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Edited Transcript of TUFN.N earnings conference call or presentation 14-Nov-19 1:30pm GMT

Q3 2019 Tufin Software Technologies Ltd Earnings Call

Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Tufin Software Technologies Ltd earnings conference call or presentation Thursday, November 14, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jack Wakileh

Tufin Software Technologies Ltd. - CFO

* Ruvi Kitov

Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board

* Ryan Burkart

Tufin Software Technologies Ltd. - Director of IR

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Conference Call Participants

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* Gur Yehudah Talpaz

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Jonathan Frank Ho

William Blair & Company L.L.C., Research Division - Technology Analyst

* Joseph Anthony Gallo

Jefferies LLC, Research Division - Equity Associate

* Matthew Melotto Parron

JP Morgan Chase & Co, Research Division - Analyst

* Saket Kalia

Barclays Bank PLC, Research Division - Senior Analyst

* Shaul Eyal

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Tufin Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

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

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Ryan Burkart, Tufin Software Technologies Ltd. - Director of IR [2]

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Thanks, operator. Good morning, everyone, and thank you for joining Tufin's Third Quarter 2019 Earnings 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'd 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 a reconciliation of any non-GAAP numbers 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 1 year on the company's website at tufin.com.

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

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [3]

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Thanks, Ryan, and good morning, everyone. Thank you for joining today. We had a good third quarter, and I'm happy with our results.

Total revenue was $25.6 million, representing strong growth of 32% year-over-year. We saw continued momentum with large enterprises as our automation capabilities, integrations and scalability continue to resonate with customers looking to increase agility and security at the same time. We also made good progress on our investment initiatives and achieved some important milestones on the path of longer-term growth in the U.S. federal market and in the cloud.

As many of you know, we are the security policy company, helping large enterprises manage their network policies to improve business agility, while mitigating security risk. As these enterprises embrace digital transformation and adopt new technologies such as cloud-based services, SDN, and micro services, the IT and cloud environments become increasingly complex and vulnerable to attack. To counter these challenges, enterprises continue to implement additional firewalls, endpoint security controls, identity and access management and other security solutions. However, in spite of all these security efforts, most enterprises still lack comprehensive security policy management, which results in suboptimal trade-offs, which with the necessary security posture and the business requirements for agility, either securities compromise for agility, or vice versa.

We give customers the ability to increase agility without sacrificing security. Our products govern how users, system and applications are permitted to communicate and provide policy-based security automation enabling customers to reduce the time that is required to implement complex network changes from days to minutes with dramatically better security and accuracy.

In the third quarter, we continued to see strong demand for network security automation solutions that customers increasingly need to improve business agility just to compete in the digital age. One of the largest deals of the quarter was a 7-figure land and expand deal with an existing Fortune 500 energy company. That company has recently completed its merger with of one of the entities being a small Tufin customer, and they wanted to standardize under a single security policy management solution. When they compared Tufin against competitors, our strengths became clear.

Our superior network change tracking and compliance features stood out first. On top of that, the accuracy of our topology, our workflow management and our automation capabilities were additional differentiators. The customer also had a fragmented network and wanted to define different unified security policies across different parts of the network with different compliance requirements. Our ability to scale across their complex network along with our robust compliance, accuracy and automation capabilities made the difference.

Another large deal came from a Fortune 500 insurance company that had been a SecureTrack customer for several years. They're in the process of undergoing a digital transformation and they are targeted the network security change process as part of that initiative. Network changes were taking days, and in many instances, weeks to complete, so they created a DevOps incubator team to address the need for automation in order to improve agility. They dramatically increased their Tufin footprint, extending SecureTrack to a much largest percentage of their network and then added SecureChange, integrated with ServiceNow to speed up their network change process while maintaining compliance with their policy.

The last deal I want to highlight is a 7-figure new logo deal in the financial services space. The customer wanted to maintain policy compliance and add full network change management and automated provisioning with a forward-looking road map into the cloud and DevOps. What was interesting about this deal, and what we're hearing more and more from customers, is that they really want a partner who was forward-looking and had an incredible road map to integrate cloud and DevOps into their network security policy management solution. While our Orca and Iris products are not exclusively part of this deal, the customer was happy to see that their road map and Tufin's road map are closely aligned. The deal was also helped along by a person who used Tufin in the previous life at a different company. It's a great to see someone who uses the platform, experiences the value and become the champion for Tufin.

