Welcome to Allot's First Quarter 2019 Conference Call. I'd 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. Alberto Sessa, CFO. Erez will summarize the key highlights followed by Alberto 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 future performances 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 changing market trends, reduced demand, and the competitive nature of the security systems 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 like now to hand the over the call to Erez. Erez please go ahead.

Thank you, Gavriel. 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 key financial parameters for the first quarter. The first quarter was another quarter of solid growth. Our revenues grew 17% year-over-year for the first quarter. Our non-GAAP gross margins improved from 70% in the first quarter 2018 to 72% for the first quarter 2019, and our operational loss in the first quarter 2019 improved compared with the first quarter of 2018, all this while continuing to grow and invest in our long-term growth through key R&D, marketing, and sales investments. I'm very pleased with the results we achieved during the first quarter and the main message is that we are on track with our plan. We see a growing number of opportunities, we are continuing to win new deals and grow our revenues, and we expect this trend to continue throughout 2019. While Alberto will provide more details on our financials later, I did want to start with our financial performance because it shows that we are on track and successfully continuing to execute on our plan. I would like to turn now to a discussion on our business starting with the visibility and control domain. We're continuing to see an active market here with a growing pipeline of opportunities for our Allot Smart product line. We see similar use cases to what we saw in previous quarters; smart traffic optimization, quality of experience, analytics, and regulatory compliance. During the past few months, we announced deals from several different regions. In Japan, we announced earlier today that we partnered with Rakuten Mobile to provide their Greenfield mobile network with several Allot's products including our traffic management software, NetworkSecure and DDoS Secure products.…

Thank you very much, Erez. Before I begin reviewing the financial results for this quarter and for the year, I would like to inform everyone that on this call, unless otherwise noted, I will refer entirely to the non-GAAP financial measures when discussing operational results, which is what we use internally to judge the performance of our business. Non-GAAP financial measure differ in certain respects from the Generally Accepted Accounting Principle and exclude share-based compensation expenses, expenses related to M&A activities, amortization of certain intangible assets, change in deferred tax and exchange rate differences related to the revaluation of assets and liabilities denominated non-dollar currencies with regard to the financial results. Revenue for the first quarter 2019 were $25.3 million growing by 17% compared with those of the first quarter of 2018. Regarding the details of the revenue breakdown and diversification. The geographic breakdown of revenues for the first quarter of 2019 was as follows: Americas with $4.8 million, or 19% of revenues; EMEA with $10.7 million, or 42% of revenues; and Asia-Pacific with $9.8 million, or 39% of revenues. Product revenues for the quarter accounted to $16 million, or 63% of total revenues compared to $13 million in Q1 2018. Professional service revenue were $0.8 million, or 3% of total revenues, compare to $0.9 million in Q1 2018. Support and maintenance revenue were $8.5 million, or 34% of total revenues, compare to $7.8 million in Q1 2018. Communication service provider or CSP revenues were 83% in the first quarter of 2019, compared to 75% as reported in the first quarter of 2018. I note that revenue breakdown whether geographical or by product segments or other may fluctuate from quarter-to-quarter depending on the specific revenue and deals recognized in the specific quarter. Our top 10 end customer made up 62%…

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Alex Henderson of Needham and Company. Please go ahead.

Hey, thanks. This is Roger Boyd on for Alex. Pretty nice results in the quarter. I'm wondering how does this affect the second quarter, was there any timing related shifts in the quarter. And then on gross margin, was this mainly a factor of more software focused deals coming through? I know you'd spoken in the past about some hardware intensive upfront cost affecting the first half, I'm wondering maybe if that could shift to the second quarter? And then similarly with Rakuten if there is a hardware built out prior to October that might affect margins as well?

