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spk06: Ladies and gentlemen, thank you for standing by and welcome to the 2FIN 3rd Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, we need to press star 1 on your telephone. Please be advised today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ryan Burkhart, Director of Investor Relations. Please go ahead.
spk11: Thanks, Operator. Good morning, everyone, and thank you for joining Tupin's third quarter 2020 financial results conference call. With me on the call today is Jack Wakili, our Chief Financial Officer, and Ruby Kitaf, our Chief Executive Officer. Before we begin, I would like to remind everyone that any statements made in today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Education Reform Act. These forward-looking statements are based on information available to Tufin's management team as of today and involve 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 number to the most directly comparable GAAP number can be found in the tables of our earnings press release located in the investor relations section of our website. A telephone replay of this call will be available shortly after its completion. You'll find the dial-in information in today's press release. The archived webcast will be available for one year on the company's website at tufin.com. I would also like to inform you that we'll be participating in the Barclays Global TMT Conference coming up in early December. Please reach out to me if you're interested in joining our schedule. With that, I'd like to turn the call over to Tufin's CEO and co-founder, Ruby Kitaf.
spk12: Thanks Ryan and good morning everyone. Thank you for joining us today. I hope that all of you and your families are safe and healthy. I'm happy to share that our visits continue to improve in Q3 sequentially. Q3 revenues were $25.6 million flat compared to revenues in Q3 of 2019, but up from Q2 of 2020 by 11%. Product revenues in Q3 were $10 million, up 27% sequentially and down 13% year over year. Prado revenues have improved significantly from the COVID-impacted results that we had earlier in the year. We are particularly encouraged to see moderate growth in Prado revenues from new logos, which has been under some pressure in the first half. We continue to see strong renewals, and total revenues are now back at pre-COVID levels from Q3 of 2019, which is an important milestone on our path to sustainable long-term growth. Operating expenses were lower year over year in Q3 due to actions that we took earlier this year and an overall lower cost environment related to the pandemic. Our balance sheet remains strong and we ended Q3 with $104 million in cash and marketable securities. Throughout the quarter, we continue to refine and improve our sales processes, as we discussed in recent quarters, to enable the business to scale up over the next few years. Overall, I'm pleased with our Q3 results in light of the challenging environment. Moving on, I want to talk about two trends that are helping drive demand for our products and are becoming increasingly powerful in the wake of COVID-19. Automation and the move towards zero trust. A few years ago, you could get by without automation in your IT processes, and most people did, but not anymore. Networks are getting more complex, and the pace of business change continues to rise. is more important than ever. On top of this, COVID has ushered in more focus on costs as budgets are constrained and security headcount is flat or even down in some cases. In fact, lowering costs was one of the drivers behind a seven-figure automation deal that we closed this quarter with a large global bank. The customer was an existing SecureTrack subscription customer. They made 1,500 network policy changes per week using a manual process, which was very time-consuming and expensive in terms of labor hours. In response to the COVID environment, the company needed to reduce costs, so they decided to add SecureChange with the goal of reducing labor hours. They are now implementing zero-touch automation based on the Tufin Unified Security Policy. Their network change process will be much faster and at a much lower cost as a result of automation with SecureChange. So automation continues to be a strong driver of our business, and it's becoming more important for large enterprises as a means of both increasing speed and reducing costs. The next trend that has recently gained traction is implementing zero-trust architectures. As many of you know, zero-trust is a concept that's been around for a decade, but it's becoming a greater focus in the wake of COVID-19. Implementing zero-trust at the network level is not easy. It requires granular segmentation, which in turn increases network complexity. Sustainably managing granular segmentation at scale requires constant visibility and automation, which is what Tupin provides to maintain a tight security posture and keep the business agile. Our products are designed precisely to address automation and zero trust, which helped drive demand for us this quarter, and I believe will continue to drive demand for our products in years to come. In addition to the demand driven by these trends, some of our new products and services are getting traction in the market as well. The most significant one is SecureCloud, which launched late in Q1 this year and started to hit its stride in Q3. As we've heard over and over in recent months, the COVID pandemic has accelerated the shift to the cloud, and this is translating into increased interest in