Allot Ltd (ALLT) 2017 Q1 法說會逐字稿

Welcome to Allot Techonology's First Quarter 2017 Results Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

You should have all received by now the company's press release.

If you've not received it, please contact, Allot's Investor Relations team at GK Investor and Public Relations at 1-646-688-3559, or view in the News section of the company's website, www.allot.com.

I would like to hand the call over to Mr. Gavriel Frohwein of GK Investor Relations.

Gavriel, would you like to begin, please?

Thank you, operator.

Welcome to the Allot's First Quarter of 2017 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'll 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 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 securities within the 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 to now hand 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.

Alberto and myself have been with the company for a few months.

I would like to discuss with you our main findings and how we plan to take the company forward.

Over the last few months, we took a good look at our markets, our competitive position and what we should focus on to drive growth and generate profitability.

We also hired the international consulting firm, Deloitte, to help us with this process and provide us with an external perspective.

As I stated in our previous call in February, I believe, Allot has excellent products, targeting the right markets and employs highly professional people.

What I saw in the past months reinforced this belief.

I believe the main growth engine for Allot, going forward, will be providing network security products that communication service providers, or CSPs, can use and provide as a service to their customers, both consumers and businesses.

This is a relatively new market, and we believe we are well positioned to enable these services.

Security threats, such as malware, ransomware, phishing attempts and others, are on the rise.

This has led to mobile phone security becoming a growing issue for consumers.

Mobile subscribers today want to be protected.

They want to see how they are protected and market research indicates that a significant portion of subscribers are willing to pay for such security.

Communication service providers like Vodafone and Telefónica are well positioned to provide this value-adding service to their customers.

Not only that, studies have shown that a significant portion of consumers expect their service provider to provide such protection.

I believe Allot, together with CSPs worldwide, are well positioned to take advantage of this consumer requirement.

Our WebSafe Personal product, together with our traffic shaping solutions, enable CSPs to provide this protection for customers on their network.

Our solution has many important advantages.

We enable the CSP to protect the consumer with the network-based service without the need to download an app or configure anything.

We show the consumer how he, or she, have been protected and how many threats were blocked.

We even enable the service to be personalized with important services such as parental control to safeguard the children.

The CSPs can provide the service, or not, on an individual basis and charge for it.

This is what can make this service a very significant value-added service or VAS for the CSPs.

This is already proven in the market today.

Vodafone, a long-time customer of Allot, have successfully launched this service in 10 countries, and we see the number of subscribers registered for this service growing in 9 of them, with approximately 15 million subscribers paying about EUR 1 per month for the service.

As we previously announced, during first quarter we closed the deal with Telefónica Global, to provide them our WebSafe Personal security products.

Telefónica plans to launch during this year, a similar service in 5 of their major markets throughout Europe and South America.

I believe Telefónica's choice to launch a consumer-oriented security, as a service offering, with Allot, is both a strong validation of the market for network-based security and a validation of Allot as the leading vendor in this market.

A key point to note is the penetration rate that can be achieved with this service.

Our experience with Vodafone is that this network-based security service, when launched properly, could potentially achieve penetration rates exceeding 30%, a very high penetration rate for a service provider's value-added service.

In contrast, while there are quite a few endpoint security apps one can download to the phone, the penetration rate achieved by CSPs selling such apps to their customers, is only in the mid-single-digit range.

Price of EUR 1 per month and with a high penetration rate that can be achieved, the network security service can be significant to the CSP.

We do not intend, however, to be satisfied with only the WebSafe Personal product.

Allot has an excellent product that can protect CSP networks against Distributed Denial of Service or DDoS attacks.

Our product has the capability to defend networks against very high volume attacks from outside the network and to defend others by not passing attacks originating from within the network, always in a matter of a few minutes and while protecting servers from crashing.

Augmenting our network security proposition for consumers with protection of the CSP against DDoS attacks is another important element of our growth strategy going forward.

The third element we will be providing to the CSPs, is, of course, visibility and control of their network.

This is currently where our [core] is.

