Tufin Software Technologies Ltd. (NYSE:TUFN) Q3 2020 Earnings Conference Call November 12, 2020 8:30 AM ET
Ryan Burkart – Director of Investor Relations
Ruvi Kitov – Chief Executive Officer
Jack Wakileh – Chief Financial Officer
Conference Call Participants
Matthew Parron – J.P. Morgan
Saket Kalia – Barclays
Andrew King – Colliers Securities
Joe Gallo – Jefferies
Jonathan Ho – William Blair
Rob Owens – Piper Sandler
Hannah Rudoff – D.A. Davidson
Shaul Eyal – Oppenheimer
Jonathan Ruykhaver – Baird
Ladies and gentlemen, thank you for standing by, and welcome to the Tufin Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your Speaker today, Ryan Burkart, Director of Investor Relations. Please go ahead.
Thanks, operator. Good morning, everyone, and thank you for joining Tufin’s third quarter 2020 financial results conference call. With me on the call today is Jack Wakileh, our Chief Financial Officer; and Ruvi Kitov, our Chief Executive Officer.
Before we begin, I would like to remind everyone that any statements made on 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 Security Litigation 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 will 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, Ruvi Kitov.
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 business continued 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. Product 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 product revenues from new logos, which had been under some pressure in the first half. We continued to see strong renewals, and total revenues are now back at the 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 continued 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 toward 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. The increased speed that automation delivers is more important than ever. On top of this, COVID has ushered in more focus on costs as budgets are constrained, and security head count is flat or even down in some cases.
In fact, lowering cost was one of the drivers behind a seven-figure automation deal that we closed this quarter with a large global bank, the customer with 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 respond to the COVID environment, the Company needed to reduce costs, so we decided to add SecureChange with the goal of reducing labor hours. They are not 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 is 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 has been around for a decade, but it’s becoming a greater focus in the wake of COVID-19. Implementing Zero-Trust at a 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 Tufin provides to maintaining 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 gaining 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 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 span 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 merger network was complex and one of the entities was using a Tufin competitor. The network change process was very slow, taken up to 30 days to implement a network change request. The customer wanted to standardize on 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 Tufin across the entire network.
In addition, in the cloud, the customer was moving to a micro service based architecture running Kubernetes in the public cloud. They validated 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 the on-prem networks, but also on the cloud at the same time.
We’re excited about our progress with SecureCloud, 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 SecureCloud, it is encouraging to see transactions like this take shape and to see more of our Global 2000 customers looking at adding SecureCloud 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, EfficientIP and BlueCat, to dynamically adjust security zones in Tufin’s unified security policy, as changes in the network configuration takes place in real time.
In network change implemented by the network team through Infoblox, for example, that might have previously gone unnoticed by the security team is now automatically added to a Tufin 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 SecureCloud 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 trend of automation and the shift toward Zero-Trust. At the same time, SecureCloud has started 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 continued 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 opportunity ahead of us and the cloud with SecureCloud with our core products and with our new marketplace apps.
With that, I’ll hand the call over to our CFO, Jack Wakileh to review our results in more detail and share our outlook. Jack?
Thanks, Ruvi. 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 realize the benefit of lower cost 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 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 marketable securities of $103.6 million, compared with $108.5 million as of the end of Q2 of this year. We continued to be pleased with our strong cash position, and we see it as an important asset to achieving our long-term goals. Deferred 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 Ruvi 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 million to $29 million. We expect non-GAAP operating loss to range between $5.9 million 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 million 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 lock downs or otherwise, our results could be impacted.
With that, I’ll turn the call back to Ruvi for his closing comments. Ruvi?
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 continued 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 in 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?
[Operator Instructions] Our first question comes from the line of Sterling Auty with J.P. Morgan.
Hi guys, this is Matt on for Sterling. Thanks for taking the question. The first question I had was you guys launched a free offering on — just wondering what — have you seen any conversion from those users that are using it? And what — theoretically, what’s the update, I guess, on that front from users that are using the free tool? Thanks.