SecureCloud alongside our core compliance and automation products. SecureCloud was a significant part of another seven-figure deal in the third quarter with a global fintech company. This deal spanned across our network, on-prem, and in the cloud in a single transaction, the first of its kind for us. This customer has recently gone through a large merger. The merge network was complex, and one of the entities was using a Tupin competitor. The network change process was very slow, taking up to 30 days to implement a network change request. The customer wanted to standardize in one vendor and reduce the network change processing time from 30 days to one day. We recommended SecureChange on top of their SecureTrack installation and standardizing the two-fin across the entire network. In addition, in the cloud, the customer was moving to a microservice-based architecture running Kubernetes in the public cloud. They evaluated SecureCloud and appreciated its ability to automatically generate policies for cloud-native security controls, which will allow them to manage their security policies in the cloud without having to buy additional security software from other vendors to enforce the policy. The total cost of the overall cloud deployment will be much lower as a result. This deal is a great example of how large enterprises need Tufin not only to dramatically improve efficiency and security on their on-prem networks, but also on the cloud at the same time. We're excited about our progress with Secure Cloud, although we are very early in the product lifecycle, and we don't expect it to become a meaningful part of our revenue base in the near term. But as we ramp up marketing and awareness around Secure Cloud, it is encouraging to see transactions like this take shape and to see more of our Global 2000 customers looking at adding Secure Cloud as part of their cloud strategy. Finally, on the product front, as you may have seen, earlier today we announced the launch of the Tufin IPAM security policy app in the Tufin Marketplace. This is the second homegrown revenue-generating app in the Marketplace, alongside our vulnerability mitigation app, which we launched in July and has resonated well so far with customers. The Tufin IPAM Security Policy app integrates with leading IPAM solutions like Infoblox, Efficient IP, and BlueCat to dynamically adjust security zones in Tufin's unified security policy as changes in the network configuration take place in real time. A network change implemented by a network team through Infoblox, for example, that might have previously gone unnoticed by the security team is now automatically added to a Tupin security zone, and the relevant policies are automatically applied. This is another way for customers to automate their network management, and this app is unique in the market. Keep in mind that both the new IPAM security policy app and the vulnerability mitigation app are subscription-based products, and along with Secure Cloud, will increase our mix of subscription revenue as they grow over time. While 2020 has provided more than its share of challenges, we are seeing positive signs in the marketplace. Our core business is recovering from the impact of the pandemic, driven by the accelerating trends of automation and the shift towards zero trust. At the same time, Secure Cloud is starting to gain traction as large enterprises move into the cloud even more aggressively than before. That said, uncertainty remains higher than normal due to the ongoing pandemic. In addition, as I mentioned earlier, we continue to refine and improve our sales processes to enable the business to scale up over the next few years. But I'm more optimistic now and confident in our ability to meet these challenges over time and take advantage of the large market opportunities ahead of us in the cloud with Secure Cloud, with our core products, and with our new marketplace apps. With that, I'll hand the call over to our CFO, Jack Lochele, to review our results in more detail and share our outlook. Jack?
spk08: JACK LOCHELE Thanks, Ruby. Good afternoon, everyone, and thanks for joining us today. We had a good third quarter. Our business continues to recover from the depressed levels we saw in the first half of this year, and we realized the benefit of lower costs due to both environment and actions we took to reduce costs earlier in the year. At the same time, we're maintaining a prudent level of investments to prepare the company to scale up over the next few years and capture the large greenfield opportunities in our markets. With that, let's discuss the quarter. Total revenue was $25.6 million in Q3 of 2020, flat compared to Q3 of 2019, but up 11% sequentially. Product revenue decreased 13% year-over-year to $10 million, while our maintenance and professional services revenue grew 11% to $15.6 million. Looking at the geographic mix of Q3 revenue, the Americas represented 56% of our revenue, Europe represented 40%, and the remaining 4% came from Asia Pacific. Moving to margins and expenses, I will discuss our results based on non-GAAP financial measures. Non-GAAP numbers exclude stock-based compensation expense of $4 million for Q3 2020 and $2.6 million for Q3 of last year. Please note that the GAAP to non-GAAP reconciliation can be found in the tables of our earnings press release located in the investor's relations section of our website. Gross profit for the third quarter was $21.6 million, or 84% of revenue, compared to $21 million, or 82% of revenue, in Q3 of last year. Total operating expenses