Allot Ltd (ALLT) 2013 Q1 法說會逐字稿

Thank you very much, and thank you all for joining us today on our first-quarter 2013 conference call.

My name is Maya Lustig, and joining me today are Allot's President and CEO, Rami Hadar, as well as our Chief Financial Officer, Nachum Falek.

The press release announcing our first-quarter results is available on the Investor Relations section of our website at www.Allot.com.

All results and expectations we review on the call are on a non-GAAP basis unless otherwise described as GAAP.

Non-GAAP net income and non-GAAP net income per share exclude the impacts of share-based compensation, revenue adjustments, future acquisitions, expenses related to M&A activity, deferred tax assets, and amortization of certain intangibles.

Please note that all earnings per share amounts are on a fully diluted basis.

A reconciliation of each non-GAAP measure to its nearest GAAP equivalent is available in the press release containing our first -quarter results.

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 refer specifically to the discussion of our expectations and beliefs regarding our pipeline and funnel of potential future business.

Our actual results may differ materially from those projected in these forward-looking statements.

I direct your attention to the Risk Factors contained in the Annual Reports on Form 20-F filed by Allot with the US Securities and Exchange Commission and those referenced in today's press release, both of which detailed factors, which could cause our actual results to be materially different from those projected in the forward-looking statements.

With that, I would now like to turn the call over to Rami.

Thank you, Maya, and thank you all for joining us today.

Our non-GAAP revenue for the first quarter of 2013 was $24.2 million.

This is the first sequential decline in topline revenue after 15 quarters of consecutive growth.

The primary cause for the sequential decrease in revenues was the [softer fed] in EMEA during the second half of 2012.

This was translated to book to bill below 1 over the last two quarters of last year.

The revenue decline also results from normal first-quarter seasonality, which mainly affects our smaller deals.

However, as service providers continue to show demand for Allot's DPI and value-added services, our book to bill ratio has returned to more than 1 in the first quarter of 2013.

The main contributors to the booking strengths in Q1 were two large purchase orders from Tier 1 mobile service providers in EMEA markets.

The booking momentum in Q1 continued in the current quarter, as we opened the second quarter with a $9 million follow-on order from our US Tier 1 service provider for value-added service offerings.

We are pleased with the progress we are making with this service provider, and hope to leverage our developing business relationship with this client to extract additional business in the future.

Going forward, we hope that our strong pipeline and funnel will support this positive booking trend.

I would like now to give you more color on the recent quarter achievements.

During the quarter, we had two over-10% revenue customers, both of which are expansion orders from Tier 1 mobile operators.

We believe that we have a healthy funnel of expansion opportunities with these customers, mainly due to mobile data growth and adoption of new value-added services delivered by our Service Gateway.

In total, we received large orders from 16 service providers, three of which were from new customers.

12 of these orders were for mobile operators and one of these represented a new mobile customer for Allot.

In Q1, Allot was awarded a $6 million project to provide virtual parental control service to a Tier 1 mobile operator in EMEA.

As previously announced, we were selected by Tata Communications to provide hosted policy management services.

And we secured a $6.5 million steering and VAS licenses expansion order from a Tier 1 EMEA mobile operator.

We believe that these three wins, as well as additional unannounced bookings, clearly demonstrates our efforts and commitment to continue to provide service providers with top-notch VAS, thereby helping them generate additional revenues from their networks.

Nachum Falek will provide more details on geographical distribution; but in general, although EMEA was a significant contributor to Q1 revenue, it's too early to assume recovery in Europe.

The revenue contribution was mainly attributed to a small number of large deals that were recognized this quarter.

Let me share with you some of the insights we are hearing from our service provider clients that might explain the pickup in order momentum.

After spending a large part of 2012 executing cost cutting and layoffs, some of the more advanced operators realized that they need to move past saving and into monetization and differentiation rather than cut-throat pricing competition.

The strategy varies; but common threads around opt-in value-added services, such as parental controls; premium services, such as high-quality video delivery; and early trials with application-based charging.

We believe that the commercial success and rate of acceptance of these new offerings by end-users are important drivers for our future growth.

