Allot Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to ELAT's fourth quarter and full year 2020 result 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 ELAT'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 at www.ellot.com. I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, will you begin, please?

Thank you, Operator. Welcome to our fourth quarter and fourth year 2020 conference call. I would like to welcome all of you to the conference call and 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 question 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 effect occur. Allot does not assume any obligation to update that information. Actual events or results might differ materially from those projected, including other results of impact due to the COVID-19 pandemic, changing market trends, reduced demands and the competitive nature of the security system industry, as well as other risks identified in document files by a company with its Security and Exchange Commission. And with that, I would now like to hand over the call to Erez. Erez, go ahead, please.

Thank you, Ehud. I'd like to welcome all of you to our conference call and thank you for joining us today. Our fourth quarter was another quarter of solid growth. Revenues grew 28% year over year for the fourth quarter and reached $39.1 million. Revenues for the full year 2020 grew 23% compared to 2019 and reached $135.9 million. Our revenue growth in 2020 accelerated compared to our revenue growth rate in previous years. In the fourth quarter, we also achieved non-GAAP operating profit of half a million dollars. This is our 12th straight quarter of double-digit revenue growth year over year, and I am very pleased with the results we achieved during the fourth quarter. During 2020, we succeeded in signing recurring security revenue deals with an aggregate MAR of $192 million, 37% above our original goal for the year, a goal which we declared prior to the onset of the global pandemic. I am very pleased with these results and I believe it shows we are on track and successfully executing on our plan. Our business is expanding across our product lines and markets, and we are increasing our market share especially in the cybersecurity business as I will describe in more detail. As we see our opportunities grow, we increased our investments to capitalize on the significant number of opportunities that we see. Zeev will provide more details on our financials and forecasts later. The fourth quarter was clearly a very strong finish for a very successful 2020. 2020 was a different year, not in the least as a result of COVID and its impact on business, reduced travel, and significant changes in our mode of operation. I think we can all get a clearer picture if we summarize 2020 as a whole at this point rather than focus on the fourth quarter. I want to start by describing what we see in our cybersecurity business and how the market is changing favorably for Alut. Alot is rapidly transforming into a cybersecurity company and this is where we see most of our future growth coming from. Looking at the market, I see what I would call a quote-unquote perfect storm. Consumers are under attack and this notion is accelerating during COVID. Phishing, for example, has become more prevalent than ever. In a recent study by Deloitte, We see that nearly half of individuals fall for phishing scams while at home. In a lot study, we found that phishing attacks are more than half of all the cyber threats targeting consumers and SMBs. On the other hand, CSPs, or communication service providers, are looking to monetize their networks. They are looking for subscriber services that drive revenues, loyalty, and brand differentiation. To quote a senior VP for wireless products in a major North American operator I recently talked to, quote, we are hungry for ARPU generating services, and if what you are showing us is true, this is a real ARPU growth generator, unquote. In discussions we have with many CSPs, we see this drive becoming accelerated by their 5G deployments. The design of 5G networks for higher bandwidth and multiple internet connection points makes them more open to threats. In addition, the investment required is very large. All these make 5G networks, in my view, a catalyst for cybersecurity solutions. End users, consumers and SMBs are looking for a simple, zero-touch cybersecurity service. They prefer a simple security service and not have to do anything technical like downloading an app to each device and configuring it. A network-based cybersecurity solution is the only way to deliver all of this. A growing number of CSPs want to launch a cybersecurity service for their customers, for their consumer and SMB customers. Previously, even a year ago, many CSPs thought that reselling a security app was sufficient for their customers. This, in my view, has changed significantly in 2020, and now we see that most CSPs we talk to understand that they need to provide a network-based cybersecurity service. North American operators have, based on our interaction with them, quote, turned the corner, end quote, on cybersecurity services for consumers. We are closely interacting with multiple North American operators, that are now seriously looking into launching network-based security services for the mass market. This was not the case a year ago. While we cannot be assured, of course, of any success, the requirement from the operators is now clearly there. Operators worldwide can typically charge for network-based security services anywhere from 5% to 7% of the consumer's ARPU and around 15% of the SMB's ARPU. The preferred business model that most, but not all, operators worldwide are accepting of is a monthly fee. Whether a revenue share or monthly per-subscriber fee, 30% to 50% of the perceived end-user value is considered a reasonable range for an all-inclusive security service package. As a result of all the above, our deal pipeline is very robust and it has grown significantly. The total MAR of all the opportunities we are actively engaged with is higher than in any previous time. I would now like to look at Allot and how we are uniquely positioned to turn these exciting market developments into accelerated growth. I will start with our platform and product. The Allot Secure 360 platform is a clear