While this market does not seem to be growing at this point in time, we believe there may be specific opportunities we could take advantage of, such as regulatory requirements of governments or reversal of net neutrality in the U.S.

We have a strong product offering in this domain as well, and we will continue to develop it.

As I said, CSPs are our primary market, however, Allot will continue to pursue the enterprise market as well with our multiservice platform.

We believe our product, combining network visibility, network control, secure web gateway functionality and anti-DDoS protection capability, has a valuable market within the sector of enterprises that are looking for best-of-breed solutions.

Allot is successful in selling to the enterprise market in some geographies and I believe we can replicate this success in other geographies as well and generate sound growth in this sector, albeit not as significant as in the CSP market I discussed.

I would like to say a few words on how we plan to execute on this strategy, I outlined, focused on the CSP market.

On the product side, we will focus our development and support efforts on the products I already discussed and will include several elements.

One, enhancing our commitment to virtualized products that can operate in the future service providers NFV architecture; two, continue developing differentiators and maintaining our product fleet; three, continue developing the unified security product with McAfee that combines Allot's network security with McAfee endpoint security; and four, continue to cater to our CSP customers by providing customized solutions to meet very specific market requirements where those are needed.

On the sales aspect, there are several elements we plan to do to create success in this market.

One, we need to focus a significant part of our sales force on the CSP market.

As part of this, we will create a small focus team that will leverage experience from WebSafe Personal security sales in one market to help us and the CSP succeed in another; two, we need to redefine our go-to-market strategy.

I expect to be working more closely with large system integrators for the larger CSP and more directly with the smaller CSPs; three, we need to align our marketing efforts to help foster security branding for the company; and four, where possible and acceptable by the customer, we will strive to change our business model from a perpetual license-based

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a revenue share or monthly subscription-based model.

While this model is not easy to achieve, we believe it has great benefits for the CSP in aligning our interests and presents long-term value for Allot.

To help succeed in executing this, we have brought onboard, Ran Fridman to lead our global sales and [Ronen Priel] to lead our marketing.

As I said in our previous earnings call, I believe a significant part of our role, as management, is to improve on the company's execution and to realize its full potential.

To this end, we intend to modify some of the company's processes and part of its structure to enable us to achieve more with the existing resources.

Finally, with regards to our cash reserves.

They currently stand at $111.7 million.

This strong cash level serves 2 main purposes.

It provides our Tier 1 customers with the comfort they need to do business with us, knowing that we are there for them for the long term to support our products; and it provides us with the capital to take advantage of potential acquisition opportunities in the future.

I do want to note that, in my view, the company should, at this time, focus on improving its results and creating organic growth rather than a substantial acquisition.

In summary, I want to stress that I see Allot as a company with much potential and I believe, Allot will establish itself as an important player in the communication security market in the coming years.

My immediate goal is to improve and execute on our full potential and bring the company back to the path of growth and profitability.

As we look ahead, we are reiterating our guidance for 2017 revenues in the range of $80 million to $84 million and expect the second half to be better than the first half, with a book-to-bill ratio larger than 1.

And now over to you Alberto, our CFO, please go ahead.

Thank you very much, Erez.

Before I begin reviewing the financial results for this quarter, I would like to inform everyone that on this call, unless otherwise noted, I will refer entirely to the non-GAAP financial measure when discussing operational results, which is what we use internally to judge the performance of our business.

Non-GAAP financial measures differs in certain respects from the Generally Accepted Accounting Principles and excludes share-based compensation expenses, revenue adjustments due to acquisitions, expenses related to M&A activities, amortization of certain intangible assets and change in deferred tax.

And now, with regard to the financial results.

Revenues for the first quarter 2017, were $18.5 million, compared with $23 million in the first quarter of last year.

I would like to give some details regarding the company's revenue diversification.

The geographic breakdown of revenue was as follows: Americas with $3.1 million or 16% of revenue; EMEA with $12.5 million or 68% of revenues; and Asia Pacific with $2.9 million or 16% of revenues.

Product revenue for the quarter accounted for 55%, while service revenues were 45%.