Our DPI-enabled Service Gateway, with its intelligent scalable steering function, is a natural launching point for these new offerings.

We enable these offerings in two ways -- either in-line to traffic and embedded in the Service Gateway, or following the recent NFV trend by enabling them to be virtualized in the cloud and running on commodity hardware platforms.

Finally, I would like to share with you that Allot has been named the overall market share leader by 2012 by Infonetics Research in its recently published report titled Service Provider DEPAK Inspection Products.

Infonetics has attributed Allot's lead to increased sales in Americas and boosted revenues from Asia-Pacific.

In addition to being the overall market share leader, Allot is also named as the clear leader in the mobile DPI market and the wireless DPI segment, which has been forecasted by Infonetics to grow at a CAGR of 33% rate by 2017.

While we feel more encouraged by our growing booking patterns and funnel of our large opportunities, our future growth is dependent on the timing of large Tier 1 service provider deals.

Typically, these deals are subject to lengthy sales cycle, and therefore, may continue the lumpiness of our booking patterns.

In summary, despite not achieving a positive sequential growth this quarter, we are pleased with our first quarter's achievements that include enhanced bookings, improved positioning and involving mobile segment in North America and our funnel of future opportunities.

I will now hand the call over to Nachum Falek for a short financial review.

Nachum, please go ahead.

Thanks, Rami, and welcome, everyone.

Let me take a few minutes to review the results we published earlier today.

I will be discussing non-GAAP numbers, which exclude the impact of share-based compensation, revenue adjustment due to acquisition, expenses related to M&A activity, deferred tax assets, and amortization of certain intangibles.

Full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued today.

Now, let me walk you through the results for the quarter.

Revenues for the first quarter on a non-GAAP basis were $24.2 million, flat with revenues from the first quarter of 2012 and down 15% versus the fourth quarter of 2012.

As a percentage of our revenues, sales in America accounted for 19%; EMEA, 63%; and Asia-Pacific, 18%.

As you can see, in terms of total amount, EMEA revenues grew by 14% year-over-year.

And as Rami mentioned, we started the second quarter with large follow-on orders from the Americas.

During the quarter, we had two 10% customers, both of which are Tier 1 mobile operators.

Out of total revenues during the quarter, products accounted for 71% and services for 29%.

Gross margins for the first quarter were 74.5%.

Our operating expenses were $17.5 million versus $17.4 million in the fourth quarter and in line with our expectations.

Our total headcount is now 446 people.

For the quarter, we reported earnings per share of $0.02, as OpEx stayed flat versus the fourth quarter, and declines in revenues affected the bottom line, keeping gross margin at the 75% level.

On the balance sheet side, cash balances declined to $135 million, mainly due to working capital needs of the acquired companies, but also due to the fact that the quarter was more back-end loaded than previous quarters.

Please note that the accrual for the Chief Scientist is still unpaid, and the $16 million we accrued during the fourth quarter of last year is still pending payment.

Our DSO was 95 days as a result of the declining revenues and less linearity within the quarter.

Deferred revenues went down by $3 million, mainly due to recognition of prepaid support and maintenance, along with some recognition of revenues from large product deals.

That concludes my remarks, and we will now open the call for questions.

(Operator Instructions) Peter Misek, Jefferies.

This is Billy Kim filling in for Peter Misek.

Just in terms of the funnel that you mentioned compared to last year, what do you see it looking like this year?

And do you see, I guess, do you have any better visibility this year than last?

Peter, I'm sorry I did not hear the first part of your question.

Can you repeat, please?

This is Billy filling in for Peter.

But just in terms of your funnel that you mentioned, the large funnel, I guess do you have any more visibility this year compared to last year?

And is there any sense of the timing and size that you could share with us?

Yes.

With the qualifier that funnel is a subjective assessment of a sales perspective, I've said it in the past one or two quarters that the size of the large deals is substantially larger than last year.

We are now seeing in this last quarter the results of that.

So the answer is yes, the funnel is larger.

In terms of quality and timing, telecom space is still, in certain areas, certainly in West Europe, is under stress.