Hey, thanks for the question. This is Ruvi. Can you clarify which app you’re talking about?
I think you guys launched a free policy changing tool in the middle of the — I think it was in the middle of the pandemic, but I was just — just wondering if you guys could give us an update on that?
Alright. Yeah. I understand that. I think you’re talking about the Firewall Change Tracker. So that’s going well, right. Is that what you mean?
Right. So we’ve had — we have quite a few people that downloaded it. Using it we’ve had — some of those turned into opportunities. So, people like it. It’s — 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 initial tool. So for us, it’s a great CD product. We’re seeing customers get exposed to Tufin for the first time. So it’s part of our CD strategy from this point, moving forward.
Great. That’s very helpful. And then, just a quick follow-up. So using some of those breakouts from the geographical revenue, it looks like EMEA growth rebounded this quarter. Just wondering if you could give any more color on that and how you’re thinking about the different geographies going forward? Thanks.
Jack, do you want to take that?
Okay. Yeah, I’m going to take that. So, Sterling, geographical distribution has not changed probably for the past eight or nine quarters. We look at this cumulative as you already know. We can have fluctuations between the quarters, but so far we haven’t been seeing significant fluctuations that would change the general split that we’ve been showing.
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 what are you guys seeing there relative to other geographies? And how that kind of informs you going forward?
Okay. So, yeah, there is a slight growth in EMEA as you observe. It goes back with a large deals and the average size deals. 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 last year. But those that we did close — it happened in Q3 [indiscernible].
Your next question comes from the line of Shaul Eyal with Oppenheimer. Your line is open. If your line is on mute, please unmute. Okay, no response from that question. We’ll go to Saket Kalia with Barclays.
Awesome. Hey, good morning guys. Thanks for taking my questions here. Ruvi, maybe first for you. Can you just talk about the competitive environment a little bit? I think your competitors here are largely private equity backed. So I’m curious if you’re seeing this as a chance meeting 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?
Alright. So the market has always been competitive for us. So that hasn’t really changed. We continued to see the usual suspects in competitive deals. Our win rates continued to be very good. That hasn’t really changed now relative to 2019. And from a overall environment, I think the COVID factors are impacting us and I think they are impacting some of our competitors as well. One of our competitors raised debt recently. If you look at an opportunity to grab market share, I think the opportunity is there, and we’re doing well.
Okay. Got it. That’s helpful. Maybe it’s my follow-up for you, Jack. The cost actions earlier this year, I think have been very helpful in narrowing the operating loss. Can you just talk about whether there is any more expense reductions that we should see related to those actions, just as we modeled out? And maybe as part of that can you just touch on high level, how you’re thinking about OpEx in the fourth quarter?
Okay. So maybe I’ll start with the latter, Saket. OpEx for Q4 generally for Tufin, it is 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, [indiscernible] some of it was proactively as we said before.
One factor is reductions in compensation that we absorbed earlier in this year, and as we’ve seen 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 couple 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 OpEx, you should be expecting it to be higher than Q3 and Q2, but still meaningfully smaller than Q1. Q1 probably was the — 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.
Got it. That’s really helpful. Thanks guys.
Your next question comes from the line of Andrew King with Colliers Securities.
Hey, guys. Can you hear me?
Hi. Thanks for taking my question. So just around this quarter, we’ve been taking up a lot of spending in the federal vertical. Can you give us an update to just the federal opportunity and any timeline update the aggregated FedRAMP certified?
Alright. So we did some federal business in the quarter. I think there is a — still large opportunity in the federal market, and it’s — that hasn’t really changed. In terms of FedRAMP, we’re evaluating whether that’s actually something that we need. Currently FedRAMP is not really hampering our growth. We don’t have major opportunities that are waiting for it, but it’s something that we’re considering.
Great. And then can you just give us an update to the SDN opportunity with the VMware and Cisco ACI, and just any trends you’re seeing around there?
