Allot Ltd. (NASDAQ:ALLT) Q3 2022 Earnings Conference Call November 15, 2022 8:30 AM ET
Company Participants
Kenny Green – EK Global Investor Relations
Erez Antebi – President and CEO
Ziv Leitman – Chief Financial Officer
Conference Call Participants
Eric Martinuzzi – Lake Street
Nehal Chokshi – Northland Capital
Marc Silk – Silk Investments
Madeline Brooks – Bank of America Merrill Lynch
Operator
Ladies and gentlemen, thank you for standing by. Welcome to Allot Third 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 all — have all received by now the company’s press release. If you have not received it, please contact Allot Investor Relations team at EK Global Investor Relations at 1212-378-8040 or view it in the News section of the company’s website at allot.com.
I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?
Kenny Green
Thank you, Operator. Welcome to Allot’s third quarter 2022 conference call. I would like to welcome all of you to this conference call and I’d like to 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 this quarter. We will 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 results and metrics including those we typically discuss on this conference call 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, 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 would now like to hand the call over to Erez Antebi. 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 third quarter revenues reached $25 million, 35% lower than comparable revenues last year. In September 2022, our SECaaS ARR was $6.9 million, same as June 2022. This was a challenging quarter for us and while these are the results we anticipated for the quarter, I am not pleased with them.
As we look into the fourth quarter and into 2023, I definitely expect to see significant improvement and I remain optimistic on the fundamentals and the future. During today’s call, I will discuss the challenges we are facing, the opportunities we see and why I am confident in the future.
Before discussing in detail our different product lines, I would like to address some corporate news, I think, are important. Today, we issued a press release announcing our deal with Verizon business to provide network-based security to provide — to Verizon SMB, Small and Medium Businesses and IoT, Internet of Thing customers.
I believe this is the most significant SECaaS contract Allot has signed to-date, and I am very proud that the Allot has been chosen by Verizon to be the technology solution behind their intended security service.
In another press release, which made public today, we announced that Allot Board of Directors has decided to nominate Cynthia Paul to serve as a Director on our Board, subject to shareholder approval. I am very pleased that Ms. Paul accepted our Board’s nomination. Having known her over the last years, I believe our capabilities, vast experience and business expertise will greatly benefit Allot and I look forward to her joining our Board.
I would like to also mention a couple of elements affecting us company-wide that I believe we should be aware of. One, as anticipated in our previous earnings call, in early September, we implemented some cost-cutting measures that also included reduction of our workforce. We intend to continue with the policy of tight control of our expenses in order to significantly reduce our loss in 2023 and reach profitability in 2024.
Two, exchange rates have fluctuated significantly during this year. A significant part of our revenue is in non-U.S. dollars and the depreciation compared to the U.S. dollar had an impact on our revenues as well. Future fluctuations in exchange rates are, of course, hard to predict and may have impact on us going forward as well.
And now I would like to move to discuss our different product lines. I would like to start by discussing our traffic management and analytics business addressed by our Allot Smart product line. The main use cases we see today in CSPs continue to be in traffic management, congestion management, quality of user experience, especially for video, policy and charging control and digital enforcement.
As governments look to fight crime and terrorism, we see a growing interest globally and being able to block illegal activities such as drug trafficking, child phonography or terrorism. We are seeing growing interest in our products in this area as well.
Many CSPs today are reexamining the composition of their network. This may be because they are moving to 5G or because they need to replace end-of-life products or other reasons. As they do so, we see multiple opportunities globally where CSPs currently using our competitor’s product are considering a change.
We are working closely with quite a few such CSPs to win their trust and business becoming their next choice for DPI. Most of these processes are through a competitive bidding process and some are potentially negotiated deals. In addition, we are working on expanding deals that we won before.
We are also investing in new ways to help wireless operators manage congestions on their networks and save on their cost of expansions. I think we have developed some very interesting capabilities in this area with much value for wireless operators and I will be happy to share with you more details in the future as we progress and as we are prepared to make this public.
In the previous earnings call, I discussed several sizable deals that we expected to book and be able to partially deliver in the second and third quarters and that were delayed. We did not lose any of them and we believe they will close during the coming months, but we cannot be assured of that.
As I mentioned in the previous earnings call, given the delay in closing the deals and uncertainty regarding the exact time when we will close the deal and the exact terms required to recognize revenue, we cannot be assured that the revenues we expected from them in 2022 will be recognized this year.