And therefore, timing is a subject on one hand, budget constraints and on the positive side of need.

So it really depends on the customer and their budget issues.

Got it.

Thanks.

And then one follow-up just in terms of the value-added services, the opportunity there.

I guess, is there any difference that you see in terms of the competition there and how is the lot placed?

Not much different than the competition.

As you can see, we are putting a lot of efforts into enabling, delivering, integrating value-added services, and we believe that this is the right strategy to help our customers monetize their network.

Great.

Thanks, guys.

Thank you, Peter.

Mark Sue, RBC Capital Markets.

It's good to see the return of the book to bill greater than 1. Should we see this combined with your pipeline of activity as the start of the renewal of a lot of projects, which I believe sustain the book to bill trends recognizing that deals are quite lumpy.

Some (technical difficulty) comments there would be helpful.

And then, as we look beyond the near-term, maybe your thoughts as to what you may be able to return your topline growth rate to?

You mentioned that the industry is growing at 30%.

Just kind of getting a sense of what the large orders, what you may be able to grow in your topline.

So, yes, Mark.

Basically, as we said, very large deals, which are a big percentage of our revenue, do introduce a certain amount of volatility.

Actually, one of these large deals we're hoping to close in Q4, and therefore, the book to bill, we are below 1 in Q4.

Now they actually came in very nicely.

We also are encouraged by strong start in Q2.

And beyond that, the sales figure or wherever that everybody is looking to try and close these deals as early as possible, but these kind of deals are how to predict they are not -- they don't follow normal enterprise or channel rules, where these tend to close at the end of the quarter.

So, it's really a game of working these long-term deals, investing enough in future deals.

Some of them take a year or two to mature and you have to walk them, and follow them through and they enjoy matureness.

So for us to continue to come back to topline growth, obviously, we made the first step, which is the book to bill over 1, and that's what we need to do in the future quarters.

Okay.

If I can ask just on the follow-on orders, recognizing it's difficult to predict, are the deal sizes for the follow-ons, are they smaller or larger than you originally anticipated?

Any indications that the carrier customers are trying to do things in a more methodical fashion?

Just any color there.

And then lastly, just market share shift if you feel you're still maintaining, gaining, or whether your position is changing at all at a lot of these carrier accounts?

So, in terms of size of deals, actually seeing in the last quarter two fairly large deals close at the same quarter is certainly nice.

We haven't seen that for a while.

So mainly we are beginning of a trend of seeing more in large deals.

Usually we try track our business in three categories -- deals which are below [a quarter of $1 million] and there's obviously many of them.

We define large deals as deals above [a quarter of $1 million] to $1 million, and that's a number of 16 large deals.

And then the two or three very large deals are strategic deals.

So if you look over the past two or three years, definitely deal size is growing a lot.

In the past, we used to define large deals as anything above $100,000 and we kept raising the bar.

And if we continue the trend, we opened in 2013 where we are seeing numerous multi-million-dollar deals in a single quarter, then we are certainly on the right path.

In terms of the market share, definitely in the past three years, we have gained market share.

In this last quarter, I believe we are more or less maintaining our market share for the past quarter.

But in 2012, as I mentioned, we are recognized, I believe, a year late as the market share leader.

Okay.

That's helpful.

Thank you and good luck.

Thank you.

Alex Henderson, Needham.

So I know you guys don't like to give guidance, and I'm not going to ask you to try to do that, but relative to where The Street is and the way people have been thinking about it, starting off the year down 15% is a little steeper decline than normal.

Would you think that that is indicative that people are too aggressive on their numbers, since it's 10% to 12% below what The Street were forecasting, and therefore should bring their numbers down for the year?

Would you think that that's something that is indicative of a soft start, but not indicative of a full-year trend, and therefore, people ought to be more inclined to leave their estimates where they were?

How should we be thinking about the sequential pattern here?

Because you're seeing an acceleration and it's at least people with a tough decision on what to do with the numbers here.

Just any sort of color around your thinking there would be helpful.

I know you don't give guidance.

