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Operator
Thank you for standing by, and welcome to the first quarter earnings conference call. At this time all participants are in a listen only mode. There will be a presentation followed by a question-and-answer session. (OPERATOR INSTRUCTIONS) I must advise you that this conference is being recorded today Wednesday, the 9th of May, 2007. I would now like to hand the conference over to your speaker, Mr. Jay Kalish. Please go ahead, sir.
Jay Kalish - Executive Director IR
Thank you very much. Want to welcome you all today to our call. During this call we will discuss Allot's financial results for the first quarter of 2007. With us today are Allot's President and CEO, Mr. Rami Hadar, as well as Mr. Adi Sapir, the Chief Financial Officer. Yigal Jacoby, our Chairman, will be joining us for the Q&A portion of the call. During this call Rami will first provide highlights of our first quarter performance. Adi will then walk you through the financial results, and then Rami will review some of the market trends and key indicators for Allot's business going forward.
Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements which reflect management's best judgment based on currently available information. I direct your attention to the risk factors contained in today's press release and in the reports filed by Allot with the U.S. Securities and Exchange Commission. I would now like to turn the call over to Rami.
Rami Hadar - President & CEO
Thank you, Jay, and welcome everyone to the call. As we had previously announced, we were disappointed with our results for the quarter. Revenue for the first quarter totaled $8.3 million in accordance with our revised guidance. During our call last month I discussed some of the factors which impacted our business during the quarter. On the positive side of the ledger we are progressing nicely with our Tier 1 and a Tier 2 opportunities.
The NetEnforcer AC-1000 and AC-2500 continue to be widely accepted among Tier 2 service providers. Our next generation platform is being designed to meet the growing list of Tier 1 opportunities. (technical difficulty) issues in a few minutes. I would first like to hand over the call to Adi for a review of the financial results for the quarter. Adi, please go ahead.
Adi Sapir - CFO
Thank you, Rami. Good morning, everyone. Let me take a few minutes to analyze the result we published earlier today. I will be discussing non-GAAP numbers, which exclude expensing of stock option required by FAS 123(R). We provided a full reconciliation between the GAAP and the non-GAAP numbers in the tables accompanying the press release we issued earlier today. Let's take a look at the first quarter results.
Revenues for the first quarter totaled $8.3 million, a 14% decline from the fourth quarter $9.6 million results, and a 9% increase over the $7.6 million revenues reported in the first quarter of 2006. On a geographical basis revenues for the first quarter broke down as follows. EMEA, 41%, America's 29% and APAC, 30%. Out of total revenues during the quarter products comprised 79% and services 21%. The increase in service revenue is directly related to our increasing installed base in our effort to increase support and maintenance (inaudible) as well as professional services program.
Gross margins for the first quarter were approximately 76% as compared with approximately 77% in the [first] quarter of 2006. A slight decline was due primarily to higher product sales and operational costs. This, however, remains in line with our long term model for the gross margin of between 75% to 78%.
Net R&D expenses in the first quarter totaled $2.4 million as compared with $1.8 million in the [first] quarter of 2006 and were 29 and 19% of revenue, respectively. As we discussed last quarter, R&D expenses increased as we accelerated our R&D program in particular for the next generation platform. The increased R&D expenses are due to additional personnel, salary increases (inaudible) at the beginning of 2007, declining grants from the office of the chief scientist and an (inaudible) U.S. dollar and (inaudible) shekel ratio. R&D expenses are expected to remain at similar dollar levels throughout 2007.
Telemarketing expenses totaled $4.1 million in the first quarter as compared with $4.3 million in the [first] quarter of 2006. 39, 45% of revenue respectively. Going forward we expect sales and marketing expenses to grow slowly through the remainder of the year with the addition of sales personnel, increased sales commission and increased marketing activities.
G&A expenses totaled $900,000 in the first quarter and in the [fourth] quarter of 2006, 11 and 10% of revenue, respectively. Going forward we expect the G&A expenses will be higher than current levels in subsequent quarters of 2007 as the result of increased personnel and professional services. As a result of all this our operating losses for the quarter were $1.1 million. Our net loss for the first quarter totaled $112,000 or breakeven on an EPS basis as compared with net profit for the fourth quarter of $732,000 or $0.04 per diluted share.