Okay. So, first of all, regarding the gross margin, you mentioned gross margin of -- increasing gross margin, and as I said earlier the main reason for that increase in gross margin this quarter is the regulation of bill with high profitability during the quarter. Going forward as I said before, it would be important to understand that we expect gross margin on a quarterly basis to fluctuate and those kind of deals that you mentioned that are yearly hardware related with a lot of hardware, our recognition of them is still to be recognized, meaning that we still have debts in the backlog. From a timing point of view those kind of deals will be recognized probably in the next quarter or the quarters to come, and that will affect the gross margin. Overall, as I said in my -- as I said earlier, we do expect on a yearly base to be on a 70% gross margin.

And just to address Alex your question on Rakuten. Rakuten is building a completely virtualized core network, so we will be providing software, professional services support, but we will not be providing -- we will not be selling any hardware to Rakuten.

Okay, makes sense. And then maybe just qualitatively, I know you spoke a little bit about it, but any other details on customer reception towards the SaaS, OpEx proposals? Do you think that customers are more likely to use kind of the support approach where Telefonica is using SaaS for their SMB business, is that a similar trend you're seeing or -- and I guess you'd like to see the whole deal, but any thoughts there?

If I understood the question correctly, I don't think I can differentiate between customers who are looking at different approach for consumer versus their SMB customers. I think at least what I'm seeing is that there are simply customers that are more comfortable with an OpEx-type deal, some customers are more comfortable with revenue share and some really want more of a capital expense. So it's not so much dependent on the market segment meaning consumer SMB or enterprise, it's more depending on the operator itself.

Okay, makes sense. That's it for me.

The next question is from Marc Silk of Silk Investments. Please go ahead.

Thanks for taking my questions and great progress. Let's say long-term next three to five years out on your security offerings, what do you look -- what's your goal for recurring revenue like going forward like 50%, 25%?

It should be -- I think it should be a very significant portion of our revenues. I don't want to give you an exact percentile for three years out and five years out and so on. But since this is the main growth engine and I expect us to continue to grow at the current pace or even more and most of it will come from recurring revenues, then, yes, this should take up an increasingly growing percentage of our revenues and should be very substantial.

That's a fair answer. And then -- but it sounds like some of your customer base like you said does not necessarily want to do the revenue share, so it's kind of going to be up to the customer going forward is that...

That's correct. Because honestly, if a customer comes to us and is willing to offer -- is willing to do a deal with us, but there's a fair value there for us and for them and they're only willing to do it in the CapEx mode, than we think they will be practical we won't say no, we won't turn them down. But I expect that the way I look at it now I think the majority of customers will opt for some form of OpEx or revenue share agreement.

That's exciting. And my last question on DPI -- oh sorry.

No, I was just saying, it's a lower risk offering for them. And most operators I'm familiar with today have significant CapEx constraints. So that's why it feeds into that.

Yes, because I think recurring revenue is going to be better than your multiple going forward. So my last question is on Deep Packet Inspection. I know you make -- you're surprising us on that, it's not obviously not dead. Can you comment on what's going on in the United States, because there are still question marks as far as how thorough if you want to use Deep Packet Inspection until they have a finite answer from the government?

Well we're seeing more interest in DPI in the United States then at least we saw a year ago. But still this is not something -- and you know we just told you that we announced a deal with Mobilium. It is a DPI deal. It is for a U.S. Tier 1 operator. So evidently there is movement there in the U.S., but it's not huge. I don't see all the major carriers going out and starting to acquire DPI or demand it and so on. We are seeing more interest, but I don't think these are very significant numbers yet for the U.S. market.

Thank you for taking my questions. Keep up the good work.

Thank you.

Thank you.

[Operator Instructions] The next question is from Jeff Bernstein of Cowan. Please go ahead.

Hi, guys. Just a quick one. You talked about the Telefonica launch in Spain being part of a speed capacity and security kind of bundled offering do you have any visibility on what the plans are for Brazil, Argentina, Peru? Are they also going to be in some kind of bundle like that?

We have some visibility but -- and yes, I mean, we have a difference. I'll rephrase that, sorry. We have visibility since we're talking to Telefonica and they're sharing with us at least some of their ideas. On the other hand, I don't -- I can't tell you for sure if that's exactly what they're going to launch. And I'm not sure that they have themselves decided finally exactly how it's going to go. I would expect that most of them will be similar, will be a similar bundle. But I cannot tell you that for sure.