for Q3 were $22.6 million, down from $26.1 million in Q3 of last year. Overall operating costs were lower as we benefited from certain COVID-related savings, like no travel and more virtual events. In addition, we saw the impact of the cost reduction actions we took earlier in this year. Breaking out expenses into line items, R&D expense for Q3 2020 was $6.8 million or 27% of revenue compared to $7.8 million and 31% of revenue in Q3 of last year. Sales and marketing expense for Q3 was $11.9 million or 46% of revenue compared to $15.1 million or 59% of revenue in Q3 of last year. G&A expense for Q3 was $3.9 million or 15% of revenue compared to $3.2 million and 12% of revenue in Q3 of last year. Operating loss for Q3 was $1 million compared to an operating loss of $5.1 million in Q3 of 2019. Net loss for this quarter was $1.2 million compared to a net loss of $5.7 million in Q3 of last year and net loss per share, basic and diluted, was $0.03 for Q3 this year compared to $0.17 in Q3 of last year. Turning now to our balance sheet. As of September 30th, we had cash, cash equivalents, restricted cash, and mark level securities of $103.6 million compared with $108.5 million as of the end of Q2 of this year. We continue to be pleased with our strong cash position, and we see it as an important asset to achieving our long-term goals. The third revenue on our balance sheet as of September 30th, 2020 was $36.8 million, compared to $40.6 million as of the end of Q2 of this year. In the third quarter of 2020, we used $4.5 million of cash from operating activities, the same as in the third quarter of last year. Turning to the outlook, as Rovi mentioned, the environment remains somewhat uncertain as we continue to work through challenges related to the pandemic. That said, our visibility has improved sufficiently to allow us to provide guidance, albeit with a wider range than usual. For the fourth quarter of 2020, we expect total revenue of $24 to $29 million. We expect non-GAAP operating loss to range between $5.9 and $1.6 million. For the full year 2020, we expect total revenue of $93.9 million to $98.9 million, and we expect non-GAAP operating loss to range between $24.7 and $20.4 million. Please keep in mind, our guidance does not contemplate a further deterioration in global economic conditions related to the COVID-19 pandemic. Should macroeconomic conditions deteriorate significantly during the remainder of the quarter, either due to government-imposed lockdowns or otherwise, our results could be impacted. With that, I'll turn the call back to Ruby for his closing comments. Ruby?
spk12: Thanks, Jack. I'd like to wrap up by saying that I'm pleased with the progress we've made in the third quarter, especially on the new product front. Our business has now stabilized, and we continue to make improvements in our sales processes. Due to the actions taken earlier in the year, our costs are lower and our balance sheet remains strong. And as we benefit from the acceleration and the underlying trends of automation and zero trust that I mentioned, I'm confident that Tufin is well positioned to achieve its long-term growth objectives, addressing a large and expanding market. I'd like to thank our customers, our partners, and our investors for their support, and all the Tufin employees for their hard work. Now, let's open the line for questions. Operator?
spk06: As a reminder, if you would like to ask a question, simply press star 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Sterling Audie with JP Morgan.
spk02: Hi, guys. This is Matt. I'm for Sterling. Thanks for taking the question. You know, the first question I had was you guys, you know, launched a free offering I was just wondering, have you seen any conversion from those users that are using it? And what's the update, I guess, on that from users that are using the free tool? Thanks.
spk12: Hey, thanks for the question. This is Ruby. Can you clarify which app you're talking about?
spk02: I think you guys launched a, you know, a free policy, you know, changing tool in the middle of the, I think it was in the middle of the pandemic that I, you know, I was just wondering if you guys could give us an update on that.
spk12: All right. Yeah, I understand. I think you're talking about the firewall change tracker. So that's going well, right? Is that the one you mean? Yeah, exactly. Okay. Right. So we have quite a few people that downloaded it, using it. We've had some of those turn into opportunities. So people like it. It provides some of the functionality that people use on the low end in SecureTrack. And for people that can't afford actually buying SecureTrack, it's a great intro tool. So for us, it's a great seeding product. We're seeing customers you know, get exposed to two things for the first time. So, um, it's part of our seeding strategy from this point, moving forward.
spk02: Great. It's very helpful. And then just a quick follow up. So using some of those breakouts from the geographical revenue, it looks like a media growth rebounded this quarter. I was wondering if you could give any more color on that and how you're thinking about the different geographies going forward. Thanks.
spk08: Jack, can you take that? Okay. Yeah, I'm going to take that. So starting, geographical distribution has not changed probably for the past eight or nine quarters. We look at it cumulatively, as you already know. We can have fluctuations between the quarters, but so far we haven't been seeing significant that would change the general split that we've been showing?