I'm not trying to get you to go over that cliff.

Well, you know we share with The Street as much raw data as possible for everyone to form a valid opinion.

The current quarter results are obviously the outcome of two consecutive quarters of book to bill below 1. We had some deals in the funnel that were a race to the finish in terms of achieving recognition and taking this quarter as well.

So we could have finished them potentially with higher numbers.

So, while 15% sounds nothing significant, for us sometimes it's the whole difference between one project of getting installed and accepted or not in the last, say, one or two weeks of the quarter.

The one thing I can say what I've shared already is, the only way to predict the trajectory of our revenues is to follow the book to bill patterns and the booking announcements.

And I can say that we opened the year very positive, both with Q1 bookings and a good start into the Q2 quarter, although it's very early.

But certainly a good start there as well.

That's very helpful.

Thank you.

So, can you talk a little bit about your win rates during the quarter, and what portion of your business was against pure play competitors versus integrated routed competitors?

And how that might look different from prior periods?

There was quite a lot of competition in the quarter, but these were more in the large or the medium-sized deal in categories.

The three large deals we discussed are the two EMEA deals and the US mobile deal were all a continuation.

So, although sometimes customers, they weigh their option before giving you an expansion order, typically it goes to the incumbents, both with us and with our A competition.

But we had a fair amount of wins in the medium-size category, and we are getting a nice share of the deals.

But they are usually, if we lose a deal, it's related to pricing issues that we would not go below a certain level to maintain our 75% gross margin.

We believe that that's detrimental to ourself and to the DPI space in general.

So if we lose a deal, usually it's on price where we decide to walk away.

If it's down to our product and technology, our ability to support customers, our presence, we usually score a -- we make it to the short list and usually we score very high on these items.

And integrated routers versus pure plays?

What kind of mix of competition are you seeing?

Yes, we haven't seen any, let's say, a leap of improvement in terms of what we call the thin layer dpi embedded in existing routers or GGSA.

And so things are stable, and I believe that the trend continue where us and our competitors continue to gradually convert fixed and mobile customers who are either not doing dpi at all, or are just being satisfied with limited dpi from their router vendors, and switch over to standalone solutions.

As I said in the past, it's still true.

In most of the cases, almost in all the cases where there is an RFP that goes out for dpi, it's usually a stand-alone player that wins the day.

So I believe that we are gradually continue to convert the carriers from integrated to standalone, realizing the enhancements of and improvements of best-of-breed solutions.

One last question and then I'll cede the floor.

So, Bytemobile apparently had a somewhat weak quarter.

Did you take any business from them that might account for that?

And has the Service Gateway approach started to hit a critical mass that's changing people's perceptions?

And is that evident in any of the mix of business here?

Thanks.

We haven't seen much of Byte yet.

We are making our first inroads.

The point where we have overlap with Byte is obviously with our new video optimization solution.

We're making our first steps into this market, so, therefore haven't yet encountered them in a competitive environment.

Sooner or later, it will happen.

Although Byte is a mixed layer, a mobile Internet gateway product versus our Service Gateway, the slew of offerings between us and them is very limited at this point.

I believe that eventually we will start to do more overlap and then we'll be more competitive.

But right at this time, we are not a source of Byte's issues.

Thank you.

Thank you.

Matt Robison, Wunderlich Securities.

Thanks for taking the question.

First question from me is if you could kind of comment on the material -- how material the caching and optimization was in the fourth quarter?

And then I'd like to get your perspective -- get some color on how meaningful, from a mixed standpoint, analytics and traffic steering were for revenue, and how you expect them to affect your bookings?

So, Matt I will need to disappoint you.

We have made a conscious decision to limit the amount of details and specifics on which value-added services are doing well and which are not in the marketplace.

Given our leadership at this point, we have noticed that a lot of companies are following in our footsteps with this strategy.

Some companies are actually are not even just in the DPI space but in other spaces, looking to follow this same strategy.

So we will not provide more detail.

We have shared in the recent press release this very large $6 million project for parental control.

We did that to kind of launch a new offering from Allot for the first time, which is parental controls.