More and more, we're becoming a must-have for network security professionals who have used one of our products in the past. And as we scale the company, with security professionals changing jobs often, there's a gradual network effect that's developing for us.

Moving on, as I mentioned earlier, we passed an important milestone this quarter on our path to long-term growth in the U.S. federal market and continue to make progress in our cloud business.

In federal, I'm happy to announce that the Tufin Orchestration Suite has recently been added to the GSA Schedule 70, which will enable us to sell to the entire U.S. federal government as well as to state and local governments. We're working with multiple partners to specialize in the U.S. federal market. One of those that I'd like to mention is Network Runners, which is the reseller that recently completed our service delivery partner certification and can now deliver the Tufin Orchestration Suite with engineers that have a necessary security clearances from the U.S. federal government. I'm very excited about the opportunity in federal in the coming years, and these are very important first steps.

On the cloud front. I'm happy to report that we have moved Orca and Iris products into limited general availability in anticipation of several customers going live this quarter and a growing qualified pipeline for the products. We expect to move to general availability for all customers in the first quarter of next year. We also continued to grow our sales effort in the third quarter, and we added Jeff Wilmot as a VP of Americas sales. This position did not exist previously, and I'm very excited about the new energy, experience and leadership that Jeff brings to the already strong Americas sales team.

On the product front. We recently announced our support for Zero-Touch Automation for VMware NSX-T. This is the next generation of VMware's software-defined data center, and with this capability, we help customers migrate their applications from VMware NSX-V to their NSX-T environments, thereby supporting end-to-end connectivity for applications across their entire hybrid cloud environment. Our products also continued to be recognized for their excellence. Recently, the Tufin Orchestration Suite R19-2 was awarded 5 out of 5 stars in SC Magazine's annual Risk Management Test Group for the fifth year in a row. While it's great to be recognized for product performance, we remain committed to innovation, and our R&D team is growing and working as hard as ever to build the next-generation products.

With that, I would like to turn it over to Jack Wakileh, our CFO, to discuss our financials. Jack?

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Jack Wakileh, Tufin Software Technologies Ltd. - CFO [4]

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Thanks, Ruvi. Let's turn to our third quarter results and guidance for the remainder of the year. Total revenue was $25.6 million in Q3 of this year, up 32% compared to Q3 of last year. Product revenue increased 32% year-over-year to $11.5 million and our maintenance and professional services revenue grew 33% to $14.1 million.

Looking at the geographic mix of Q3 revenue, we have a well-diversified geographical distribution with Americas representing 59% of our revenue; EMEA representing 38%; and the remaining 3% coming from Asia Pacific. As I've said in the past, given the size of our business and the fact that our revenue may be comprised of 7-figure deals in any quarter, we may experience variability by geography on a quarter-by-quarter basis.

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 in the total amount of $2.6 million for Q3 of 2019 and $0.9 million for Q3 of 2018. Please note that the GAAP to a non-GAAP reconciliation can be found in the tables of our earnings press release located in the Investor Relations section of our website. GAAP gross profit for the third quarter was $20.7 million or 81% of revenue compared to $16 million or 83% of revenue in Q3 of 2018. Non-GAAP gross profit for the third quarter was $21 million or 82% of revenue, and that's compared to $16.2 million or 84% of revenue in Q3 of 2018. Gross margins compressed slightly due to the expansion of professional services teams to support faster time to value in deploying our solutions with our Global 2000 customers.

As we talked about last quarter, Tufin is addressing a large market that is primarily greenfield. As a market leader, we continue to invest in this opportunity. And to that end, total GAAP operating expenses for Q3 of 2019 were $28.3 million, up from $18.8 million in Q3 of last year. On a non-GAAP basis, operating expenses for Q3 were $26.1 million, up from $18 million in the same quarter of last year.

Breaking out non-GAAP expenses into line items, R&D expense for Q3 was $7.8 million or 31% of revenue compared to $5.1 million and 26% of revenue in Q3 of last year. As Ruvi mentioned, we remain committed to innovation, and our R&D team is growing as we build our next generation of products.