Sure. So we’re seeing a lot more customers moving to 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 privilege 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 this much more granular segmentation can actually be achieved with SDN solutions, right, I think what you mentioned, VMware and 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 the move to Zero-Trust architectures and moving to SDN technologies like NSX and ACI actually increases the need for visibility in 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. Thank you.
Your next question comes from the line of Brent Thill with Jefferies.
Hey, guys. This is Joe on for Brent. Appreciate the question and really appreciate the return to guidance, and it makes sense, the wider range than typical such as 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 is tracking so far? Thanks.
So far the quarter is tracking well, and we guided based on our forecast process. So, I don’t have any other comments on that. We have a healthy pipeline compared to last year, and we are comfortable with the guidance that we gave.
Okay. Great to hear. And then I believe you had Tufinnovate Americas in September. Ruvi, any top takeaways or surprises or requests from customers?
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 reached more people. People were very excited about some of the things that we’re doing with SecureCloud with the Vulnerability Mitigation App. So a lot of interest in the new things that we’re doing and also generally in automation. If you think about it, most of our customers are still not automating, right. If you look at over 1,600 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 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.
Your next question comes from the line of Jonathan Ho with William Blair.
Hi. Good morning. Just wanted to maybe start with your perspective on the pipeline. I think you’ve 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 fire? Is this sort of — everything is back, but now it’s a little bit backlogged? Any color there would definitely be helpful.
Sure. So if you look at — right now, pipeline is strong. We have increasing demands of automation, have good interest in SecureCloud. We saw this trend solidify in Q3, and that’s sustained so far in Q4. So the continued stability is giving us more confidence, and also the traction with SecureCloud. If you look at our 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 through 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.
It does. But I think the second part of the question around large deal activity, I think you were saying that this was starting to come back, but I just want to get a sense of maybe what inning we are in terms of that return? Is it still in the early stage of it? Are we in the middle stages? Or — I think, it’s pretty much back to normal. Just trying to get a sense of that.
Yeah. So from that sense, I think that what we’ve seen in COVID is continuing. We are seeing some large deals, but the COVID still has an impact from everything that has to do with purchasing. So larger deals, especially seven-figure deals, will get more scrutiny. There is more signature, sometimes it goes all the way through the CFO. That has two impacts. One is, sales cycles are a little bit elongated for large deals. And a lot of times those deals actually come in a little bit lower than what we expected them originally in order 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, let’s say once COVID starts subsiding, I think we will see a return of more larger deals.
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 timeframe? Or whether we should be taking a bit more of a conservative view? Thank you.
Yes. This is Jack, Jonathan. So we provided our guidance. Q3 was the first quarter for us to be at the level revenue that we were last year. Providing guidance due to the improvement of business and the more confidence we’re having in our business, but we are looking only at one quarter now. At the end of — when we report Q4, we will be in a better position to look at full-year 2021 goals.
Your next question comes from the line of Rob Owens with Piper Sandler.
Yeah, thank you for taking my questions. 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 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 kind of aide a quarter that’s down sequentially from a revenue perspective?
Yeah. So, hi, Rob. This is Ruvi. I will answer your 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 is a wider range, because the first quarter that we’re guiding, we are in a pandemic, and naturally, also if you look at our historical guidance we’ve always had wide ranges because 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.
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 in the level you’re at there, relative to sequentially and also on a year-over-year basis? Thanks.
Sure. So if you do the math, this quarter, Q3, similar to same quarter last year, but without some of the bigger deals, what that means is that we’ve actually closed more mid-sized deals. And one of the comments that we made is that we have actually 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, less reliance on seven-figure deals as we’re building the momentum back.
Thank you for the color.
Your next question comes from the line of Andrew Nowinski with D.A. Davidson.
Hi, guys. Congrats on the quarter. This is Hannah on for Andy. Clearly the pipe in the quarter improved enough for you to guide, but could you have 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.