Moving forward, we are not going to provide a detailed breakdown.

To give you some qualitative measurements, obviously, parental control is a newcomer and brought us a very large deal.

It's totally, you know, the excellent VAS of the quarter.

Steering obviously did very well.

Actually in these deals, steering was sold alongside parental control, as we are the main function to steer traffic and users to the relevant servers.

Caching data, fairly okay, followed by optimization, which still needs a little bit more cooking time before we enter the market in a more serious manner.

So, analytics hasn't been a factor for you?

Sorry?

You didn't touch on analytics.

Was that not a factor for you yet?

Yes, it's starting to grow.

Again, I cannot get into details into which deals, but analytics is starting to become a double-digit element in our revenue and booking patterns.

And the caching and optimization was down significantly from what it provided in the fourth quarter?

No, I didn't say that.

I said caching was -- did an okay quarter and optimization somewhat lower.

But as we guided last quarter, optimization is the new market.

Technology is very disruptive and challenging.

It's an earlier market, so the ramp-up has been slower.

It's already generating revenues but slower than caching.

Caching is a more mature market.

The value proposition is more obvious.

And therefore, caching carried its weight and met our expectations this quarter.

Optimization is a little bit lower, but we certainly expect it to recover later in the year.

So, the point in the -- maybe we might call it core business -- that's deployed it through acquisitions was at least as severe as the overall revenue declines?

Say again, Matt, sorry?

The decline in the core business before the two acquisitions was at least as severe as the overall revenue decline?

Let me put it this way.

At this time, some of, for example, in caching deals, already deals have come in mixed with our Service Gateway.

So it's how to differentiate, but I can say that compared to, let's say, at least Q4 of last year, core business in percentage was equal or better, if you like.

Okay.

Okay, thanks.

I'll leave you with this note, Matt.

As you know, trying to analyze our business on a quarterly basis is subject to a lot of fluctuations.

I would wait and see deeper into the year before I try to analyze trends.

Understood.

Thank you, Matt.

Kiera Kilkowski, Bank of America.

Thank you for taking my questions.

I just had a couple of quick ones for you.

First on the Tier 1 mobile US customer order that you said you got in 2Q, did this include value-added services?

Or is it just sort of the entry monitoring services?

And then second, I'm sorry if I missed it, but on the liability for the Chief Scientist, I was under the impression it was going to be paid back this quarter, and it looks like it's still on the balance sheet.

Thanks.

I will let Nachum answer the second part of the question.

The first part -- the one thing we will say is that the US Tier 1 mobile operator, the order is mainly around a certain value-added services, which obviously, we'll not go into detail.

But it is around -- it's not a classical DPI deployment but more around the value-added service.

Nachum, for the first -- second part?

Yes.

So, Kiera, we did the accrual last year, the fourth quarter of 2012.

The payment is still due.

We will probably pay either on the second or the third quarter.

I don't know exactly when; it's a question of getting to the exact amount and exact timing with the Chief Scientist.

So, it'd probably be either toward the end of the second quarter or third quarter.

That's the estimate right now.

Okay, thanks.

Thank you.

Catharine Trebnick, Northland Securities.

Thanks for taking my question here.

Rami, this is for you.

Do you think some of the EMEA weakness could be attributed also to LTE, carriers getting ready to deploy that?

And my other question on this is, there is significant Wi-Fi deployments across Europe.

Do you think that might have also slowed down some of the bookings last year?

And then, the software defined networking overhang, you did discuss a little bit of Tata and moving to the cloud.

So could you pretty much take those three little items I went through and discuss how that is impacting you, or not impacting you, going forward?

Thank you.

So, let's start with easier.

Wi-Fi access, although being discussed a lot, only very few carriers are actually doing a major rollout of their own.

And in any case, haven't, to the best of my knowledge, haven't affected any of our business.

Actually in one of our top pay mobile customers in Europe, they are running not only their 3G and LTE traffic through our Service Gateway, but also their Wi-Fi traffic.

So, no issues there.