Sales and marketing expense for Q3 of 2019 was $15.1 million or 59% of revenue compared to $11.6 million or 60% of revenue in Q3 of last year. G&A expense for Q3 was $3.2 million or 12% of revenue compared to $1.3 million and 7% of revenue in Q3 of 2018. The increase in G&A expenses is primarily driven by the expenses related to becoming a public company. GAAP operating loss for Q3 was $7.7 million compared to an operating loss of $2.7 million in Q3 of last year. On a non-GAAP basis, operating loss for Q3 was $5.1 million compared to an operating loss of $1.8 million in Q3 of last year. GAAP net loss was $8.3 million compared to a net loss of $3.3 million in Q3 of last year. Net loss per share, basic and diluted, was $0.24 for Q3 of this year compared to a net loss per share of $0.41 in Q3 of last year, and that's based on $54.1 million and $8.1 million weighted average ordinary shares outstanding, respectively.

On a non-GAAP basis, net loss for this quarter was $5.7 million compared to a net loss of $2.4 million in Q3 of last year, and net loss per share, basic and diluted, was $0.17 for Q3 of this year compared to $0.29 in Q3 of last year.

Turning now to our balance sheet. As of September 30, 2019, we had cash and cash equivalents of $122.7 million compared with $127.5 million as of June 30, 2019. Deferred revenue on our balance sheet as of the end of this quarter was $37.6 million compared to $27.4 million as of the end of the third quarter of last year. These figures represent the deferred revenue balance after netting off the portion of the deferred revenue that has not been collected as of the reporting date. The gross deferred revenue as of September was $49.8 million compared to $39.7 million as of September of last year. In the third quarter of 2019, we used $4.5 million of cash in operating activities compared to $7.7 million in the same period of last year. Overall, I'm pleased with our third quarter results where we delivered strong growth and a small operating loss within our targeted range.

Turning to guidance. For the fourth quarter of 2019, we expect total revenue of $34 million to $38 million. We expect non-GAAP operating profit to range between $0 to $3 million. For the full year 2019, we expect total revenue in the range of $107 million to $111 million. We expect non-GAAP operating loss to range between $10.3 million to $13.3 million.

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

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [5]

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Thanks, Jack. I'd like to wrap up by saying that I'm very pleased with our third quarter and the progress we're making as we invest for growth. We believe that, fundamentally, your security is only as good as the policy that you define and enforce. And the need for policy-centric network automation continues to grow. We are in the early innings of realizing our potential, and I'm optimistic about our market opportunity and our outlook. I'd like to thank our customers, our partners, our investors and all the Tufin employees for helping us achieve our goals.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question this morning comes from Saket Kalia from Barclays Capital.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [2]

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Ruvi, maybe just to start with you. Can you just talk a little bit about what you're seeing on adoption of SecureChange versus SecureTrack? In the prepared remarks, we talked about a couple of deals in the quarter that seem to extend usage beyond SecureTrack. But can you just talk about that trend perhaps more broadly across the business?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [3]

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Sure. So we're seeing strong demand for automation and, in terms of revenues, it's the majority of our business today. But if you're looking at the opportunity, most customers still did not buy SecureChange or SecureApp from Tufin, so most customers are SecureTrack-only customers for us. But as you're looking at the bigger customers and the bigger deals -- 6-figure deals, 7-figure deals, a lot of times of those customers are either upgrading to automation, so that's a significant expansion for those customers, or those are customers that realized the need for automation day one and so they buy the full suite, on the SecureTrack and SecureChange or Track, Change and App in one fell swoop for either one data center or across their entire network.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [4]

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Got it. That makes sense. Maybe just my follow-up for you, Jack. I think last quarter, you talked about how services billings here could change as customers opted for billing based on percent completion versus upfront. Can you just give us an update on that and sort of how that trended this quarter?

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Jack Wakileh, Tufin Software Technologies Ltd. - CFO [5]

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Yes. Sure. So like we updated in the past quarter, we are still working the same mechanism. PS is not invoiced upfront but rather based on milestones. So what this creates -- this can create some misalignment when comparing this year to previous year, both on bookings and on deferred revenues. So this is something we should take into consideration. And what this means, it means that PS -- there will always be a backlog portion of PS that has -- that needs to be accounted for, when we're measuring our bookings and deferred revenue.

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Operator [6]

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Our next question comes from Sterling Auty from JP Morgan.