This, compared to 63% and 37% split in the first quarter of last year.

In terms of customer concentration, our top 10 customer made up 57% of our revenue.

Book-to-bill ratio in the quarter was slightly above 1.

Gross margin for the quarter was 68% compared to 70% in the first quarter of 2016.

The main reason for the lower gross margin is the decrease in revenue.

In fact, a portion of the cost of goods sold is fixed and consequently the lower revenue amounts impacted the gross margin.

As we expect revenue to grow throughout 2017, we expect the gross margin to improve as well.

We do not currently see any indication of any erosion in our product price.

Operating expenses for the quarter were $16.1 million compared with $18.1 million in the first quarter of last year.

The decrease in operating expenses, compared to the corresponding quarter of 2016, is mainly due to the decrease in headcounts.

Compared to the last quarter of 2016, in which operating expenses were $14.8 million, the increase is mainly due to an increase in sales and marketing expenses and some increase in labor and related costs.

During this quarter, the company held 2 major marketing events, which contribute to most of the increase in sales and marketing compared to Q4 last year.

Looking ahead, we expect the full year operating expenses level to be similar to the level reported in 2016.

Operating expenses are also impacted by the new Israeli shekel exchange rate to the U.S. dollar, which has appreciated by about 5% from the beginning of the year.

Operating loss for the quarter was $3.6 million compared to operating loss of $1.9 million in the first quarter of 2016.

Net loss for the quarter was $3.6 million or $0.11 per share, compared to the net loss of $1.8 million or $0.06 per share in the same quarter last year.

Moving to the balance sheet.

Our cash reserves, comprised of cash, cash equivalents and investments, totaled $111.7 million.

During the quarter, we recorded a negative operating cash flow of $1.2 million.

And that concludes my remarks.

We would be happy to take your questions now.

Operator?

(Operator Instructions) The first question is from James Kisner of Jefferies.

This is David Wishnow on for James.

As we look forward at the revenue trajectory, you guys are very clear, the second half's better than the first half '17.

How do we think about the order of magnitude differential between second half versus first half?

Is this going to be kind of a smooth growth rate at off of 1Q?

Or is it going to be somewhat lumpy?

It's very hard right now for us to say what would be the ratio between quarter-to-quarter.

As we study the company a little bit more, compared to the last call we had, we feel much more comfortable with our projection.

We feel more comfortable with our guidance at the end of the year, and as a consequence of that also -- with effect that -- the second half of the year will be better than the first one.

Now, magnitude of increase, it's really very hard to say right now.

Visibility is -- quarter-by-quarter is low.

And from time to time, we have few deals that may move from a quarter to another and that can seriously impact the single quarter deal.

I think it's much better to look at the overall half of the year, or year, and not revenue quarter by quarter.

Okay.

That's helpful.

And on the gross margin side, obviously, 1Q was not great.

Sounds like there's some fixed costs absorption issues there.

How do you guys feel about the overall gross margin for 2017 versus 2016?

Gross margin, as you mentioned, I mean, there is a portion of the cost of goods sold, which is fixed.

It's not variable.

Those are the allocation of our customer successful team to the cost of goods sold.

The reduction in gross margin this quarter is mainly -- it's actually all due to the decrease in revenue.

As we see revenue growing and get to a level of $80 million to $84 million in 2017, we do believe that the gross margin will grow accordingly, and we will certainly be higher than this quarter, probably, very similar to what was last year.

Basically, what we're saying is that at similar revenues level -- at similar revenue levels that we had last year, we should have about the same gross margin.

Exactly.

That's what I meant.

Okay.

Perfect.

Perfect.

And one last question from me.

The Telefónica deal that you guys announced, do you guys have a sense for when we should start seeing that show up in the income statements?

Or when should we start recognizing revenue on that?

Is that already in there?

Or is that later this year?

Well, we're starting to get orders from them.

It's -- let me put some color, maybe, on this order -- on this agreement.

This was an agreement with Telefónica Global.

Now, Telefónica has different operating businesses throughout Latin America and Europe.

