Allot Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to ALOT's first quarter 2020 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Alot's Investor Relations Team at GK Investor and Public Relations at 1-646-688-3559 or view it in the news section of the company's website, www.alot.com. I would now like to hand over the call to Mr. Kenny Green. Mr. Green, would you like to begin, please?

Thank you, Operator. Welcome to all of you to Allot's first quarter 2020 conference call. I'd like to welcome all of you to the conference call, and I'd like to thank Allot's management for hosting this call. With us on the call today are Mr. Erez Antebi, President and CEO, and Mr. Ziv Leitman, CFO. Erez will summarize the key highlights, followed by Ziv, who will review Allot's financial performance of the quarter. We will then open the call for the questions and answer session. Before we start, I'd like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and Allot cannot guarantee that they will in fact occur. Allot does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of the impact due to the COVID-19 pandemic Thank you, Kenny. I'd like to welcome all of you to our conference call and thank you for joining us today.

I would like to start with some highlights for the first quarter. Our first quarter was another quarter of solid growth. Revenues grew 16% year-over-year for the first quarter and reached $29.3 million. Non-GAAP gross margin improved to approximately 75% and our non-GAAP net loss shrunk to approximately $400,000 about 22% of our net loss in the first quarter of 2019. This is our ninth straight quarter of double-digit revenue growth year over year, and I am very pleased with the results we achieved during the first quarter. I believe it shows we are on track and successfully executing on our plan. The number of opportunities we see continues to grow. We continue to close new deals, win against competition, bring more business and grow our revenues. We expect revenue growth in 2020 to accelerate compared to our growth rate in 2019. As we see opportunities grow, we are continuing to increase our investments to capitalize on the significant number of opportunities that we see. Ziv will provide more details on our financials and forecasts later. The last couple of months have been challenging as the COVID-19 pandemic is changing both the way we operate and the way our customers operate. I would like to start and discuss what is happening inside Alot and then turn to discuss what is happening with our customers and where we see the market going. As the pandemic and restrictions started, we set for ourselves two primary goals with equal importance. One, to maintain and safeguard the health of our employees and their families, and to continue to meet our commitments to our customers in a timely manner and achieve the goals we set for ourselves. Like most companies during the past couple of months, over 90% of our employees worldwide are working from home, and we are, of course, not traveling internationally. We adjusted to this situation quickly and are continuing product development, sales, and customer support remotely from people's homes. While we initially did have some temporary challenges in supply of components and servers, etc., those were overcome with no measurable impact to customer commitments so far. As part of our efforts to lower delivery risks, To our customers, we expedited some inventory orders when the pandemic started, which resulted in some inventory growth at the end of the quarter. Overall, we did not see significant degradation in performance and this situation did not cause us, so far, to miss commitments to our customers. We are continuing to deliver products, we are continuing to develop products, we are continuing to install, pass acceptance, and we are continuing to serve our customer base. For example, just last week we released a major software general availability release of Alot Smart that was being worked on for over seven months with a negligible two working day delay. A lot has not laid off people as a result of COVID-19 nor have we forced any of our employees to go on vacation with or without pay. We view this time when people are being let go elsewhere as an opportunity to hire qualified people. I would like now to turn our focus to our customers worldwide. Our CSP customers are obviously open for business as they cope with the increased demand of communications to serve their end users, consumers and businesses worldwide. While most CSPs we are working with are also working from home, many of the projects and services we are involved with continue as planned. A notable example would be Rakuten in Japan, which went live with commercial launch April 8, despite almost everyone working from home. We are seeing some projects but many projects including new projects are continuing as planned. We have seen several new opportunities as operators launch new RFPs or decide to launch new initiatives even after the pandemic started. I would say that while this situation poses certain challenges, It is also creating new opportunities for Alot. I will try to briefly address each of the different market segments we are active in and provide a bit more granular color on what we see in the market. Working at home and working remotely have significantly increased the use of online applications such as Zoom, Microsoft Teams and others. In addition, Many people staying at home are watching significantly more over-the-top entertainment apps such as Netflix. As a result, this created a sharp rise in network traffic volume by as much as 40% worldwide on fixed networks and about 15% to 20% on mobile. As bandwidth demand increases worldwide, this is driving growth and the operators need to have good visibility into the traffic on their networks and the need for better traffic management. As the pandemic really hit and we saw our customers scrambling to add capacity to their networks, ALOT came up with campaigns to provide operators and existing customers with additional licenses on a loan basis free of charge for the first few months so they can focus on solving the burning issues first and deal with commercials later. I believe this was the right thing to do as good corporate citizens and in the spirit of partnership with our customers. As we all adjust to what will end up being the new normal, quote unquote, it might be that part of those licenses will be acquired for use beyond the loan period. I believe that in both the short term and long term, The increase in bandwidth requirements of operators worldwide should drive demand for network visibility and traffic management solutions. Given the increase in time spent on the Internet, we are seeing a growing need for governments to protect their citizens from malicious or illegal activity. As a result, we are seeing growth in the number of opportunities for our regulatory compliance use case. At this point, I would like to expand a bit on our enterprise segment, which in 2019 was roughly 19% of our revenues. Typically, we sell to enterprises which are large and, to a degree, look and act like a CSP. Examples of such customers are the Italian Post Office or state or