the next few months how the dynamics of this will play out, and we'll understand a lot better who are really these end customers, what are their demands, what is their time line, etc. We're learning that as we go right now.

Ziv Leitman -- Chief Financial Officer

Maybe too worthwhile emphasizing this, we didn't buy the business of Packeteer.

Erez Antebi -- President and Chief Executive Officer

Yes.

Ziv Leitman -- Chief Financial Officer

PacketShaper. We didn't buy the business. We don't support this product. Broadcom announced that its end of life, and they don't sell any more support and maintenance contract for this product.

So the current customers, we expect them to move to our product, but it's a kind of a forklift upgrade.

Erez Antebi -- President and Chief Executive Officer

And the timing of that will be determined by each individual customer. So since we're not familiar with these customers and we're only learning them now, we don't know yet what that will be.

Alex Henderson -- Needham and Company -- Analyst

Certainly understand. Thanks.

Operator

The next question is from Marc Silk of Silk Investments. Please go ahead.

Marc Silk -- Silk Investments -- Analyst

Thanks for taking my questions. With the shift of working at home probably being a way of life for a percentage of the workforce worldwide going forward, have the telcos started connecting the dots to understand that a service like yours is a necessity based on some of your recent conversations with potential new customers?

Erez Antebi -- President and Chief Executive Officer

Look, in our discussions with operators, we are seeing increased awareness of the need to provide secure broadband connections. And we're even seeing -- so the answer is some of them, yes. I hope there will be more of those that will, like you say, connect the dots in the near future.

Marc Silk -- Silk Investments -- Analyst

OK. And then, a follow-on question is based also on the stay at home work or the more -- the stay at home work is going to more frequently access their employers' cloud or server. Has that been any increased -- has there been any increased interest in your DPI products by the enterprise?

Erez Antebi -- President and Chief Executive Officer

Enterprise, like I discussed previously, enterprise is a bit of a mixed bag. It's not one coherent, I would say, customer base. The larger enterprises, like the ones that really look like CSPs, government, local government, things like that, with many, many employees in large branches, etc., is -- they're continuing. More or less, I would say, their level of interest is more or less like it was before COVID-19 hit.

The smaller businesses are more hesitant. The smaller businesses are delaying projects. They want to conserve cash, they want to conserve expenses and they're delaying projects. And then comes this new inflow of potential customers from the Broadcom deal, which is something that we didn't have before.

So it's sort of mixed, I would say it's a mixed bag. Overall, I think in the long term, the business should grow. But I think it's a bit too early for me to analyze, OK, how much is doing what in which of these subsectors.

Marc Silk -- Silk Investments -- Analyst

That sounds good. I guess, I was premature on the not pushing you on the share buyback because it looks like you could have retired some stock in the sevens in March, but that's OK. Anyways, good luck going forward, and thanks for taking my questions.

Erez Antebi -- President and Chief Executive Officer

Thank you.

Operator

[Operator instructions] There are no further questions at this time. Mr. Antebi, would you like to make your concluding statement? Mr. Antebi, there is a further question.

The next question is from Shawn Boyd from Next Mark Capital. Please go ahead.

Shawn Boyd -- Next Mark Capital -- Analyst

Thank you, gentlemen. Just one quick follow-up, and that is on the deferred revenues. We're seeing some great growth there. And I was just wanted to make sure that we're all clear on exactly how that -- what's driving that.

That would be entirely on the Allot Smart business as opposed to the secured revenues in any of those beginning revenue starting to ramp. Is that correct?

Ziv Leitman -- Chief Financial Officer

This is correct.

Shawn Boyd -- Next Mark Capital -- Analyst

OK. OK, thank you. That's it from me.

Operator

Mr. Antebi, would you like to make your concluding statement?

Erez Antebi -- President and Chief Executive Officer

Yes. Thank you, operator. So on behalf of myself and the management of Allot, I want to thank you all for your interest and long-term support of our business. As we are currently not traveling, we will be happy to hold virtual meetings with investors.

If you would like for us to do that, please be in touch with our investor relations team. I look forward to talking to you in the next quarter and hopefully meeting some of you personally as travel restrictions will be lifted hopefully. Thank you again, and have a good day.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Kenny Green -- Investor Relations

Erez Antebi -- President and Chief Executive Officer

Ziv Leitman -- Chief Financial Officer

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Alex Henderson -- Needham and Company -- Analyst

Marc Silk -- Silk Investments -- Analyst

Shawn Boyd -- Next Mark Capital -- Analyst

More ALLT analysis

All earnings call transcripts