And this whole project is part of what Telefónica calls their fourth-generation platform.

It's a part of it.

In the fourth-generation platform there are many things, not just security, it's all about privacy and customer service and a whole lot of things, but this is one element of it.

Now, they're going to launch in different business -- in different operating businesses, which are different countries, this year, and perhaps next year an additional one.

Now, right now -- and we get the orders from the individual operating businesses and not from Telefónica Global itself.

So we've started getting some of these orders.

I would expect that we will get additional orders, and as we get the orders, and we start delivering and installing we'll start seeing the revenues come in.

It's very, very hard for me to comment on exactly what the time line is for when we will actually get an order and when we will actually deliver and we'll have all the elements that are required for revenue recognition.

But I can share with you that it is Telefónica's plan to start providing the services to their customers, at least in some markets, already before the end of this year, before the end of '17.

The next question is from Alex Henderson of Needham & Company.

Couple of things.

First off, can you give us some sense as, you're looking at these 2 programs, what portion of the improvement in the back half are coming from these?

And what is coming from additional orders you expect to come in over the course of the year?

In other words what portion of this is pretty well locked and loaded, assuming they execute as expected?

I'm not sure what you're referring to when you said 2 programs?

You talked about Vodafone and Telefónica programs being fairly important pieces of the visibility?

Vodafone is a long-time customer of Allot.

And we have been seeing orders and revenues from them for several years now.

And I expect that to continue and that is part of the expected booking and revenues for this year as well, and hopefully it will continue that way.

Telefónica, for this kind of offering, it's very new.

We just reached a deal with them during the first quarter, and we will gradually start seeing orders come in and then subsequently delivery and revenues and so on.

Like I said before, it's very, very hard for me to pinpoint on an exact order and how much it will be out of the total.

It's mixed into -- when we do a forecasting, we take everything that we see in the pipeline, we take a look at what the risks are, we take a look at what we think will happen, we assign it certain probabilities, and at the end of the day we come out with a forecast that we feel comfortable with, and that's what we've done.

So I would rather not go into an individual order and say how much a specific customer will end up being during this year and so on.

I don't think that's correct.

Okay.

Second question on the visibility around the gross margins.

It sounds like the fixed cost, variable cost mix, obviously changes with the revenue levels.

As we get to $20 million level, is that consistent with the 70% and $21 million, $22 million, 71%, 72%?

Is that the right way to think about it?

Yes.

As we said before, I mean, we do expect margin to grow again at the same level of revenue, meaning that, getting back to $20 million, $21 million, as you mentioned, we will probably be around 70% or something like that.

I mean, this is the calculation, and that's actually what happened this quarter.

We did not see any pressure from the price, and again the main reason is, it's actually the decrease in revenue.

We do expect to regain margin as revenue would grow.

All right.

So going down to the OpEx line.

Obviously, the cost of your marketing programs impacted the sequential numbers quite a bit.

I assume that, that moderates as we go forward, that that was a little bit of a spike?

Is that the right way to think about it?

Or is this [8 6] range kind of sustainable over the back half of the year?

As I said before, I mean, we do expect 2016 (sic) level of OpEx to be very similar to the level that we have in last year, in 2016.

It's in '17...

I meant, '17 is going to be very similar to '16.

I mean, that's our current forecast, it takes into consideration several things.

First of all, as you mentioned, the 2 events -- the 2 sales and marketing events in the third quarter, it's -- those are the onetime events, but we have additional events through the year.

So that's one thing.

The other thing is that we do want to invest in such area which actually supports our strategy.

So we will continue to invest in OpEx from one side, and the other side, I mean, we will control [of it].

At the end of the day, we have said before, I mean, we do see a level of OpEx of very similar to last year.

So not growing irrespective to the level of Q1.

Right.

Just a couple of bookkeeping things.

Can you give us the headcount for the quarter, at the end of the quarter?

The VAS ratio, the services ratio?

And how many 10% customers you had?

Generally, we do not [give number] of headcount that we have, but -- so yes, at the end of Q1 we were approximate 470 people, 468 to be exact.