Looking at the DPI market in general, we see many opportunities and an overall solid DPI market. Many of the more significant opportunities we see are either new customers or competitor replacement opportunities. However, these opportunities are larger than average and make revenues more concentrated and lumpier.
We see that it’s taking us longer to close DPI deals than it took in the past. We continue to analyze the reasons for these delays. In part, this may be due to the larger size of the deals, it may also be related to the general economic environment and we do not know if this will be a continuing trend.
I am fully aware of the challenges we are facing. However, it is becoming much clearer to me that our challenges are more on forecasting the timing rather than on the market size or our share of the market.
We have a very strong pipeline of deals expected to close in the coming months. We are competing on or negotiating multiple large deals and forecasting their timing is challenging. I am convinced that the DPI market is solid and our competitive position is strong.
I want to turn your attention now to what we see in our cybersecurity business and how the market is developing. As I have said in previous calls, Allot is transforming into a cybersecurity company and this is where we see most of our future growth coming from.
We are engaged worldwide with CSPs that are looking to provide their customers with network-based SECaaS. As we look at the market, we see that the direction and momentum of operators interested to launch network-based security services continues to be very positive.
The various operators provide services that are on par on speed, coverage and reliability. As they look for differentiation, network-based security is emerging as an important element. This is even more important since network security is a service native to the operator’s network and is directly coupled to the access network itself.
There are several Tier 1 operators who have reached the conclusion of providing network-based security to their customers is a significant and important to them, and they are discussing with us how to do so.
As we announced earlier, we recently signed a SECaaS deal with Verizon. This deal is intended to place Allot network secure in the Verizon network and provide an embedded security solution that will include fixed wireless SMB customers and Internet of Things connections. As Verizon said in their quote, this offering paves the way for a network-based portfolio that will simplify their customer experience and help provide their customers peace of mind.
Allot has been working with Verizon, both technically and commercially on this opportunity for quite a while. Our network secure platform is already — has already been installed at Verizon Labs for quite some time and has been vigorously tested for several use cases.
This contract is the most meaningful SECaaS contract Allot has signed to-date. I view Verizon’s choice of Allot to provide cybersecurity protection for their SMB customers as a testimony to the strength of our solution and I am extremely proud to have been selected by Verizon.
Allot was selected here to provide our solution only for a very specific subset of Verizon customers. We are, of course, hopeful that, perhaps, sometimes in the future, after we have proven ourselves in a practice, there may perhaps be opportunities to address some other segments with our offering, but we cannot be assured of that.
In our previous call, I mentioned that we have signed deals with three [Technical Difficulty] awarded and in contract negotiation with the fourth. For sake of clarity, Verizon is this fourth operator.
North America is the largest telecom market globally. Allot was traditionally much stronger in other regions and the advancements we are making with North American operators represent a significant change for Allot and will be key to generating SECaaS revenues in 2023 and beyond.
While the Verizon deal is extremely important on its own, I am confident that other CSPs globally will consider Verizon’s decision when they make their own decisions on providing network-based security to their customers.
In addition, negotiations with several other operators in North America, Latin America, EMEA and APAC, we were awarded deals, but have not signed the contracts yet. These potential additional contracts represent the projected MAR of dozens of millions of dollars. On top of that, we are also in serious discussions with additional operators where we have not been awarded yet.
Our main challenge today in our SECaaS business is to translate the contracts we signed into revenues. The first challenge is to launch the service. This process involves many stakeholders on the CSP side, technical, operational, marketing, purchasing and more. They all have multiple other tasks and priorities.
Offering integration of our products with different internal IT systems is required. During the year, we increased our efforts to assist in those processes, and in some cases, we managed to help and expedite the process.
As discussed in the previous earnings call, we unfortunately concluded that while in some cases, we managed to speed up things, overall, our ability to positively impact the launch date is very limited. As a result, we changed our approach and we will focus our future efforts of speeding up launches mainly on few targeted larger opportunities that we believe can contribute significantly to revenues. I will talk more about this and other changes we are making in our focus and how we run the business a bit differently.
During the third quarter, no CSP launched a new SECaaS service with our technology. This is obviously disappointing. As of September 30, 2022, of the 25 signed customers, only 11 launched commercially. Most of them are relatively small operators and most of them launch the service only to a portion of their subscriber base. We do, however, expect one or two additional launches before the end of 2022.