Got you. And then a couple of questions about other stuff going on around the industry around what you're doing. I guess there was something out about Telefonica and its launching its own IoT cyber security unit and business called ElevenPaths. What does that kind of mean to you? Or you just take that as an elevation of interest in this kind of thing for carriers et cetera? And then I had one more.

ElevenPaths is a subsidiary or a business unit of Telefonica that deals in various things but mostly around security. We're working very closely with ElevenPaths. A lot of the work that was done on the managed security service which they have launched in Spain and expected to launch in other places was originated by ElevenPaths and we worked with ElevenPaths on the definitions for that on how the bundle would work how it will work technically and so on. And one of their initiatives or one of the things that they're working on and that we're talking to them about is also how to provide IoT security.

Got you. That's great. Thank you. And then lastly, you have quasi competitors Cyan AG a German company that's focused I guess more on DDoS et cetera and they won a pretty big deal with Orange. Just interested in kind of what went on there and what your thoughts are about that segment et cetera?

I think the Cyan indeed won a deal with Orange. As they won a deal I'm not sure that they won anything on DDoS, I may be mistaken but that's not what I'm familiar with basically they won a deal for the small and medium businesses security with Orange. And yes, it's unfortunate that a competitor of ours has won a deal. I think the fortunate part of it is that you see that more and more operators are indeed going to provide security services to their customers, and we are seeing more traction in the market and that will obviously bring competitors whether direct or with a different offering. Overall for the market, it's good news. What went on there I think we just -- we were not doing I think our sales job as properly as we should have probably in Orange. But we have not given up.

Got you. And I am sorry. I think I misspoke I think it was more that their security technologies is more DNS-based rather than DPI-based?

Yes. It is. It's more DNS-based. The DNS-based technology is one which is inferior in its security capabilities to the in-line security capabilities that we are offering. It is however easier to install into network. So there's a trade-off there. I think that as time goes by, we will see less and less -- we will see less operators willing to go with DNS, because I think honestly, it is less future proof them in line offering that we are providing. The time will tell.

That’s great. Thank you.

The next question is from [indiscernible]. Please go ahead.

Yeah. I think I missed. Erez, thank you very much for taking the call and congratulations for the great quarter and the growth. I wanted to ask you when you gave the anticipation, you anticipated growth for the year, it was about 14% expected. That was very important to whole year 2018, fourth quarter of 2018. And actually now you posted a growth of 17%. So, I wanted to know what does it mean, maybe does it mean that the rest of the year you anticipate a slower growth? Or maybe does it mean that you will give a higher anticipation for the year and if it, what do you think is the higher anticipation?

I mean, the numbers for the first quarter are what they are and that was a 17% growth as we said. For the full year, it’s -- for the full year is affected by various parameters and we gave our guidance to finish the year between $106 million to $110 million, so it's not a specific growth number. If you do the math, it will simply be a range. We still believe that that's the range we will be in. I'm not sure how to further address your question.

What I mean is, if you anticipated a 14% growth, how you gave 17%, so will it be the same percentage of growth in the rest of the year?

No, I didn't -- but we didn’t -- we never said a 14% growth in 2019. We said that the end result will be $106 million to $110 million, which will give a range that we can calculate in a second, but I didn't yet. And we said that the second half will be stronger than the first half, but again, I don't know numerically how to add any more information.

Okay. Great. Thank you very much and the good work.

Thank you.

There are no further questions at this time. Mr. Antebi, would you like to make your concluding statement?

Yes. Thank you. On behalf of myself and the management of Allot, I would like to thank you for your interest and long-term support of our business. Alberto, our CFO, will be in the U.S. next week meeting investors in Chicago and attending the Needham Emerging Technologies Conference in New York. If you would like to meet him, please contact our Investor Relations team we will be happy to meet with you. And I look forward to talking to you in the next quarter. Thank you and have a good day.