You mentioned that...

VAS and services.

I'm sorry.

VAS and services as a percent.

I think I will have to get back to you with this.

Yes.

I don't have the number in front of me.

I will have to get back to you.

Okay.

And how about the 10% customers?

How many 10% customers in the quarter?

10% customers were.

Yes.

The 10% customer made up approximate 57 -- not approximate, exactly 57% of our revenue this quarter.

Top 10.

No.

That's top 10.

The question is how many 10% customers did you have?

I think last quarter, for instance, you had 2 10% customers.

There is 1 customer there.

One.

Okay.

Great.

The next question's from Joseph Wolf of Barclays.

You went through some detail on, I guess, the strategy, and I'm wondering how closely aligned that is to selling and how that works with the new head of sales.

How integrated was he in figuring that out?

Or what would you expect his first steps to be, given the plan that you outlined?

Okay.

Well, he's onboard now for, I think, a matter of days.

So as you can guess, he wasn't a part of the process that we went through in the last 2.5 months.

But I think he is -- he came from a background of -- he worked for many years, for Nokia, Siemens.

He came from a background of selling, selling core components to operators.

He came from a background and he's been doing that, after he left Nokia as well, in other locations.

So I think he's very, very much the right -- for a lot of other reasons as well, but given also his background, he's the right person to lead the sales organization and is focused on [these both large and small.

Now, I think one of the first things that we need to do together, Ran and myself, is to modify a bit the sales organization, mostly in structure and then focus to go after the strategy that I talked about earlier in this call.

Is the sales organization today, really built very well towards that end, not -- well, to some degree yes, but I think there's room for improvement.

That's part of the execution plan -- improvement in the execution that we need to plan for and execute rather quickly.

Okay.

And I guess the way that you -- the way that I've understood the sales or the opportunities in terms of product, was a focus on security, but not giving up or neglecting the core DPI, and I'm curious if that -- if you view that still as a stand alone, or whether that's an integrated product within your security product, which is the differentiator so -- and how you differentiate between that kind of investment?

Okay.

I mean, we have to look at it both ways, right?

I mean, on one hand, we need to put the proper attention and investment and emphasize those areas that we believe are going to grow.

And that's why you heard me talk with an emphasis on security and less so on DPI.

But on the other hand, we should never lose sight of the fact that we're selling both of these products, both the security and the DPI, and to the same customer base, the communication service providers.

And by selling them both into the same customer base, there is a lot of opportunity for a cross-sell and upsell between them.

So, I think they go hand in hand together, and sales organization is going to have a very focused target in the CSPs.

And they're going to have simply more of an offering to provide them.

And in one case, it will be maybe one product, another case another, and hopefully, in more than one case -- in more cases than a few, it will be both of them together.

Okay.

I assume that Telefónica, and the sale that you -- the contract that you've been addressing, is not a utilization, but it's more of a lump sum payment that you guys get.

Is it based on subscribers?

Is there any kind of -- is there any enhanced fees that you get if the penetration rate does hit a higher number?

How's that contract structured?

That deal is structured as a license payment for the licenses they have -- as the number of subscribers grow, they have to pay for more licenses and those are perpetual.

Okay.

And then finally, just cash flow expectations for the year.

A little bit of cash down in the quarter, would you expect to generate cash flow from operations for the year, given your guidance for the year?

Regarding the expectation in cash, I mean, we are going probably to burn a little bit of cash going forward into the year, but not more than that.

By little, meaning $2 million, $5 million?

It's very hard at this point in time to point out a number.

It depends on so many things.

I think that's a few million dollars of cash.

That will be a reasonable best answer I can give you right now.

The next question's from Matt Robison of Wunderlich Securities.

This is Peter on for Matt.

So where are you guys in the transition from purpose-built hardware to NFV?

Can you just give a little detail on that?

Yes.

Let's say, I'll try at least.

I mean, the company has been on this path for a while now.

And I think that if you look at it, really there are 2 major steps to be taken here, right?

One is to take the software and put it on a standard off-the-shelf hardware platform.