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Matthew Melotto Parron, JP Morgan Chase & Co, Research Division - Analyst [7]

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Can you hear me?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [8]

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Yes.

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Matthew Melotto Parron, JP Morgan Chase & Co, Research Division - Analyst [9]

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This is Matt on for Sterling. Looking at your international performance this quarter, we saw a tick down in EMEA and APAC regions sequentially. I was just wondering how you guys are seeing the macro landscape, is there any group that you guys are kind of seeing slip, given some of the uncertainty. So any color there would be appreciated.

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Jack Wakileh, Tufin Software Technologies Ltd. - CFO [10]

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Brent, (sic) [Matt] this is Jack, I'll take your question. So Brent (sic) Matt , as I said in my remarks, given the size of our business and the fact that our business can be comprised of 7-figure deals in any quarter, I would less advise to look at the variability between the quarters when you're talking about geography. So yes, you may have realized slower growth for EMEA and APAC for this quarter, Q3. But overall, we don't think this is the right measure to look at it at this point. All in all, looking at this year, year-to-date, all 3 regions, Americas, EMEA and APAC have been growing above 30%. And currently, this is the way we're looking at it.

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [11]

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And this is Ruvi. Just to touch on the macro environment. From our perspective, at this point, we're not seeing any impact to the macro environment, but we're keeping a close eye on it, and we'll continue to monitor it moving forward.

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Operator [12]

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Our next question comes from Brent Thill from Jefferies.

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Joseph Anthony Gallo, Jefferies LLC, Research Division - Equity Associate [13]

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This is Joe on for Brent. You guys have said that '19 and '20 are investment years. Just maybe give a progress report update on where we are regarding hiring, R&D, et cetera, and where the bulk of the focus will be going forward. A few more specifics would be helpful as we try to gauge both top and bottom line growth.

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Jack Wakileh, Tufin Software Technologies Ltd. - CFO [14]

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Yes. Sure. So to begin with, we guided for top line and for operating expense. This factors our plan for this year and, specifically, on sales and marketing and R&D, as you've been raising. So you may have noticed that sales and marketing fluctuates between the quarters. We have a -- some of the factors in sales and marketing are matter of timing. And you can see some shifting between the quarters. But all in all, we are very in line with our plans for Q3 and the remainder of the year. On R&D, it's a little bit different. We started the first half year with a lag on our hiring plan. But as of early Q3, we caught up. We're still a little bit behind the headcount we want to be at. But as we speak now and into Q4, we are seeing the catch-up in progress.

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [15]

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This is Ruvi. And just to add some more color to your question on investment in sales and marketing. So we've defined several growth engines that we're investing in, such as the channels going into federal, Japan and several other initiatives. Those are all going very well. We're expanding in all those areas, but I just want to highlight the fact that these are long-term growth engines that we're building. So I'm not expecting any of that to have an immediate impact. These are growth engines for, let's say, a year or 2 from now.

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Joseph Anthony Gallo, Jefferies LLC, Research Division - Equity Associate [16]

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Makes sense and that's very helpful. And then last quarter, you guys hired Larry Alston as GM of cloud. Maybe just give an update on the efforts there. I know it's early stages, but the long-term potential there is huge. And then I'm just wondering if you are seeing an uptick in the -- you mentioned an uptick in the pipeline for Iris and Orca. I'm just wondering if that was due to the Capital One breach if you had any increase in demand from that.

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [17]

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Sure. So I'm not sure that it's directly tied to Capital One breach. Those things sometimes take time to actually have an impact on the market. But in terms of our momentum, we are seeing a stronger pipeline. There's actually customers that are in the process of buying and that's why we moved to limited general availability. We're seeing some interesting things. Increasingly, customers are interested not just in Iris or just in Orca, but actually in both. A lot of times we see that DevOps teams are interested in visibility when in the Kubernetes environments, but actually security teams, which have happen to be our primary customers, are interested in visibility and policy control across all environments, private cloud, public cloud and micro services. So that's one interesting aspect. And another thing that we're seeing more and more customers ask for is actually to integrate Orca and Iris back into the traditional Tufin Orchestration Suite with integration points at the SecureTrack, SecureChange and SecureApp so that they could visualize their applications as they go all the way from their internal data center out to the cloud and into micro services in the cloud.