Our share count increased to 23.5 million shares at the end of the first quarter primarily due to the full inclusion of the shares issued in our IPO during the last quarter. Our total headcount at the end of the fourth quarter of the quarter, sorry, was 243 employees, up an anticipated from 236 employees again at the fourth quarter last year, mainly due to the additions in R&D, sales and marketing.
On the balance sheet side total cash and cash equivalents totaled $18.5 million, a decline from $83.3 million at the end of the last year. The decline in cash was (inaudible) platforms; increasing inventory and increasing trade receivable as a result of receiving large portion of orders throughout the end of the quarter, increases in other receivables and investment in CapEx mainly for R&D. Sales receivables was $6.4 million at the end of the quarter resulted in 70 days sales outstanding and this over our long-term target of 50 to 60 days. This again relates primarily to the back ended nature of the quarter.
Deferred revenues at the end of the quarter amounted to $6 million, of which $4.3 million were short-term. This represented a $600,000 increase over the previous quarter. This relates primarily to the increased (inaudible) sold but not recognized during the quarter. As you may be aware the dollar continues to slide against the shekel during the quarter. During the first quarter this had a $100,000 negative impact on our net income. So if this decline continues it will affect our results going forward. This is because most of our revenues are in U.S. dollar while a significant portion of our OpEx primarily salaries, are denominated in shekels.
With respect to the EPS guidance keep in mind that a lot of small share count, as a result EPS is particularly sensitive to even small fluctuations in our results. Even fluctuations as small as plus or minus 5% in revenues foreign exchange rate could result in up to a $0.20 difference in EPS. As a result it is difficult to derive quantitative EPS at this time. That concludes my remarks, and I'll now turn it back to you, Rami.
Rami Hadar - President & CEO
Thanks, Adi. I'd like to start by taking a few minutes to explain the portions of our business and overall revenue model. Within our large customer business we derive our revenues into large accounts that include mainly carriers, large service providers and some large government and enterprise accounts. These accounts are our most focused growth area but still too (inaudible) by system integrators and some of our channel partners, they also include significant direct touch involvement of our salespeople.
In Q1 this portion of our business grew significantly over the previous quarter. We anticipate that sales to these type of accounts will become the larger portion of our business going forward. The other portion of our business consists of channel driven accounts that are split amongst small service providers, education and small enterprise accounts. During the quarter some of these channels experienced weakness, which was the primary cause for the lower than anticipated revenues.
Overall sales to service providers both large and small account for the majority of our business. This quarter our large accounts included 5 fixed line service providers, 2 mobile operators, 1 incumbant telecom operator and 5 government accounts and large financial institutions. Our customer list also includes dozens of small service providers. In addition to these areas of our business we spent significant resources on the opportunities in the Tier 1 service provider market. We are encouraged by the continued activity and trends we are seeing in the market as Tier 1 carriers are more actively looking to deploy deep packet inspection solutions in their networks.
The initial driver for deep packet inspection solutions in this market is to realize CapEx and OpEx savings. However, an increasing number of Tier 1 carriers are looking at deep packet inspection solutions to offer tiered services to the subscribers as a new way to generate revenues. As (inaudible) was paying for services has been accepted by consumers, Tier 1 carriers are now looking for new revenue opportunities by copying this business model particularly now that they are making major capital outlays over the next few years to deploy next generation IP networks.
Current examples of tiered services that are attracting the increase of Tier 1 carriers are premium voice over IP and high quality video streaming. We are investing significant resources to strengthen our signature library to meet this trend. As a result of this, we are seeing additional RFP and outside activity in the Tier 1 markets throughout the world. Our equipment has already undergone extensive testing in some of these accounts. Our AC-2500 has performed well while passing a number of these (inaudible). In addition the initial feedback on our 20G product roadmap from several Tier 1 carriers. Our plan to begin rollout of this product during the first quarter of this year is still on target.
On the guidance front last month we adjusted our new guidance for approximately $40 million for the year 2007. This was primarily due to the weakness I described in some of our channels as well as our continued focus on large projects. Revenues from these larger projects are lumpy in nature making it difficult to predict quarter-over-quarter (inaudible). This is the main reason that we will provide annual guidance.