And I think that a lot -- for the new products, legacy will remain with what it is, but for the new products, I think that, for the most part, that is -- we're 90% there.

We're a very, very long way there.

Not only that.

As you may or may not be aware, Allot actually closed its hardware development team about 9 or 12 months ago, and we-re not -- and the company's not developing really a new special-purpose hardware.

So that's one step.

The second step to go to NFV is -- it's a big world.

NFV is a world that where -- yes, everybody has to run on standardized hardware platforms, but all of the software components need to be interoperable and conform to standards and so on.

The standards are still evolving.

Interoperability is something that is very partial at this stage.

So we are following the evolution of the standards.

We're doing work on this.

We're talking to the various players to see how we get there, but there's -- I think there's a way to go in that area, not just for us, but for the industry in general.

Okay.

And how is the enterprise initiative doing?

And have you guys seen any incremental interest in traffic management since Ajit took over the FCC?

Well, I think, we've seen a lot of, I'd say, a lot of articles and a lot of talk about reversing net neutrality in the U.S., and we're definitely in discussions with U.S. service providers to see what they plan to do.

Let's remember that there's a lot of talk about it, but the rules have not yet been changed.

And it's not clear to me when that will happen.

There's so much talk, I'm going to -- I think there's a good chance that it will happen, but when is unclear.

And when it does, now, a lot of the operators are thinking, okay, what do they want to do with it?

Do they want to create fast lane?

Do they want to do a zero-rate plan?

It's more a marketing issue, and a business issue for the operators now that they expect to have the choice.

And now they're trying to figure out what they want to do, and to what degree they want to do it.

So it's changing the discussion level.

It's not changing the business level yet because it's not happening.

Okay.

And what type of licenses are getting the most traction for you guys?

I'm not sure I understand the question.

What do you mean by licenses?

Sorry, I'll just go on.

I guess, a different one is, when do you guys expect to term, or subscriber-based licenses, to drive revenue and cash flow?

I'm sorry.

Could you give us a bit more clarity on the question.

I'm not sure I understood?

For your term and subscriber-based licenses, when do you see that actually driving revenue for you guys?

We typically sell licenses -- the business model that we have so far is that we typically sell licenses that don't have a term on them.

They are perpetual.

So I'm not sure what you mean by that.

We do sell, of course -- once we sell a license, there is additional revenue to be made from that customer on operating and maintenance, professional services, modifications, upgrades, additional -- the customer requires additional licenses because he expands his network and so on.

So I'm not sure I -- I hope I was helpful, but I'm not sure.

Yes.

I think that covers it.

The next question's from George Iwanyc of Oppenheimer.

Can you just give us an update on the McAfee relationship?

Is that contributing at this point?

When do you expect it to become more meaningful?

Yes.

We are working with McAfee on the development of the unified products.

We expect that product, at least its first version, to be released later this year.

And we are working with them on a series of deals that I would hope to close, of course, sooner rather than later.

I'm optimistic on it, but as of now there are no deals closed with McAfee.

No deals on the unified product that are actually sold and closed to CSPs.

Is that something that you feel could contribute in the second half of the year?

Or is it more of a 2018-type of opportunity?

That depends on, really, 2 factors.

One is, whether or not we close any deals during '17 and also, whether or not the deals that we close can end up contributing to revenues during '17.

It's hard for me to answer that.

I can't share with you that -- I think that maybe it's a good opportunity to discuss a little bit what the value I see with McAfee is and why I think it's an interesting opportunity for us.

The McAfee is, of course, a significantly larger company than Allot.

Probably 10x larger or so.

They have -- they are a security company and they are -- they have deals with various CSPs, with many CSPs around the world, to sell through them, through the various service providers, to sell their endpoint security solution.

However, they are seeing, as I talked about earlier in this call, they are seeing penetration rates like everybody else in that business, in the single-digit range.

While with network security, what we're seeing, for example with Vodafone, we're seeing that there's a possibility to reach penetration rates of 30% or more.

So I think from a business perspective, if we had a unified product, or when we will have a unified product, the product -- it will do 2 things.