differentiator. To remind us all, Allot offers a unified management, thread database, policies, user experience, reporting, and user control, protecting families across all devices. This can be done regardless if the connectivity is mobile, fixed, or even off-network. Allot provides enforcement points for the security in the mobile network, 4G or 5G, in the home router, in the business router, and even security apps on the devices for off-network protection. These holistic capabilities are unique in the industry and are very appealing to many operators. I believe we have today the widest range of security enforcement points available from any competitor. I am not familiar with other technology companies that can provide such a unified experience across access means, devices, and threats. Recently, we announced an agreement to develop together with PowerDNS, a DNS security enforcement product, DNS Secure, that will be an integral part of the AlotSecure platform. I explained in the past that DNS security is inherently inferior to network secure and cannot provide the same level of protection. This is true for our DNS secure solution as well. However, DNS-based security is a much lighter touch on the network and requires less hardware. We believe our DNS security solution will expand our addressable market to include fixed networks especially in low ARPU countries where the perceived dollar value of a security solution is lower. When we look at our recurring security revenue growth path, we see our revenues growing in three dimensions. One, signing up and launching cybersecurity services with additional CSPs. Two, in a CSP that launched the service, having more end users signed up for this security service. And three, CSPs expanding the security offering to the market from an initial market segment such as mobile to additional segments such as the home or off-net protection or the SMB market. I believe this threefold growth opportunity is what can make our recurring security revenues grow very rapidly. I would like now to turn our attention to the deals we signed in 2020 and the results in the services the operators launched. In 2020, we signed multiple new security deals with operators who intend to launch the security service in 2021. Most of these deals, primarily due to COVID-related delays, were signed in the fourth quarter of 2020. These deals were with CSPs in EMEA, APAC, and Latin America. They include Network Secure, Home Secure, and Endpoint Secure. In 2020, several operators who started with one product, typically Network Secure for mobile, decided to expand the service to include Endpoint Secure for off-net protection and Home Secure for fixed network protection. Another interesting area we see is the SMB segment. A growing number of operators see SMB as a lucrative segment. Several of the deals we signed in 2020 are either focused exclusively on SMB or have specific plans to service this specific segment. During 2020, several operators in Europe and Asia Pacific who previously signed deals with us launched the services to their customers. The take-up rates we see in these operations are very encouraging. I will note that the actual rates depend significantly on the go-to-market strategy the operator takes. The more aggressive the go-to market, the higher the rate of customers signing up. We see that selling in shops is a very effective means of adding new customers. When offered as a paid value added service, one operator is seeing that over 80% of new customers who join their networks in shops choose to add the security service option. Moreover, a year after they purchase the service, two out of three customers keep it. These are very high conversion and longevity numbers. another operator who launched the service as a paid-on service offered to customer with every operator interaction managed to get 10% penetration in less than six months. While this is a truly outstanding penetration rate that we should not expect to replicate in many operators, it shows the appeal and potential of the service to consumers. On the other hand, Operators who launch the service with less aggressive go-to-market plans, such as digital means only, achieve significantly lower take-up rates. Our marketing team is heavily engaged with these operators' marketing teams to show them how they can improve the results. On average, the penetration rates we are seeing in the services launched are very encouraging. We also continue to see take-up rates from SMB typically higher than the average rate for consumers. One SMB service reached more than 40% penetration in 18 months. I will note, though, that there are much fewer SMBs than consumers, so the potential value of SMB deals is typically lower than that for consumers. As I mentioned in previous calls, A lot not only enables the CSPs to protect consumers and SMBs, but we also protect the CSP network itself from attacks. In the 4G world, we protect the network with our DDoS secure product. As 5G networks are rolling out, they are more susceptible to volumetric DDoS attacks. As a result, we are seeing significant traction for our Net Protect product. As I discussed in our previous call, Allot has a unique position to play in securing the user plane in 5G networks. Our combination of being able to analyze in real time the full traffic flow, ability to mitigate DDoS attacks in line very quickly, and protect the network from rogue IoT devices puts us in a unique position to help operators secure their 5G networks. Alot comes to the 5G world with a very strong telco-grade technology, products that scale easily to the 5G bandwidth requirements, and full multi-tenancy support to enable differentiated services. These abilities are key differentiators for us in the future 5G deployments. We are currently working on several 5G Net Protect deals, and while we cannot ensure we will win, I hope we will be able to close one of these deals in the coming months. To summarize, I believe the market for cybersecurity services by ISPs to consumers and SMBs is taking off and our pipeline is stronger than ever. I believe Allot is uniquely and very well positioned to take advantage of this and grow significantly. New deals with CSPs still take time. usually between 12 and 18 months, and with COVID, some even take 24 months. Once signed, it takes nine