spk02: Yeah, my question was more in terms of the growth. So it looks like EMEA growth was actually positive this quarter. So I was just wondering, you know, what are you guys seeing there relative to other geographies and how that kind of informs you going forward?
spk08: Okay, so, yeah, there's a slight growth in EMEA, as you observed. It goes back to the large deal and the, you know, average size deal. So specifically for this quarter, we talked about large deals and we mentioned earlier that this is one of the main slowdown that we've seen in the business around large deals. But those that we did close happened Q3 that they came from Eman.
spk02: Very helpful. Thanks, guys.
spk06: Our next question comes from the line of show with Oppenheimer.
spk01: Your line is open. Your line is on mute. Please unmute.
spk06: Okay. With no response from that question, we'll go to Sakit Kaliya with Barclays.
spk04: Sakit Kaliya Okay. Hey, can you hear me, guys? Yep. Hi, Sakit. Awesome. Hey, good morning, guys. Thanks for taking my questions here. Ruby, maybe first for you. Can you just talk about the competitive environment a little bit? You know, I think your competitors here are largely private equity backed. So I'm curious if you're seeing this as a chance, meaning the tough environment created by the pandemic, if you're seeing this as a chance to grab more market share or if anything has changed from a competitive perspective.
spk12: All right. So, you know, the market has always been competitive for us, but it hasn't really changed. You know, we continue to see the usual suspects in competitive deals. Our win rates continue to be very good. That hasn't really changed now relative to 2019. And, you know, from an overall environment, I think the COVID factors are impacting us, and I think they're impacting some of our competitors as well. One of our competitors raised debt recently. If you look at the, you know, an opportunity grand market share, I think the opportunity is there and we're doing well.
spk04: Okay. Got it. That's helpful. Maybe if you want to follow up for you, Jack, You know, the cost actions earlier this year, I think, have been very helpful in narrowing the operating loss. Can you just talk about whether there's any more expense reductions that we should see related to those actions, just as we model out? And maybe as part of that, can you just touch on high level, how you're thinking about OPEX in the fourth quarter?
spk08: Okay, so maybe I'll start with the latter packet. OPEX for Q4, generally for Tufin, it's typically higher, and this would be the case for this year as well. When we're looking at the cost reductions that we did, part of it was related to the fact that we reduced costs proactively. Some of it was coming from the environment, right? No travel, no T&E, et cetera. But some of it was proactively, and we said that before. One factor is reductions in compensation that we absorbed earlier in this year. And as we've seen that Q3 improving, This actually was reversed. Initially, this was intended to be reversed to begin with. We just waited to see and get more confidence in the cover of our business. So once this is reversed, Q4 is going to absorb higher expenses from that aspect. And then typically Q4 is higher, as I said before. There are other expenses, commissions and end-of-year stuff that go in there. So when you're looking at Q4 in general for all PICs, you should be expecting it to be higher than Q3 and Q2, but still meaningfully smaller than Q1. Q1 probably was our peak level of OPEX in our history. So that's not going to be there, but a bit higher than the last two quarters.
spk12: Got it. That's real helpful. Thanks, guys.
spk06: Your next question comes from the line of Andrew King with Collier Securities.
spk05: Hey, guys, can you hear me?
spk12: Yep. Hi, Andrew.
spk05: Thanks, Jake, for my question. So just around this quarter, we've been picking up a lot of spending in the federal vertical. Can you give us an update to just the federal opportunity and any timeline updates to getting FedRAMP certified?
spk12: All right. So, um, you know, we did some federal business, uh, uh, in the quarter. Um, you know, I think there's a large opportunity in the federal market and, uh, um, it's, um, that hasn't really changed in terms of fed ramp. Um, we're evaluating whether, um, that's actually something that we need currently fed ramp is not really, um, hampering our growth. We don't have a major opportunities that are waiting for it, but it's something that we're considering.
spk05: Great. And then can you just give us an update as to the SDN opportunity with the VMware and Cisco HCI and just any trends you're seeing around there?
