Allot Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the Allote Conference Call to discuss today's announcement, Allote's Results Conference Call. All participants are 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, please check the company's website at www.allote.com or Call EK Global Investor Relations. I would now hand over the call to Allot Investor Relations Officer, Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Thank you, Operator. Good day to all of you and welcome to Allot's conference call to discuss the results of the first quarter 2024. I would like to thank Allot's management for hosting this conference call. With me on the line Following AL's prepared remarks, we will then open the call for the question and answer session, and both AL and Ziv will be available to answer your questions. You can find the highlights of the quarter, including the financial results and metrics, including those we typically discuss on the conference call in today's earnings press release. Before we start, I'd like to point out the following Safe Harbor statements. This conference call contains projections of other forward-looking statements regarding future offence or the future performance of the company. Those statements are early 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 changing market trends, delays in the launch of services by Allot's customers, reduced demand and the competitive nature of the security services industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. And with that, I would now like to hand the call over to Eyal Harari, CEO. Eyal, please go ahead.

Thank you, Kenny. I would like to welcome all of you to our first quarter 2024 call, and I would like to thank you for joining us today. I joined a lot as the CEO a few weeks ago, and I am super excited to work with the board and the entire leadership team to drive a lot to success. I am devoting my time to learning, listening, and planning the best strategy for the company to achieve long-term profitable growth. I bring over 20 years of experience working with top-tier telco customers, most recently as CEO of Radcom and as the company, a leader in automated service assurance solution for telecom operators running 5G and 4G networks. Already in my first few weeks, I see an amazing organization with great potential, with professional people who are highly experienced and motivated. I see a company with a long tradition of innovation and excellence, with fantastic technologies, and a base of top-tier leading customers. In addition, we have a growth engine which has already shown strong double-digit revenue growth, and I believe it has significant long-term potential. Over the coming month, I will be focused on learning about the business and opportunities, as well as meeting our key customers and partners. I intend to work with the board, the leadership team, and employees to ensure that we fully capitalize on the opportunities that will drive the company to achieve long-term, sustainable, profitable growth. I decided to join Allot as I see a bright future ahead. I believe strongly in Allot's potential. While I joined only after the first quarter was already over, I will provide a short summary of the first quarter results. A lot made progress in the quarter towards reaching the breakeven level in terms of operating profit and net cash flow. To summarize, first quarter revenue was $22 million, 4% ahead of Q1 last year. Gross margins returned to the 70% range. a strong improvement over the average gross margin in 2023, which was 60%. Stable revenue in true gross margin and a significant decrease in operating expense, which were 25% below those of the first quarter of last year, brought us much closer to the break-even level. We reported an operating loss of $1.4 million, negative cash flow of $2.4 million, and EBITDA loss just below break-even at $0.1 million for the quarter. We saw our growth engine SICAS achieve revenues of $3.4 million, up 48% year-over-year. In March, the CCAS ARR was 13.7 million, 47% higher than our CCAS ARR as of March 2023. CCAS revenue now makes up 16% of our total revenue and are becoming a more important part of the overall revenue mix. We continue to see CCAS as our growth engine, and we believe it will continue to grow as a percentage of revenues. With the goal of driving improved performance and profitable growth, the company has made significant changes in recent quarters. There have been several rounds of cost-cutting and restructuring through the last year, and as a result, we have significantly optimized our operational expense and lowered our break-even point. Allot's full-time employees count as of March 2024 was 505 compared to 749 at the end of 2022. Employee headcount has been reduced by 35% since the peak in September 2022. Our goal is to bring business to break-even during 2024. At the same time, we intend to maintain disciplined investments in the parts of our business that we believe will drive profitable long-term growth. I would like now to provide you with a short update on the two business lines, a lot smart and a lot secure. On the allot smartphone, I believe we have highly competitive product. However, there remains market weakness due to the cutbacks in spending by our customers as well as challenging macroeconomy trends. Looking ahead, we have a healthy pipeline with good mix of opportunities in different stages and across different territories. Despite the reduction in overall resource due to the cost-cutting initiatives, we have increased resources for Allot Smart Sales in very specific areas where we believe that we can capitalize on the pipeline. On the Allot Secure front, CCAS revenues continue to grow at a high double-digit rate with a Tier 1 customer base. From what I have seen so far, Allot Secure is a very effective and highly differentiated product. We are a market leader in network native security solution for the mass market. The clearest evidence of our leadership and the differentiation of our product is the significant list of Tier 1 customers who have launched network native security services for their customer, including Verizon, Vodafone, Telefonica, and Hutchison, just to name a few. This strong customer base to the quality of our solution and demonstrate the long-term potential to further expand within these customers as well as additional Tier 1 accounts. I see Sika's solution as a key potential long-term growth driver and believe we are well positioned with existing customers as well as potential new customers. We are focusing our efforts on our existing Sika's customers. and help them expand their customer base to whom our services are offered. For new SICAS customers, we are being very selective and focusing on specific strategic opportunities. Our most exciting launch in 2023 was Verizon Business, which successfully launched its network-native security service, incorporating Galot Network Secure. The launch is going well. and today Verizon is the largest signed CCAS opportunity for a lot. The number of customers continues to grow, and we are discussing with Verizon several potential expansion opportunities for different customer segments. We remain excited about the long-term potential of our CCAS growth engine. We see CCAS opportunities as operators continue to be interested in launching network-based security service with our differentiated, scalable solution. Before we move on to the Q&A, I want to highlight that our CFO, Ziv Leitman, will be leaving Galot at the end of June. And joining us will be Liat Nahum as the new CFO. Liat brings more than 20 years of experience, great talent and skill, both in finance and business leadership with top-tier high-tech companies, most recently at Amdocs, a public NASDAQ-listed multinational telecom technology company. I am confident she will significantly contribute to our finance and business strategy ahead. On behalf of the employees, management, and the board, I would also like to thank Ziv for his four and a half years of financial leadership and wish him every success going forward. In summary, I am optimistic that Allot will execute on its opportunity to drive sustainable, profitable, long-term growth. untapped potential, a high-experience and motivated workforce, strong technological edge, a powerful growth engine, and range of top-tier leading customers. I look forward to capitalize on our strengths to fully realize the opportunities ahead. And now, I would like to open the calls for Q&A, and Zivit and myself will be available to answer your questions. Operator?