months to launch the service and start gradually building a revenue base. COVID-19 may cause even several months further delays in launch of services after the deal is signed. Factoring in all this, we expect recurring security revenues in 2021 to be between $6 and $8 million. Looking farther ahead, we expect recurring revenues from security deals in 2022 to be $25 million and to keep accelerated growth year after year after that. We also expect to sign in 2021 new recurring security revenue deals totaling at least $180 million of MAR. Before turning to the DPI, or Alot Smart Market, I would like to say a few words on the changes we went through in 2020 and their impact on the company. As with many companies, COVID dramatically restricted our international travel and ability to be physically present at customer sites and meet customers face-to-face. As a result, we made a series of changes to adapt our mode of operation. Our sales team transformed the way we initiate interaction and generate leads. From mostly physical meetings, conferences, customer gatherings, etc., we partially adopted targeted digital means to approach the relevant decision makers and potential customers. This has been successful for us and opened up quite a few interesting opportunities for recurring revenue security deals both for consumers and for SMBs. Implementation was harder this year as we could not send engineers to install systems on-site. Work was done mostly by remote connection. In one case, we had to install a complete network in a country we had never worked in before and were not even familiar with local integrators. Everything was built and pre-installed in racks in Israel and shipped to the country whole. We identified a local integrator, trained them remotely with video clips on how to install and turn on the service, and succeeded to pass acceptance without stepping into the country. Internally, we modified our structure this year to fit the changing needs. As we discussed in our previous call, we created two separate product business units, one for Alot Secure and one for Alot Smart. In the short months that passed since the change, I can see the value that focusing on each product line is already bringing to product development and to new deals. In our global support services, we moved headcount and resources from expensive region to lower cost geographies, mostly to India and Colombia. This transition and transfer of knowledge was not easy. We succeeded to complete the task this year, while reducing the number of open trouble tickets despite the growth in revenues and the growth in our install base. In addition, we strengthened significantly the number of salespeople focusing solely on security deals worldwide. But I think perhaps the biggest change for us resulted from a political change, the Abraham Accords and peace treaties that Israel signed with Arab countries. These agreements opened up the Gulf market to Alot especially in the UAE and Bahrain. My first and only international trip after COVID started was actually to Dubai in December. Little could I have guessed that a year ago. I am very pleased to say the business atmosphere in the Gulf region is very positive towards working with Alok and we are actively engaged in several opportunities in both DPI and security. I would like to turn now to discuss our visibility and control business addressed by our Alot Smart product line. This business grew well for us in 2020. The main use cases we see today are in congestion management, quality of user experience especially for video, policy and charging control, and digital enforcement. We won several deals this year where we replaced a direct competitor's product that was installed, one of them in a Tier 1 in Europe. We are discussing similar opportunities with other CSPs using our competitor's product. In addition, we are involved in several RFPs with operators who do not have such systems today on their networks. While we cannot be assured of success, we are optimistic regarding our chances in some of these opportunities. Our enterprise business grew and had a record year. The deal we signed in the beginning of 2020 with Broadcom to position Allot as the replacement for Packeteer product, which is end of life, is starting to show results. We sign new distributors for our enterprise products in several countries, including the US, and we expect continued growth of the enterprise business in 2021. To summarize, I believe demand for the Allot Smart product line including congestion management, traffic management, analytics, digital enforcement and enterprise use cases will remain healthy with growth for Allot in the years to come. I would now like to summarize the overall picture and key messages. We are proceeding according to our plan and continuing to grow the business. In the Alot Smart product line, we see a strong pipeline. Multiple use cases such as congestion management, digital enforcement, and the enterprise business are growing. Overall, we see a solid demand for Alot Smart. The security area is where we see our long-term growth. We are very encouraged by the pipeline growth we see and by the consumer and SMB take-up rates as they sign up for the service. We signed significant deals for our various products and succeeded in exceeding our MAR target for 2020. While these deals always take time to close, COVID-19 pushed the closure of several deals a bit more. It is also postponing services commercial launch in some of the deals that were already signed. Overall, the pipeline is robust and growing. Across our product line, we see positive signs from the market. To take advantage of these growth opportunities, we decided to continue our significant investment in developing the full breadth of Elot Secure products and our solutions for 5G, as well as in our sales and support teams. Zeeb will discuss the numbers in more detail later. Looking at our backlog, the market demand as we see it now, and the pipeline of deals that we are working on, our revenue guidance for 2021 is between $145 to $150 million, including between $6 to $8 million of recurring security revenues. We further expect to sign additional recurring security revenue deals with an MAR exceeding $180 million. And now I would like to hand the call over to Ziv Leitman, our CFO. Ziv, please go ahead.