spk12: Sure. So we're seeing a lot more customers move into SDN, and that's part of what I mentioned on zero trust, right? I mean, zero trust is essentially, if you think of it, it's the least privileged security principle. So in zero trust, you can't trust anything, and therefore you really need to segment and even micro-segment both the on-premise and the cloud network. So, you know, this much more granular segmentation can actually be achieved with SDN solutions, right? Exactly what you mentioned, VMware NSX, Cisco ACI, in combination with firewall vendors and cloud-native security controls. The challenge when you do that is you add more segmentation technologies, you actually have a negative immediate impact on security management because you're adding complexity and management overhead. So, you know, the move to zero trust architectures and moving to SDN technologies like NSX and ACI actually increases the need for visibility and automation. So we're seeing more and more customers deploy NSX and ACI. I think NSX is a little bit more mature than ACI, so NSX is kind of standardized data center SDN with a firewall built into it. And Cisco ACI, I think people are deploying it now more than before and figuring out how to manage it and how to use it with other firewalls. For us, we're seeing more and more business coming from NSX and ACI. Great.
spk13: Thank you.
spk06: Your next question comes from the line up right there with Jefferies.
spk13: Hey, guys. This is Joe, Uncle Brent. Appreciate the question and really appreciate the return to guidance. And it makes sense, the wider range than typical, especially with the back-end loaded fourth quarter. I guess, what's your level of visibility and confidence in that guidance? We're about halfway through. So just any sense of how the quarter's tracking so far? Thanks.
spk12: So far, the quarter's tracking well. And we're guided based on our forecast process. So, you know, I don't have any other comments on that. We have a healthy pipeline compared to last year, and we're comfortable with the guidance that we gave.
spk13: Okay, great to hear. And then I believe you had to innovate Americas in September. Rudy, any top takeaways or surprises or requests from customers?
spk12: um so first we were positively surprised with hundreds of people show up it was about double the attendance that we have normally in the physical events so in a weird sort of way we reach more people um people were very excited about some of the things that we're doing with secure cloud uh with the vulnerability mediation app so um a lot of interest in the new things that we're doing and also generally in automation um if you think about it most of our customers are still not automating right if you look at over 1600 customers more than half don't have automation yet so from our perspective it's not just the new new stuff it's also educating customers that are still doing just basic security management on moving into the world of automation and you know enabling a change process that takes some of that takes five days enabling people to do things in an hour with much better security and accuracy
spk13: Thanks for the call.
spk06: Our next question comes from . William Blair.
spk03: Hi, good morning. Just wanted to maybe start with your perspective on the pipeline. I think you talked about some improvement here around the large deal activity, but I'm just trying to understand where we are in terms of the large deals returning. Is this just starting to thaw? Is this sort of everything's back, but now it's a little bit backlogged? Any color there would definitely be helpful.
spk12: Sure. So if you look at Right now, pipeline is strong. You know, we have increasing demands of automation. We have good interest in secure cloud. You know, we saw these trends solidify in Q3, and that's sustained so far in Q4. So, you know, the continued stability is giving us more confidence, and also the traction with secure cloud. You know, if you look at – pipeline in general, and also some of the sales process improvements that we've done. We feel comfortable with where we're tracking because I think the deals are going for a lot more inspection, and things that are forecasted today are good quality, and we feel comfortable with them. I'm not sure if that answers your question.
spk03: It does. But I think the second part of the question around large deal activity, I think you were saying that those were starting to come back. But I just want to get a sense of maybe what inning we are in terms of that return. Is this still at the early stage of it? Are we in the middle stages or are things pretty much back to normal? Just trying to get a sense of that.
spk12: Yeah, so from that sense, I think that what we've seen in COVID is continuing. We are seeing some large deals, but, you know, the COVID still has an impact from everything that has to do with purchasing. So larger deals, especially seven-figure deals, get more scrutiny. You know, there's more signatures. Sometimes it goes all the way to the CFO. That has two impacts. One is sales cycles are a little bit elongated for large deals. A lot of times those deals actually come in a little bit lower than what we expected them originally, either to fit a reduced budget or just because our champion in the account doesn't want to go through yet another signature that might cancel the project. So in terms of seven-figure deals, we're seeing less than before. That still hasn't rebounded, but we're seeing more smaller deals. And so I think it's a healthy mix. Once we see an overall business improvement increase, Let's say once COVID starts subsiding, I think we will see a return of more larger deals.
spk03: Great, great. And I know this is relatively early and that you just started to guide for the fourth quarter. But as we look at 2021, I mean, I'm just trying to maybe get a sense of what you're thinking in terms of potential growth rates or whether we should be modeling much of a return back to prior growth during that time frame or whether we should be taking a bit more of a conservative view. Thank you.