Our SECaaS revenues for the third quarter were $1.7 million and the ARR at the end of the third quarter was $6.9 million. While the number of subscribers grew during the third quarter, this revenue growth was offset by negative impact of currency exchange rates, leading to flat quarter-over-quarter SECaaS revenues and ARR. In the fourth quarter, we expect continued growth from existing customers and some modest revenues from new networks. Therefore, we expect SECaaS revenues to be higher.
A major challenge we have is the marketing aggressiveness of the CSP when launching the SECaaS service. Aggressive go-to-market approaches can include among others, proactively offering the service in every customer interaction, bundling the security offering in the price plan for some or all of the customers, et cetera.
The degree to which a CSP will be aggressive in their go-to-market approach is primarily determined by the perceived value of the service. Unfortunately, we have learned that merely adding revenues to the CSP is not a strong enough motivation.
CSPs have multiple value-added services and these typically have low penetration rates, which CSP seem to be content with. If security is perceived as another value-added service, the expectations of it will be low, the targets given to the working level and the CSP will be low and the results will be low. This can also result in the CSP not prioritizing the launch of the service.
On the other hand, when an operator sees security as presenting a strategic value, the motivation and results change. What is strategic will change from one operator to another and this can include elements such as, differentiation in the market compared to competitors or motivation to transition customers from 4G legacy service to a 5G service or overall brand perception of the operator as a quote, secure broadband provider, unquote, or motivation to transition the customer from a low tariff plan to a more expensive one and others.
The willingness of the CSP to commit to an aggressive go-to-market approach and the contract is to a degree, an indication of how strategic this services to them. These discussions sometimes take time and further delay the launch, but I think they are important to our long-term success.
Bringing all the above into account and in line with what we discussed in the previous earnings call, we changed certain elements of our approach to the market. One, going forward, we are shifting our focus from quote, land grab, unquote, for market share and number of CSPs to CSPs with revenue potential in the next couple of years. This means we will focus on CSPs that have a significant revenue potential even at the expense of market share. I can share with you that during the third quarter, we decided not to close with a certain CSP where we were awarded, because we felt the potential revenues were too small compared to the commitment we needed to make.
Two, we will push very hard to have CSPs we engage with, contractually commit to an aggressive go-to-market. In fact, we are discussing today with multiple CSPs, including Tier 1s, the possibility of launching the security service as part of the regular price plans to a whole segment of customers, such as all premium plans, for example, in exchange for a lower sub price to Allot. As CSPs try to differentiate themselves and as they understand the importance of network-based security, we find some of them very receptive to the idea. If implemented, it will mean many more customers much faster without necessarily reducing the overall future revenue potential of that CSP to Allot. Of course, we will not always be able to get such a commitment, and we remain pragmatic as we may have to agree to a different approach depending on the CSP.
Three, CSPs have medium size that will not commit to an aggressive go-to-market approach and small CSPs regardless of their planned go-to-market approach, our offer commercial terms where our revenues are not dependent on their marketing success. We expect some of these CSPs may agree to this and some will not.
I expect these changes will have an impact also on the number of new CSPs we eventually sign up. However, it will allow us to focus our resources on the smaller number of CSPs that see more strategic value in the SECaaS service and it will ultimately drive our revenues.
As I look at the deals we have done and those that are in the pipeline, I am convinced that the size of this market remains huge. While I am disappointed with the current pace at which our revenues are materializing, I remain very confident in our ability to achieve our long-term goals.
In the previous call, I spoke about the challenge of integrating our HomeSecure router agent in specific routers and our efforts to simplify this process, and therefore, help expedite launches of HomeSecure solutions with CSPs.
As part of this continuing effort, we announced recently that Allot has joined forces with Vantiva, formerly Technicolor to become part of their ecosystem and pre-integrate our solution on Vantiva Home and SOHO routers. I think this is an important step forward to make integration and launches easier for CSPs and we are pursuing additional steps to make such integrations even easier.
Looking ahead, I want to summarize our expectations for 2022. For the remainder of the year, the SECaaS revenues and ARR are composed at this point almost entirely of the projected performance of the 11 networks we launched plus some projected revenue of new networks yet to be launched.
We continue to forecast SECaaS revenues for the whole of 2022 to be approximately $7 million and our December 2022 ARR to be approximately $9 million, with the main risk being possible exchange rate changes and new launches.
Despite the change in our approach to future SECaaS deals as I explained before, we expect to achieve approximately $180 million of new MAR in 2022. 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.