local governments. The sector of the large enterprises does not seem to be significantly affected by the COVID-19 pandemic. While some deals are getting delayed, the interest that we see coming from this sector continues as it was before. However, where we sell to smaller businesses, we do see larger delays in projects and hesitancy to spend money now. One of our main competitors in the enterprise segment was a product line called Packet Shaper, originally developed by a company named Packeteer. Through a series of acquisitions, this product line was recently acquired by Broadcom. During March, we were chosen by Broadcom as the recommended vendor to offer a transition pass from their Packet Shaper line of products to the Allot Secure Service Gateway, or SSG, and we signed an agreement with Broadcom. As part of the partnering agreement, Broadcom began the end-of-life process to the PacketShaper product line and referred their customers to Alot. Also, as part of the agreement, we are offering attractive financial terms and discounts for product replacements to help customers transition from PacketShaper to equivalent Alot products. As a result of this, many value-added resellers and distributors of PacketShaper are now engaging with Allot to deliver the Allot Enterprise product to their customers. I will note that the PacketShaper product line revenues in 2019 were somewhat larger than Allot 2019 enterprise revenues. While this is a very promising deal for us, we should remember that many of the PacketShaper customers are small businesses. Some of them will transition to other technologies, so that not all the packet shaper customers will indeed move to Alok products. It is too early to tell what the size of our enterprise business will be going forward, but we expect that in the next year or two, our enterprise business may grow as a result of this agreement. To summarize, I believe demand for the Alot Smart product line, including congestion management, traffic management, steering, visibility, regulatory compliance, and enterprise use cases, will remain solid for Alot in 2020 and beyond. I would now like to turn our attention to the security segment. We see a significant increase of cyber attacks on both consumers and SMBs. This is giving rise to growing awareness on behalf of consumers of the need for protection. It is also contributing to a growing awareness on behalf of operators that they should provide a secure broadband connection. Our security segment is seeing good traction. During the first quarter, we signed several new security deals, two of which were recurring security revenue deals with operators in Asia Pacific and Latin America, neither of which were Alot customers before. While we did see some projects getting delayed as operators focused on delivering basic connectivity services, we also saw new projects initiated and new RFPs published after the pandemic and even after lockdown started. I remind everyone again that working with CSPs takes time, with sales cycles typically exceeding 12 months. The current COVID-19 pandemic may delay some sales cycles by even a few months more, taking more time than we would like to close deals. As we discussed previously, it typically can take about 9 months from contract signing to launch of the service. As may be expected with the effect of COVID-19, We are seeing some delays in the launch of the services, probably no more than several months. This may reduce a bit the amount of recurring security revenues in 2020 we previously expected to be a few million dollars. As I have discussed in the past, Allot is endeavoring to sign security deals in a recurring security revenue deal model. While not all operators will accept this model, We are encouraged to see that more and more operators do accept it. I will remind everyone again that as we sign recurring security revenue deals, we do not book anything nor do we recognize any revenues. Only when the service is launched by the operator and consumers or small businesses begin to use it, will a revenue stream to Alot gradually build up. Our goal, therefore, is to build a substantial base of CSPs which will launch security services to their customers and work with them to help a large number of end users sign up for the security service. These are the type of deals that will ensure longer term growth and success of Alot. It is too early to accurately assess the impact of the epidemic and behavioral changes on recurring security revenues, both in terms of number of operators and in terms of take-up rate of customers. Currently, we do not see an adverse impact on the interest from operators to launch security services and there are even signs of growing interest. In services that were already launched, we continue to see growth in the number of consumers and SMBs paying for the services, but the growth is lower during the weeks of lockdown compared to the period before. While it is too early to tell how this will play out as we return to the, quote, new normal, unquote, we do expect growth rates to go back up. To track our performance, we use a metric internally that we call Maximum Annual Revenue, or MAR for short. This number reflects the potential annual revenue Allot will receive should 100% of the CSP's relevant customer base sign up for the security service. Of course, we do not expect 100% of the CSP's relevant customers to actually sign up for the service, so allot revenues will actually be the MAR multiplied by the actual penetration level achieved. Looking at the initial recurring security revenue deals we signed, the healthy pipeline we have in hand, and the growth in tenders and RFPs that were issued, I am confident that we are heading in the right direction and I'm very optimistic about this market segment and our future growth in it. I would now like to summarize the overall picture and key messages. Despite the COVID-19 pandemic, most people working from home and inability to fly to customers, we are proceeding according to plan and growing our business. We are continuing to deliver to our customers and serve them in a timely manner. In the visibility and control area, we are seeing some delays in some of the projects. However, the growth in bandwidth requirements is creating demand for our products and new opportunities are emerging. In the security area, the increased cyber attacks are contributing to increased awareness from both operators and end users. While sales cycles are somewhat longer and the launch of new services may be delayed, We see the need for security service to protect consumers and SMBs continuing to grow. Looking at our backlog entering 2020, the market demand as we see it now, and the pipeline of deals that we are working on, I would like to reiterate our revenue guidance for 2020 to be between $135 to $140 million. I would also like to reiterate our guidance for 2020 of new recurring security revenue contracts signed in 2020 to exceed an MAR of $140 million. This will be, of course, on top of the $85 million MAR deals we signed in 2019. In addition, we expect to become profitable during the last quarter of this year. And now, I would like to hand the call over to Ziv Leitman, our CFO. Ziv, please go ahead.