spk08: Yes, this is Jack and Jonathan. So, you know, we provide our guidance. Q3 was the first quarter for us to be at the level of revenue that we were last year. You know, providing guidance due to the improvement of business and the more confidence we're having in our business, but we're looking only at one quarter now. At the end of the quarter, when we report Q4, we'll be in a better position to look at full year 21 growth.
spk06: Your next question comes from the line of Rob Owens with Piper Sandler.
spk09: Yeah, thank you for taking my question. I guess, first of all, just unpacking the guidance a little bit and given that the caveats that you gave around the pandemic, what could drive a result that would be down sequentially in the fourth quarter? I know you gave out a wider range, and I appreciate that, but Given the lower end of the range, is this all big deal related or is there something else that could actually aid a core that's down sequentially from a revenue perspective?
spk12: Hi, Rob. This is Ruby. I'll answer the question this way. When we're forecasting now, we're being prudent. We look at large binary deals, and if we're not confident in them, then we don't forecast them. And there's a wider range because the first quarter that we're guiding, we're in a pandemic. And naturally also, if you look at our historical guidance, we've always had wide ranges because And we had multiple very large deals that could swing either way. So in terms of the width of the guidance, that's primarily what's driving it.
spk09: Fair enough. And you touched on the large deals and sales cycles and size and everything else. Could you address your run rate business and kind of how that's returned and the level you're at there relative to sequentially and also on a year-over-year basis? Thanks.
spk12: Sure. So, you know, if you do the math, you know, this quarter, Q3, similar to the same quarter last year, but without some of the bigger deals, what that means is that we've actually closed more midsize deals. And one of the comments that we made is that we have actually growth growth. in new logos in third quarter. We don't know if it's going to be a trend that will continue, but we're pretty happy with that, especially in the pandemic. So we're seeing more growth in general, new logos and mid-sized deals. Overall, I think it's a good thing for us, you know, less reliance on seven-figure deals as we're building the momentum back.
spk09: Thank you for the call.
spk06: Your next question comes to the line of Andy Nowinski with DA Davidson.
spk00: Hi guys, congrats on the quarter. This is Hannah on for Andy. Clearly the pipe on the quarter improved enough for you to guide, but could you add some detail about how you've been refining the sales process to perform in the quarter and build that pipeline? And maybe if you could comment longer term on your comments about looking to scale up. Thank you.
spk12: Sure. Thanks. So we've made significant progress on the sales execution initiative, despite the pandemic. You know, we're executing much better than we were nine months ago, so I'm pleased with that. But it's an ongoing process, right? It's going to take time, as with anything that can change, so there's more work to be done. From my perspective, we're building the sales infrastructure and organization that will allow us to scale up to a much bigger company over time.
spk00: Great. Just one follow-up. I remember last quarter you didn't expect SecureCloud to be gaining a whole fold of revenue this year, but really excellent that you were able to call it out in such a large deal. Could you maybe give a roadmap for when you would expect this to begin to drive revenues? Is this a 2021 event, maybe 2022? Thank you.
spk12: Sure. So, you know, SecureCloud is a relatively new product. We launched it in Q1. You know, it's still an emerging space. It's taking time for customers to understand what it does and, you know, you know, evaluated before they move forward. But I think enterprises moving to the cloud is a big trend. We're all aware of it and of the need for a product like SecureCloud. So that's been true from day one. It's just taking time for customers to test it, to get comfortable with it, see how it addresses their needs. But it's still early in the product lifecycle, so we don't expect it to be a meaningful contributor in 2020. I think it's a bit too early to talk about 2021. We want to close 2020 and then see how it goes.
spk06: Your next question comes from the line of Charles Allais with Oppenheimer.
spk10: Thank you. Hey, Ruby, Jack, Ryan. Good to see the stabilizing trends as well as the new product introduction. As we think about it from an ongoing product growth perspective, should we be expecting product, the product line to continue and remain a double digit territory? We've just had 10 million, maybe even accelerate, given that we are heading into the seasonally strongest quarter of the year.
spk08: Hey, Shabab, this is Jeff. I think the best way to look at products, trying to look at your models and see where products are going to land, is to look at the split between product and services. So if you remember before we went into this environment in 2020, we were around 45, 55 product to services through the year, and Q4 was a stronger one. We would be the other way around, 55, 45 to for products. And we close the year at typically 50-50. This year, if you followed our P&L and you did throughout the year, you'd see that these ratios have been less favored towards products. We've been around 35 to 40 each quarter on average throughout the year with 35-40 products and maybe 60 or 65 services. And now going to Q4, we will expect improvement in product, given the midpoint and the guidance. And doing these numbers are going to reflect a higher product mix, but we're still not going to see it in the levels that we had previous years. To get to where we were previous years, I think that there's a little bit more growth to do.