I would now like to say a few words on our expectation for the company’s overall performance in 2022. We still expect the full year 2022 revenues of $125 million to $130 million, trending towards the lower end. Our forecast for support and maintenance revenues remains at $41 million to $43 million.
As I stated, we have already implemented some cost-cutting measures, and as a result, we expect our OpEx for the year to be between $109 million and $111 million. We continue to expect our loss for the full year 2022 to be between $23 million and $24 million. Likewise, we believe our net cash reduction for the year will also be as previously guided between $35 million to $38 million.
While 2023 guidance will be provided in our February 2023 earnings call, I do want to give you at this time a peek into the direction we are looking at. In 2023, we currently expect growth in both CapEx revenues and SECaaS revenues. We currently expect total revenue growth to be close to 10% compared to 2022.
We remain committed to reach profitability for the full year 2024. This will be achieved by some revenue growth, mainly on SECaaS business, but also through tight expense control. Thus, we expect loss in 2023 to be significantly lower than in 2022. I believe we are on track to achieve this.
I am fully aware of the challenges that we face. I believe our DPI business is solid and will continue as such. Our SECaaS business is where we see our significant future growth. While our SECaaS revenues are happening later than we would like and later than we expected, I remain convinced of the very large potential of this business and I am confident that we will grow very significantly in the coming years. I have full faith in our company, in our team and our products, and I believe the actions we are taking makes these goals achievable.
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?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question is from Eric Martinuzzi of Lake Street. Please go ahead.
Eric Martinuzzi
Hey. Congratulations on the Verizon contract. It’s definitely a high-profile customer. I wanted to get a feel for their potential impact, not necessarily in 2022, but do you have any numbers you can give us for the revenue impact in 2023 or beyond?
Erez Antebi
Unfortunately not, Eric, as much as I would like to, but it’s a significant operator and we hope for a good and positive impact, but I can’t share any numbers or commit to them.
Eric Martinuzzi
Okay. And then you did give a little bit of color. I know you are not — well, let’s just talk about 2023 and the opportunity for a 10% growth there. Obviously, 2022 is going to be a down year for you as we look to a return to potential double-digit growth in 2023. What — where is that recovery coming from?
Erez Antebi
It’s coming, I think, from both areas of the business, both some from DPI and some from the SECaaS. But I expect both of them to grow next year. Now to what degree and so on, that it’s premature for me to estimate that.
Eric Martinuzzi
Okay. And then you — last quarter, the disappointment around the CapEx deal delays really took the wind out of 2022. It doesn’t sound like any of those delayed transactions have closed. Do I understand that you don’t expect them to close in 2022 or you are not — the current guidance doesn’t anticipate them to close in 2022?
Erez Antebi
Right now, I would like to close them this year. They may or may not close this year, but I have been — as you understand — as you know and understand, I have been incorrect in forecasting when they will close previously hence the delay. So I am much more cautious at this point. I am not going to commit that they will close this year. But we know — but I think we see our path to the revenue guidance that we gave.
Eric Martinuzzi
Okay. So the guidance doesn’t anticipate them closing is what you are saying for 2022?
Erez Antebi
Like many things in the guidance, there is a — there are several options that will happen. Some of them will happen, some of them won’t and we take that into account we build — when we build our forecast.
Eric Martinuzzi
Okay. And then last question for me on the operating expense side. You are now talking about a range of $109 million to $111 million for 2022. Where do you expect the operating expenses next year?
Erez Antebi
I think that’s probably better left for the — for a more detailed guidance on 2023, when we discussed it in February. But Ziv, you may want to have additional comment on that?
Ziv Leitman
Unfortunately, we cannot relate to a specific number since we didn’t provide guidance for next year. We just said that the loss will be significant lower than this year and that the revenues will grow roughly 10%.
So if we take, let’s assume that this year, the revenues will be $125 million. So it means that the revenues next year would be 137.5%, if I am not mistaken by the calculation. And — but I cannot relate to specific number of the OpEx.
Eric Martinuzzi
Well, given that you have guided the FX down and you are comfortable talking about a double-digit growth rate, we can assume that there’s leverage on that growth that we won’t be returning to — wouldn’t be growing OpEx by the amount that we are growing revenue.
Erez Antebi
No. We said…
Ziv Leitman
By definition if we say that the loss will be lower. So it means that the expenses should — cannot grow at the same percentage of the revenues.
Erez Antebi
Eric…
Eric Martinuzzi
Okay.