Sure. Thanks. So we’ve made significant progress on the sales execution initiatives, despite the pandemic. We’re executing much better than we were nine months ago. So I’m pleased with that. But it’s an ongoing process, where it’s going to take time as with any significant change. So there is 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.
Great. And just one follow up. I remember last quarter you didn’t expect SecureCloud to be gaining top order revenue this year. But really excellent year. We’re able to call it out and fix a large deal. Could you maybe give a roadmap for when you would expect that to begin to drive revenues? Is this is a 2021 event, maybe 2022? Thank you.
Sure. So SecureCloud is a relatively new product. We launched it in Q1. It’s still emerging space. It’s taking time for customers to understand what it does and evaluate it 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, but we want to close 2020 and then see how it goes.
Your next question comes from the line of Shaul Eyal with Oppenheimer.
Thank you. Hey, Ruvi, Jack, Ryan. Good to see the stabilizing trends as well as the new product introductions. As we think about it from an ongoing product growth perspective, should we be expecting product — the product line to continue and remain at 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.
Hey, Shaul. This is Jack. I think the best way to look at products — just trying to look at your models and then see what products 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. It would be the other way round to 55/45 for products, and we closed the year at typically 50/50. This year if you followed our P&L and made it throughout the year, you’d see that these ratios have been less favorable toward products. We will be in around 35% to 40%, and each quarter on average throughout the year with 35%, 40% products and maybe 60% or 65% services.
And now going into Q4, we will expect improvement in product given the mid-point 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 is a little bit more growth to do.
Understood. And Ruvi, 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 earlier 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?
Hi, Shaul. So it’s two things. I think the weakness is first COVID related, right. We spoke about that in Q1. The second half of the quarter, especially the last two weeks, were very difficult for us, because of the people that we sell to were nowhere to be found. And also with us in terms of large deals that really impacted us. So I think it’s the combination of COVID and also sales execution challenges in our side. The COVID overhang, I think some of that — 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 in Q4 2019.
And in terms of our execution issues, we feel we have fixed most of them. There is still some work to do. And we’re working on it. So it’s a combination of many things, 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.
Your next question comes from the line of Jonathan Ruykhaver with Baird.
Yeah. Hello? Hey, Ruvi. I’ve got just one follow-up question on SecureCloud. There does seem to be an increasing number of vendors that are offering the so-called Cloud Security Posture Management capability, but a lot of that does include — it seems automated policy configuration, identifying misconfigurations and remediating. So I’m curious how do you see the SecureCloud differentiating? And I know it’s early here, but who do you see — and who do you see most often in competitive deals?
Hi, Jonathan. So there is — it’s an exciting space. Customers are investing a lot on 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 Tufin, we have a very small footprint, right. And that actually drive the much lower total cost of ownership. Almost all the other vendors in the space sell security management in order to them to sell their cloud firewalls, which — that consumes a significant amount to compute and ramps up the total cost of ownership.
So SecureCloud 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 differences that were, an open platform, and we are 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 straddled essentially all parts of the enterprise network.
Your next question comes from the line of Sterling Auty with J.P. Morgan.
Hi, guys. It’s Matt for — on for Sterling again. I 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.
I’ll take this question. So 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 on the guidance, if you look at the 6-K we’re assuming that there won’t be significant business deterioration.
And most businesses, I’ve now been working this way, right. When we have a customer that buys Tufin — usually people don’t even need to walk into the data center. They’re doing everything remote, anyway. So unless a very significant change takes place that should not really change the guidance, but it really depends on how the world will look.
Jack, do you want to add to that?
Yeah, sure. Maybe just give more specific color to that. You’ve seen the range. 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 Ruvi said earlier, mainly as a result of the binary deals either come in or not, 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 wider range.
Great. Thank you, guys.
At this time there are no further questions. I will turn it back to management for closing remarks.
Alright. 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.
Thank you, ladies and gentlemen. That concludes the conference call. You may now disconnect.