Tufin Software Technologies Ltd. Ordinary Shares

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.

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.

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?