Erez Antebi
…I’d like to — I agree with what Ziv said, of course. But I would like to reemphasize, again, we are fully committed to becoming profitable full year in 2024, okay. Now I am not saying that each and every quarter, but for the full year of 2024, we will be profitable. And the only practical way to reach that is to have a significantly lower loss in 2023. So that’s what we are going to do.
Eric Martinuzzi
Understand. Thanks for taking my questions.
Operator
The next question is from Nehal Chokshi of Northland Capital. Go ahead.
Nehal Chokshi
Yeah. Thank you and congratulations on the Verizon deal as well.
Erez Antebi
Thank you.
Nehal Chokshi
What are your expectations on Verizon’s aggressiveness with the go-to-market with their limited to SMB customers that this is initially committed for?
Erez Antebi
Unfortunately, I think, everything has to do with Verizon intentions on go-to-market or their timing or anything like that is confidential, competitive information for Verizon and I cannot relate to any of it.
Nehal Chokshi
Okay. Does this Verizon deal change how you would assess the network security, network revenue ratio of 5% to 8%?
Erez Antebi
I am not sure I followed the question. Could you repeat that, please?
Nehal Chokshi
Yeah. Okay. So I think from your Investor Day from like two years ago, you had presented a top down view of your opportunity. One of the steps was the amount of revenue of 5% to 8% intensity of network security and network revenue. And so my question is that, given this contract with a large provider, does it change your view on that network security, network revenue ratio that top down view that you presented a couple of years ago?
Erez Antebi
Yeah. I think at the top down view, it shouldn’t change it, not necessarily, because it’s doing better or worse or exactly on that number, but because, again, it’s one deal with a single operator for a specific sub-segment or subset of their customers. So I don’t see this — overall, does it change my view of the overall market, I think not.
Nehal Chokshi
Okay. Very good.
Ziv Leitman
And if you…
Nehal Chokshi
Yes.
Ziv Leitman
If I understood your question, you relate to the percentage as we said, how much customers are willing to pay for the service between 5% to 8%, right?
Nehal Chokshi
Correct.
Ziv Leitman
So it shouldn’t be changed because of Verizon. This is on average how much according to our experience with many customers, how much they are willing to pay percentage wise out of the connectivity charge or out of the current ARPU.
Erez Antebi
Okay. So now as Ziv — thank you, Ziv. I didn’t fully appreciate the question. Let me provide the response maybe from a slightly different angle. I talked during this call, I think, I said it quite a few times, that we are trying to work with operators where they bundle security-as-a-service as part of their pricing plans and so on.
When something like that happened and I am not talking about Verizon, I am talking in general, okay? Something like that happens, then an operator will be offering a plan that is, I don’t know, X dollars per month, whatever. And including that plan there will be so many as, such speed, so many gigabytes of data and security and maybe other things.
Now there is — if we do such bundling, I think, it will be it’s great, I think, both for the operator and for us, but there is no distinct line item that says this is how much the customer is paying for security. But I think that the — if you like the perceived value of the security is around those numbers.
Nehal Chokshi
Got it. Understood. Thanks Ziv for clarifying my question and the rest for further detail there. So yesterday, you did a press release based on some survey of 1,000 SMB customers of 50 employees or less. And it’s great that 70% are looking to our network security provider or your communications. Do you have any visibility as to what the other 30% are looking to do as far as security then?
Erez Antebi
Hey. Excellent question. I do not. It wasn’t the part we were focusing on, honestly, in the survey. Yeah, certainly, we run surveys like this, our marketing department run surveys like this for — in different countries globally for different segments of the market and we published the results from time-to-time.
Yeah, what we see consistently in all these services is that, a majority percentage-wise changing, but basically a majority of customers, whether they are consumers or SMBs or so on, understand that they need to be secured and they understand that there are threats that they understand somebody needs to help them secure and that a very, very large portion is looking at the operator is the one who will secure them. If you ask me to guess, I am here, I am just guessing and the others either don’t think they need security or they think that they can take care of themselves or a variety of other things like that.
Nehal Chokshi
Okay. Very good. And then as these large deals that have gotten delayed, how much bigger are they relative to average sites you typically see?
Erez Antebi
How much are they, sorry?
Nehal Chokshi
On the DPI side, the large deals that have been got delayed…
Erez Antebi
Yeah.
Nehal Chokshi
… that haven’t been lost…
Erez Antebi
Yeah.