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Operator [18]

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Our next question comes from Shaul Eyal from Oppenheimer.

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Shaul Eyal, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [19]

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Congrats on the quarter. Ruvi, actually on the native cloud, and your comments are absolutely encouraging. Can you also talk to us about the sales process of the cloud product vis-à-vis your core on-premise product? Is there any difference with respect to who's buying it within the enterprise?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [20]

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That's a great question. Thanks, Shaul. So we are actually learning a lot from this. So initially, if you look at our approach a year ago, I think we're focused primarily on DevOps, organizations, we're going a lot to DevOps conferences, and we thought DevOps folks would be very interested in what we're doing, which we think is critical. So one of the lessons that we've learned in the past years is that DevOps folks are interested in -- only in their application development, not really interested in security. But security folks are very interested in security, and they have almost no visibility into the cloud environment and into DevOps environment.

So in terms of the sales process, while initially, we thought it will be fragmented, and we would need to go after DevOps folks in parallel to security folks, more and more we are seeing that we are actually going to be selling to our traditional customer. And selling with our traditional sales team, what we've done with the cloud team here is that we have overlay specialists that specialize in the cloud, so that if we have an enterprise account that is interested in Orca or Iris, we have specialists that come in that know how to demo these things, they know how to propose the value and demonstrate it. But then in terms of the buying center, who's interested in it, it's the exact same buyer. It's people that we want to extend their applications into the cloud. So from a sales perspective, I think it's actually going to be very similar to the sales motion that we're seeing in the enterprise accounts with some adjustments based on the fact that you need to understand micro services on the cloud.

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Shaul Eyal, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [21]

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Understood. Ruvi or Jack, I know you mentioned that the environment is mostly greenfield-driven, but nevertheless, we had seen some disruption within your competitive landscape over the course of the past few quarters. Number one, maybe just a word about the competitive landscape. And maybe one and a half, any impact from some of the disruption going on within your competitive environment?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [22]

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So I think we were discussing that in the previous quarter as well. We can't really comment on what's going on inside competitors. From our perspective, the demand in the market is strong and the competitive landscape has not really changed significantly, right? We have our usual suspects, we have AlgoSec pharma and Skybox in competitive deals. And most customers actually don't have an automated solution yet. So from an automation perspective, which is where the growth really is, it's significantly a greenfield opportunity. And in those, we win because we have superior automation capabilities. It's the depth and the breadth of automation, including the scalability and the change accuracy. And so from our perspective, we're continuing to innovate and be first to market and increasing our leadership.

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Operator [23]

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Our next question comes from Gur Talpaz from Stifel.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [24]

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Ruvi, you made some interesting announcements a few weeks back with VMware. I want to know if you could talk a bit more about the SDN opportunity more broadly. In the past, you talked about Cisco ACI. It seems like this is emerging pretty nicely. So maybe you could drill in a little bit in understanding what you're seeing out there in terms of just the broader opportunity in SDN?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [25]

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Sure. Thanks, Gur. So we're seeing 2 things here. One, we're seeing an increase in interest in SDN technologies in general, right? A lot more customers are starting to deploy Cisco ACI in production. We have VMware customers that are now looking to migrate to VMware NSX-T from NSX-V. So we have large customers that are committing to these massive next-generation network projects. In some cases, we're seeing billion-dollar projects on a multiyear basis going for their next-generation network, which is going to be software-defined. So these are going to be huge projects. On that one hand, they're going to modernize their network infrastructure, and they're going to enable customers actually reroute the network quickly. And on the other hand, from our perspective, I think it's going to actually create even more complexity at the policy level because you're going to have physical firewalls, you're going to have virtual firewalls and then you're going to have this software-defined network whether it's a Cisco ACI and VMware NSX, and you can have firewalls plugged into it because a lot of customers actually extend it by having CheckPoint, Palo, or Fortinet, for example, plugged into ACI or plugged into VMware NSX and customers need the visibility and policy control across the board, both in the layer of the hypervisor, so they want to actually see what is happening in Cisco ACI and VMware NSX, and also the advanced firewall technologies like CheckPoint, Palo Alto and Fortinet within those. So from our perspective, on the one hand, you're going to have a unified network, but on the other hand, at the policy level, it's kind of actually increased fragmentation. And when you add the cloud into it, the proliferation of networking, software and public cloud infrastructure, it's actually a net positive to us in the mid- to long-term future. So that's the first thing we're seeing. Another thing that is in the software-defined world is a lot of customers are embarking on SD-WAN initiatives. Usually these start networking projects, they want to replace MPLS backbones, but a lot of these actually have the potential to be security related. So we're seeing SD-WAN solutions are building technologies, some firewall vendors are building SD-WAN into their firewall, right? So Fortinet was the first and Palo Alto is following them. There's a very interesting area for us. So from our perspective, that's another type of technology, right, the SD-WAN router, that affects routing but can also act as a firewall. So from our opportunity perspective, that is even more network fragmentation, yet another type of routing firewall device out there that is becoming increasingly predominant and it's increasing the opportunity for us.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [26]