Regarding LTE, we have noticed that once a service provider is engaged in rolling out LTE, it does become a number one mission in the service provider operational agenda.

Having said so, the amount of time LTE actually caused the customer to come back and wanting to open up new mobile switching centers, and buy more Service Gateway, is about equal to the amount of times we've heard, well, we are busy now with rolling out LTE; I'll come back in two quarters.

So I would say, it's a wash.

On one hand, it could delay, and the other hand, it's more bandwidth, more equipment, a new network, and usually it eventually translates into expansions in our product.

Regarding SDN, it's still in early days; very natural codes for us, as we are making our first stepping towards the end is already offering our customers to launch a value-added services over SDN solutions.

And that's a natural evolution step for us.

And we plan to ride this wave as it evolves over time.

Right now, it's more like an enabler and a differentiator.

But end of the day, what says is really value-added services and use case.

And whether you do it in-line and over our Service Gateway, which is running on industry standard APCA or on NVF, at the end of the day, what it says is the value-added services.

NFV is just an enabler.

Okay, thanks.

And then on a competitive front, have you -- what would you say that you see most in the bake-off?

And have you seen F5 is out with their policy in force module?

And I'm wondering if you're seeing them or any of the other ones in some of your bake-offs?

And who do you run into the most?

And then is it different in different geographies?

Well, we haven't seen F5 in a lot of deals yet, so I believe it's early days for their traffic shaping/DPI blades.

I would right now just put them in some kind of a similar category to the router and GGSM vendors.

So, not much of F5 yet.

Regarding others, as I've stated many times in the past, I wake up and worry about the routing GGSM guys with their embedded offering rather than the pure play folks.

I believe that the market is large enough and we can all three grow fast enough, if we do well against the incumbents.

So that's by default where we encounter the Ericsson and Cisco's of the world with their thin layer dpi; certainly in the mobile space that's the number one competition by far.

All right.

Thank you very much.

Thank you, Catharine.

Have a good day.

Joseph Wolf, Barclays.

A question about the value-added services.

I think you've given the percentage of value-added services of revenues in the past.

I'm wondering if you could give that again for the quarter?

And then, as the services grow, and specifically with the parental control, how much of what you're selling as value-added is homegrown versus bundled external packages?

And what does the external side tell you about exclusivity for Allot or -- and/or your desire to buy some of these value-added service players?

So we have -- thank you, Joseph.

We haven't given a breakdown of value-added services in this quarter.

I can tell you that it's a fairly high -- probably a record, given the recent announcements and the high content of value-added services in our recent large deal.

As I mentioned to Matt, very dangerous to analyze these breakdowns just in one quarter.

So let's -- I'll take it a little bit more into the year before we see some continuous trends and percentage.

Last year, if you want, value-added services were roughly 15% to 20% of total revenues.

I believe that if we continue the trend as in Q1, probably this number will increase substantially into 2013, certainly, with our new acquisition kicking in.

Remind me, the second part of your question?

I'm just wondering, in that number, there's some of it, which I think is Allot-owned and so much is bundled external providers.

I'm wondering about exclusivity, and then potentially how you think about acquiring the ones that are not homegrown?

Yes, so we've said it many times in the past.

We get our value-added services from three sources -- homegrown in Allot; the outcome of acquisitions, like video optimization and video caching; and occasionally, a combination of need and market trends we would partner.

Right now, the majorities are either home-grown or in acquisition.

But here and there, we certainly do not shy away from partnerships, obviously with the appropriate measures to protect our position as we introduce this VAS into the market.

Okay.

And then I guess just another attempt in terms of trajectory and the potential growth in the market, given how you've looked at the opportunity here.

If the decline in the first quarter was a combination of two quarters of book to bill less than 1, do we need two quarters or three quarters of book to bill greater than 1 to see a real snap-back in the level of revenue?

Or is that too pessimistic?

You know, book to bill over 1 or below 1 can also vary in terms of how much below 1 and over 1. Without giving specific guidance, but I would say that if Q2 is a strong booking quarter as well, then we should see a pickup in revenues as well.

Okay, thank you.

Sanjit Singh, Wedbush.