Nehal Chokshi
…how much…
Erez Antebi
Yeah.
Nehal Chokshi
… are they the near typical average deal size that you are seeing?
Erez Antebi
They are quite large. I mean they are definitely in the millions of dollars, okay? That’s — I will put it that way. It’s not — we have many deals of various sizes. These are large.
Nehal Chokshi
And typically, what’s the size of the deal then outside of these large deals?
Erez Antebi
I know, Ziv, do you know what the average deal size we have is?
Ziv Leitman
No. But I think it’s — the average is not really significant since there is larger — the standard deviation is relatively wide. So we can have a deal of $300,000 and we can have a deal of $3 million and more. So the average will mean really nothing.
Nehal Chokshi
Got you. Understood. Okay. So it’s just simply do you have a larger proportion of large deals in the pipeline than usual?
Erez Antebi
Yes. We are seeing that we are — we are seeing today more large deals, I think, than we saw a couple of years ago.
Nehal Chokshi
Got it. Understood. Okay. And then, Erez, did I hear you correctly, did you give an incremental market target for calendar 2023 or that was calendar 2022?
Erez Antebi
No. Calendar 2022. We are not to give anything on 2023.
Nehal Chokshi
Okay. Great. Thank you.
Operator
The next question is from Marc Silk from Silk Investments. Please go ahead.
Marc Silk
Thank you for taking my questions. I will add on to the group, congratulations on the Verizon deal. It just gives your technology a lot of credibility, and hopefully, that will open up more doors to future deals. So on your — on previous calls, you have talked about on your traffic management and analytics. You have been awarded several deals where you will be replacing a direct competitor’s product. In the slowing economy going forward, why would they switch from a competitive product as opposed to basically doing nothing?
Erez Antebi
It’s because that so they need to do something and there are several rationales for why do they need rephrase the question of your permission. Why don’t I have to make any such move at all, okay? Why not stay with what they have got, right? That’s basically your question. And the reason is that they are making other changes that necessitate them to make a decision.
Some of them could be because, for example, it’s a think of a mobile operator that wants to launch a 5G network and they want to go to a real 5G network, a standalone 5G core. So they need to launch a new core. So they need new capable — they need to add capabilities to that core. They have to do something. They can’t use the 4G cores that they have got.
Another example, it could be that they have made a strategic decision as an operator to move from their own data centers to some sort of shared environment maybe on cloud and so on. And again, they will need to deploy new tech — different technology than what they have got, because what they have got doesn’t cut it. It doesn’t do that work for them anymore.
I could give you another example where — and this is realistic. They have currently a certain product, whether it’s from our competitor or in other fields and that product has reached end of life and there’s no more support for it. So they can’t get security upgrades, et cetera, for its, et cetera. So they have to do something. They can’t live with the product that has no more support, security updates, et cetera. So I have to do something.
All these reasons open up the issue of, okay, if they are going to do that, now they can make a choice from scratch. And therefore, they can’t be — and these and there are other probably examples of why they would have to do something and they can’t stay with what they have got.
Marc Silk
So basically we are saying the companies that are going forward, a global recession is not going to basically be an option for them to have an activity?
Erez Antebi
It’s — I can’t say that. That’s a hard sentence for me to say. You — one could make the argument. I don’t say if there’s going to be a global recession, it’s going to be really bad, then the company that decided to launch a 5G network is going to say, okay, we are going to delay for a couple of years. Things like that could happen, right? I am not going to say there’s going to be zero effect.
But the strategic reason to move to make these changes is not tied to, okay, they just got tired of this platform and they really have excess money and they want to spend it. They are trying to do something strategically different, each and every operator with its own — with their own rationale and direction and that necessitates new equipment for them.
And I think that, in general, I think that the telecom industry, while recession will hit — if there is a recession, we will hit everyone. I think the telecom industry is a little bit less — the hit will be a little bit less dramatic, just because, we — maybe we will change our iPhone less frequently, but we are not going to give up our connectivity. So at the end of the day, I doubt we will see a huge impact on telecom — the telecom operators.
Marc Silk
Makes sense. In your second quarter conference call, you announced that you signed a SECaaS deal with Vodafone to launch security services to fixed broadband customers using Allot HomeSecure products with the intention to deploy in seven different European countries. So my question is, is this just limited to customers using the Allot HomeSecure or is there an even bigger opportunity?