spk10: Understood, understood. And, Ruby, what are some of the internal actions you've taken or implemented that are assisting in stabilizing the business? Or is the weakness that we have seen early in the year is strictly external? Is it just headcount addition or some additional best practices, processes that you've implemented over the course of the past few months?
spk12: Hi, Shaul. So it's... Two things. I think the weakness is first COVID-related. We spoke about that in Q1. The second half of the quarter, especially the last two weeks, were very difficult for us because the people that we fell to were you know, nowhere to be found. And also with us in terms of large deals that really impacted us. So I think it's a combination of COVID and also sales execution challenges on our side. The COVID overhang, I think some of that, you know, people are back to work. There are some affected industries. Some budgets have been shrunk. But mostly customers are back. Maybe not at the level where they were before, right? It's not Q4 2019. And in terms of our execution issues, you know, we feel we have fixed most of them. There's still some work to do. We're working on it. So it's a combination of many things. It's organizational structure. It's processes. It's adherence to the processes. And we've done a lot of work, and we're continuing to do more work. Got it. Congrats. Good luck. Thanks, Shulz.
spk06: Your next question comes from the line of with Baird.
spk07: yeah hello um hey ruby i've got just one follow-up question on on secure cloud um you know there does seem to be an increasing number of vendors that are offering you know this so-called cloud security posture management capability but a lot of that does include um it seems automated policy configuration you know identifying misconfigurations and remediating so I'm curious, how do you see SecureCloud differentiating? I know it's early here, but who do you see most often in competitive deals?
spk12: Hi, Jonathan. So it's an exciting space. Customers are investing a lot in the cloud, so there's a lot of different vendors. From a competitive market perspective, it's still developing. Our emphasis is on network segmentation and policy management, right? We're not a cloud firewall vendor, which is an important distinction. So some of the differences when you look at two things is that we have a very small footprint, right? And that actually drives a much lower total cost of ownership. Almost all the other vendors in the space sell security management in order to then sell their cloud firewalls, which that consumes a significant amount of compute and ramps up the total cost of ownership. Secure cloud enables customers to manage policy through cloud-native controls that are built into the platform, which are much cheaper from a compute and total cost of ownership perspective. Another difference is that we're an open platform and we're vendor agnostic. So you don't really have vendor lock-in, which customers like a lot. And we're the only vendor that enables customers to view network changes both in the on-prem and in the cloud, which straddles essentially all parts of the enterprise network. Okay.
spk07: That's very helpful. Thank you. Thank you.
spk06: Your next question comes from the line of Sterling, with JP Morgan.
spk02: Hi, guys. It's Matt on for Sterling again. Just had one quick question as a follow up to the guidance. Does the current guidance take into effect some of the recent lockdowns we've seen in EMEA? Thanks.
spk12: I'll take this question. So, you know, the guidance reflects our forecast, right? We have a set number of deals. We're working on them. They have a certain probability. We provide our input on it, and then we decide what makes sense. So we also mentioned that in the guidance, if you look at the 6K, we're assuming that there won't be significant business deterioration. And most businesses have now been working this way, right? When we have a customer that buys Tufin, you know, usually people don't even need to walk into their data center. They're doing everything remote anyway. So unless a very significant change takes place, you know, that should not really change the guidance, but it really depends on how the world will look. Jack, you want to add to that?
spk08: yeah sure maybe just give more specific color uh to that uh you've seen the range so so one way to look at it if you wish is the fact that the range is large and this is due to this type of uncertainty right so the range is large like ruby said earlier mainly as a result of the binary deals either come in or not um i mean in terms of coming in on time or not so To the extent you'd like to look at it, if we accounted for that, I would say we accounted for that through the wide range.
spk02: Great. Thank you, guys. Thank you.
spk06: At this time, there are no further questions. I'll turn it back to management for closing remarks.
spk12: All right. Thank you, everyone, for joining the call today. We really appreciate your time and your interest in Tufin, and we look forward to speaking with you again soon. Stay healthy and stay safe, everyone.
spk06: Thank you, ladies and gentlemen. That concludes the conference call. You may now disconnect.
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