Despite the revenue shortfall during the first quarter we strongly believe in the middle to long-term opportunities in the deep packet inspection market. As a result we intend to continue to invest in R&D and sales and marketing in order to exploit the emerging opportunities. We believe that these areas are critical to our long-term growth model. At the same time based on assumptions I discussed earlier, we intend to remain profitable for the year on a GAAP basis.
Before concluding, I am pleased that Doron Arazi will be joining Allot's management team assuming the role of CFO as of September first. Doron comes to us with a wealth of experience in public companies. At Verint Systems he was responsible for all the Israeli companies and other foreign subsidiaries, financial legal issues including strategic planning, mergers and acquisitions, project planning, budget planning and control, treasury and accounting department as well as U.S. securities laws compliance issues. As we announced earlier, Adi will be staying involved during the transition period. We will now take your questions. Operator, please.
Operator
(OPERATOR INSTRUCTIONS) Cobb Sadler.
Cobb Sadler - Analyst
I have a question on the enterprise business. I heard your commentary on the conference call; during the call, but could you tell us roughly how big that is as a percentage of overall revenue? Could we just start there? Thanks.
Rami Hadar - President & CEO
As we said in the past, we don't give an exact breakdown between service providers and enterprise. I would say, as we said in the past, the majority of our business is service providers. The issue is that one, there is not a definite financial distinction between service providers and enterprise. To give you an example, as a university catering to students and faculty an enterprise or a service provider or a major datacenter or a chain of hospitals providing ISP services to all of their remote offices, is that an enterprise or services provider? So the line is not exactly distinct. The best I can answer to you, Cobb, is the majority of our business is service providing.
Cobb Sadler - Analyst
Okay and that enterprise business, weak in the quarter but how should we model that? Is it more of a flat business, a down business, or do you think it could at some point return to a growth business?
Rami Hadar - President & CEO
First thing we are emphasizing it is actually the small segment of the enterprise, the smaller deals are what you are referring to. Basically I would say that they actually did not grow as we expected. So it is not a decline but not as growth as we expected.
Cobb Sadler - Analyst
Okay, great. And just one last question on your major customer, NTL, it is small revenue now. We knew that. Do you see the competitive threat there at NTL? I think there has been some scuttle in the market that when they do start buying again that other vendors may be well-positioned, but could you just get us clear on that, and that will be it. Thanks a lot.
Rami Hadar - President & CEO
Thanks, Cobb. Yes, not at all. Right now we are very deep relationship with NTL. They are deploying our system, deploying it and bringing it up as we speak. I don't think there is any immediate need for new equipment and thus I don't think the issue of competition is even relevant. But when it will be, if it will be, I think so far NTL is very pleased with our performance.
Cobb Sadler - Analyst
And they are telling you (inaudible) or could you talk about how that is going? Or can you talk about that?
Rami Hadar - President & CEO
Well, right now we have yet to start trying to (inaudible) big box. What we have said as we've mentioned on the script, we have showed the details of our roadmap and the main features and functionality of our products with certain of top customers, NTL being one of them, and as we've said on the script, we have received very positive feedback on our roadmap.
Cobb Sadler - Analyst
Great. Thanks a lot.
Operator
Tim Luke.
Unidentified Participant
This is Lynn calling on behalf of Tim Luke. You mentioned that you've been seeing some Tier 1 carrier RFPs continue to uptick. I was wondering if you can give us a sense of how many new ones you've seen, and perhaps time frame around decisions around those RFPs, as well.
Rami Hadar - President & CEO
I don't have the exact number on my head, but almost every two or three weeks a new one lands in our inbox. So I am aware of at least two new ones in the past quarter. But again, it could be more. Obviously I am not seeing all of them. But there is maybe 20 of top Tier 1s around the world, and many of them are in various stages of evaluating deep packet inspection technology.
Unidentified Participant
Great. Okay. Thank you very much.
Operator
(OPERATOR INSTRUCTIONS) There are no further questions, sir. Please continue.
Rami Hadar - President & CEO
Thank you all.
Jay Kalish - Executive Director IR
Thank you all for joining us today. As you may have heard we will at several investor conferences over the next week. We will be in New York tomorrow, and we will be in San Francisco next week. We look forward to meeting with you and hoping to share better news in the coming quarters.
Operator
That does conclude our conference for today. Thank you for participating. You may all disconnect.