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That's really interesting. And, Ruvi, you also called out the U.S. federal market as an opportunity. Maybe you could elaborate a little more on that, not just U.S. Fed, but the public sector more broadly, both domestic and internationally. Can we see you making some significant investments? How do you think about the opportunity potentially as it exists across the board there?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [27]

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It's interesting. On one hand, we're making a lot of progress building out the federal practice, right? So we're happy where we are. We're expecting to see more contribution from a sales perspective in 2020, and we spoke about that before. One interesting driver is in federal, there's increase in compliance regulation. So if you look at FISMA and the federal government risk management framework initiatives, so they're actually mandated to have policy control, and you need a tool like Tufin regardless, right? So you need SecureTrack at a minimum, but then they have these huge networks and they realize that they need automation as well. The government sector is huge, right? You have complex fragmented networks, $100 billion annual IT budget so it's a huge market opportunity for us that is largely untapped, both in the U.S. -- so everything I mentioned up till now is U.S. federal market, we're seeing pickup in governments everywhere. I think in many ways, if you look even at politics, things are becoming more polarized, and from our perspective as people become more and more defensive, they need more and more security locally within their local government.

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Operator [28]

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Our next question comes from Jonathan Ho from William Blair.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [29]

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I just wanted to maybe touch on the VP Americas' hire. Can you maybe give us a little bit of additional detail about the role here? And is there a specific opportunity around either channel or sales management that you see to build out here?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [30]

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Sure. So I'm very happy with Jeff. He's got tons of experience in the Boston area, and he's grown up in a several companies, has lots of experience in enterprises sales, has lots of experience in the channel, has lots of experience in inside sales. So he's got a very wide background, which is great for us. And if we step back for a moment, geographically, the way we're structured, we have a VP of APAC, we have a VP of Europe that manages several regional directors and in the U.S., we had 3 regional VPs that are lined up to Kevin Malone, our SVP of sales. So Kevin Malone simply had too many direct reports. So from our perspective, we needed another layer of management as we're building out the Americas and growing it. So it was the natural addition just in terms of building the management and having the right management structure, and Jeff brings tons of experience that is super valuable for us. So both in the channel, inside sales and enterprise accounts, I think he's going to help build better productivity within the Americas.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [31]

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And then just as a follow-up. Based on your earlier comments around Orca and Iris demand, are you guys potentially looking at bundling the solution together or offering some type of a SKU that combines both of those capabilities? And then, any sense of when we could maybe start to see Orca and Iris contribute more materially just given the GA in the first quarter?

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [32]

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Sure. So the GA is going to be in the first quarter, so we're going to start seeing it next year. Exactly, which quarter is probably too early to tell. But in 2020, we're going to see some impact but it's going to be minimal. We said that before. But there's a very significant opportunity there. In terms of having a single SKU or actually bundling the products together, I mentioned that in one of my comments. Customers are asking to use both products together, so it's definitely something that we're thinking about. We're selling it together. Is it going to be a single SKU or not, we're going to need to think about that.

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Operator [33]

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We have no further questions in queue at this time. I'll turn the call back to the presenters for closing remarks.

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Ruvi Kitov, Tufin Software Technologies Ltd. - CEO, Co-Founder & Chairman of the Board [34]

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All right. I'd just like to say that I'd like to thank everyone, our investors, our partners, our customers and our employees for another great quarter. Thanks, everyone. Talk to you later.

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Operator [35]

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Ladies and gentlemen, this concludes today's conference call. Thank you once more for participating. You may now disconnect.