Thank you for taking my questions.

Regarding booking versus revenue, you've announced some pretty large orders this quarter, and I was wondering how spread out are these deals?

How much revenue has been recognized from these three wins?

I think, including the US service provider win this quarter, is this all future revenue opportunity?

Or how is this spread out over the next couple of quarters?

Yes.

So I think that we mentioned that the first two orders we guided in the first quarter and we cannot get into specific how much, and if at all we recognize in the first quarter.

But it's clearly that the 9 million follow-on orders that we got in April, this is business for second, third quarter other than we didn't recognize anything during the first quarter.

I appreciate it.

That's helpful.

And regarding the follow-on order in the US with the Tier 1 win there, what were the factors that drove that follow-on?

Is it more of a geographic expansion?

Is it an additional value-added services?

I know you can't get into detail, but what's driving -- what drove the follow-on order activity?

And how much of an opportunity is left going forward?

So it's a combination of the need continues to grow.

The customer is satisfied with our delivery of the first phase of order that we got last year.

And finally, it is a geographical expansion.

So we are now in a larger part of the network.

Any sense to penetration of the opportunity?

Are we halfway down?

Or is there any way to quantify that?

I can't get into that, but there's plenty of room to grow, both in geography and in functionality.

Thank you very much.

I appreciate that.

Thank you.

Dov Rozenberg, Clal Finance.

Hi, Nachum and Rami.

Thanks for taking my question.

Looking into the rest of the year, we talked a little bit about market share, et cetera.

I was wondering, do you expect to look to grow as fast as the dpi market?

Again, without qualifying this as a guidance, looking at our execution in the past couple of years, I expect Allot to grow at least as the size of the market, if not more.

Now, let's be careful here.

I've quoted the Infonetics and expectations on market growth.

This is not our guidance.

As the market does grow, as we execute in the past couple of years, I expect to grow at least, if not more, like in previous years, where we have gained market share.

Okay.

Would you say that growth going forward is more from existing customers or new deals that are out there?

It was always a combination.

In the past, we talked about probably a typical quarter, anything between 60% to 80% comes from follow-on orders from existing customers, and only 40% to 20% comes from a new account, setting aside certain quarters where a big account comes in for the first time.

So, any good quarter is the combination of follow-ones, which are more predictable and more manageable than new deals.

And -- but you can't do a good quarter without getting some new deals as well.

Okay.

And also looking on to -- you talked a little bit about value-added services.

And looking as a whole here, not into any specific feature, it seems it sort of feels from the deals, and also the one in America now, and also the $6.5 million in EMEA, et cetera, that value-added services as a percentage of revenues has really grown to be a substantial part.

Do you do any internal differentiation, even if not telling us between, let's say, core dpi and value-added services?

And do you see that becoming a more substantial growth driver?

Yes, the way we plan to redefine the dpi space is, we see dpi not as a space but actually as a great technology and enabler.

What we sell to our customer is a Service Gateway and natural point.

A dpi-enabled Service Gateway, where it's a natural point to launch value-added services, either from us in the means I've stated before, or even sometimes we are in partnership or an integration basis with their favorite VAS provider within their existing network.

When we provide it, dpi brings a lot of efficiency into launching value-added services, because coupled with steering, we are able to redirect only the relevant applications, only the customers who opted in, do load balancing, health monitoring, and really make sure that the process of launching and maintaining these value-added services is easy and painless, and less expensive as possible.

And this is why I think we are seeing pickup of customers coming up for value-added services, even if it's in a partnership basis.

Okay.

Last question, just sort of bookkeeping.

Of the OCS grant, the $16 million, has any of it been paid?

Or it's all still pending?

And when do you expect that to actually pay it off and erase it from the balance sheet?

Yes, so the entire payment is still pending, and right now it looks like we're going to pay it toward the end of the second quarter or the third one.

Got it.

Okay, thank you.

Thank you, Dov.

(Operator Instructions) We have no further questions at this time.

Okay, everybody.

We would like to thank everyone for participating on the call and we will see you on our next conference call.

Thank you.

Bye.