Erez Antebi
This is — it’s — we are providing the Allot HomeSecure — under this contract, we are providing Allot HomeSecure to Vodafone and they will install it in for — in these seven countries, like, I said last time.
Is there a potential to expand that in Vodafone for other things? Vodafone has been a long-time customer of Allot for many things, for DPI, for network security, for other things. And I hope that we will be able to provide the technology for other things as well. But at this point, the contract that we signed is limited to this.
Marc Silk
And just to be clear, so your new — original deal with Vodafone was obviously that they just paid upfront and that was basically it. So this is going to be a recurring revenue deal with you and Vodafone?
Erez Antebi
That’s correct. The original deal, the — for many years ago was for network secure that was used to — that is being used today to protect their mobile customers. They paid us upfront, and of course, they pay us for expansion, support and maintenance and so on, on an ongoing basis. This deal is recurring revenue where they pay us monthly per the number of subscribers that will be using it.
Marc Silk
Okay. That’s great. So since you always bring up Vodafone’s 50% penetration rate, are they going to use the same playbook in these seven European countries or every country is going to be different, just because again, you emphasize how successful they have been implementing your technology?
Erez Antebi
Even on the network secure deal, they were — they did different go-to-market approaches in different countries. And I would expect that here as well the different OpCos in different countries will be using different go-to-market approaches on the HomeSecure as well.
Marc Silk
Can you give us a ballpark of the potential MAR if all countries are in play or it’s…
Erez Antebi
I honestly would rather not.
Marc Silk
Okay. My last question is, so I just saw that DISH is seeking $2 billion in financing for network build-out in Q1 of 2023. Is this kind of the time line that they have given you as far as when they are going to start or it’s unrelated or anything you can, call it, you can bring on the DISH deal would be helpful?
Erez Antebi
Look, I mean, they have announced that they have started already providing commercial services several months ago, right? They had some — they had, I think, some milestone that they had to — regulatory milestone they had to reach and I believe they announced they reached it. Now they still have a very, very small number of subscribers. I am not talking about the, I forget the brand name…
Ziv Leitman
Called LOOSE [ph].
Erez Antebi
Yeah. LOOSE, I am not talking about those, obviously. But on the new network, it’s — they still have a very small number of subscribers and I am not sure when that number will start growing dramatically. I hope it will be soon, but I don’t know.
Marc Silk
All right. Thank you for taking my question, and hopefully, the Verizon deal will start with something exciting. Thank you.
Erez Antebi
Thank you very much.
Operator
[Operator Instructions] The next question is from Tal Liani of Bank of America Merrill Lynch. Please go ahead.
Madeline Brooks
Hi. This is Madeline on for Tal this morning. Just one quick question for me. So if I am looking at fourth quarter revenues, about a $10 million to $12 million gap from where we are in the third quarter. I just had another confidence in terms of guiding to that number versus maybe guiding a little bit below if we are thinking that two other deals or so may not materialize in this quarter, so around the confidence and why still holding that guide? Thank you.
Erez Antebi
Ziv, do you want to address that, please?
Ziv Leitman
So our guidance for the yearly revenue is between $125 million to $130 million going the lower range. So let’s assume it will be $125 million. It means that in Q4 we will have revenues of $35 million. So if you ask me whether today we have all the $35 million at end. So the answer is, no. Usually, in our business, most of the revenues are coming towards the end of the quarter. But currently, this is our best estimation of the revenue that we will achieve this quarter.
Madeline Brooks
And just a follow-up there, with macro deteriorating, that still gives you guys the confidence to say that we think $35 million is going to be the right number to guide to. I guess I am just worried about the extra two carriers. If we don’t see those materialize in the quarter, what would that risk be to the revenue of $35 million?
Ziv Leitman
Again, according to our forecast, our weighted average right now is around $35 million. This is what we are expecting. Since we don’t have it in end, it can vary. So this is — right now this is the weighted average of our forecast and we will work very hard in order to achieve it.
Madeline Brooks
Thank you.
Operator
There are no further questions at this time. Mr. Antebi, would you like to make your concluding statement.
Erez Antebi
Yes. I want to thank you all for joining us on the call today. Thank you for your question. Thank you for your interest and support of Allot. And I look forward to seeing you on our next call or sometimes earlier. Thank you very much.
Operator
Thank you. This concludes the Allot third quarter 2022 results conference call. A recording will be available on Allot’s website on — at www.allot.com. Thank you for your participation. You may go ahead and disconnect.
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