One is, we'll have a better protection for the customer, because he'll have both network protection and the end user device protection.

But from a business perspective, not only it's a better offering, but the idea is that McAfee can take us to more service providers because of their size and relationship with the CSPs and because we're -- part of that solution is going to be a network-based offering, we expect -- we would hope, at least, that penetration rates are going to be much higher for unified products than they are for the end solution only.

That creates a win-win-win, for the CSP, for McAfee and for us.

Now, that's the premise on which all of us are working right now.

And I hope that we will turn it into a reality sooner rather than later.

Okay.

And you're looking at your second half visibility, we've talked about Vodafone and Telefónica, are there any other new CSPs that you're working on in the pipeline that you feel could contribute this year?

What type of visibility do you have there?

We're talking to CSPs really around the world.

That's our major customer base today.

And we'll continue to talk to many CSPs that are not our customers yet.

Now, our pipeline and our forecast for the year is obviously a combination of what we see from existing customers and some new deals that we believe we can win as well.

I'm not sure I'm comfortable quantifying that, other than repeating the guidance that we've given.

Okay.

And just one last question.

You've talked about some of the adjustments that you're making with the sales organization.

Are there any other internal adjustments that you're planning on putting in place over the next quarter or 2 to deal with optimizing the organization?

Yes.

I think that once we've decided on what our strategy is, where we're going to focus, and what we're going to focus less on, the whole organization has to be aligned to it.

It's not just sales.

It,s sales.

It's R&D.

It's product.

It's support.

It's every -- it's -- the organization is one big team, right?

So obviously, there will be additional adjustments.

And like I think -- I think, I even mentioned this in the previous call, but I don't remember, there are some procedures and processes within the company that I do not feel are effective enough, and we're going to modify a few things like that to make sure that we work a lot more effectively.

Yes, I understand that's kind of an ongoing process, but the biggest work, do you anticipate that to be 1 quarter or 6-month type of effort, or could that take longer than the rest of this year?

No, I think it's a -- we'll start -- we are starting to make changes.

You see we're bringing new people on board.

We've articulated where we're heading and why we're heading that way.

And we'll start implementing these things, and I think, in the next 6 months we'll see -- we will be implementing some things and they will come to bear later on.

The next question's from Marc Silk of Silk Investments.

I'm encouraged that you're not going to try to use the money to make an acquisition, or you're going to try to build this organically.

So my first question is, because as this turnaround's taking time and your stock keeps trading closer and closer to cash, do you have a buyback in place?

And if not, maybe it makes sense to revisit that because again, if you retire shares that are pretty cheap, long term that might be the way to go?

Yes.

As you know, I mean, we had such a plan last year in place.

The plan at the start -- actually, right now, there was even a discussion on the board, and there was a decision right now not to have any additional buyback plan.

As of now.

As of now, and again, it's not -- it's a [cold] call.

Okay.

And I see that you've talked about trying to go to a more recurring revenue model, and I understand that takes time.

Looking out 2 to 3 years, do you have maybe a point where you say, okay you know what, we can see that our goal is to have 30% recurring revenue, 50%.

Do you have kind of an internal goal that you're trying to get to?

No.

Not at this point.

But you're absolutely right, it does take time.

It's -- it does take time.

Not all operators will agree to that model, not on normal circumstances, so I think we have to start offering it.

We have to start talking to our customers on it, which we have by the way already, and we have to increase that.

And we'll see how the market takes to it and what we can achieve that way.

And my last question.

We can talk about this online, or you can -- maybe you can answer it now.

But as I'm trying to look over your product offerings, say I'm a telco customer, what differentiates your product from your competitors?

Okay.

I think on the WebSafe Personal, I'm not familiar with anybody else that has the combination that we enable the telcos, and I'll explain.

The ability to handle very, very large volumes of traffic with millions of -- with many millions of subscribers, provide the security, a configurable and on or off, to an individual subscriber, provide that security to his family as well in a different way.

For example, you may want your kids not to go to certain sites, but not block your own phone for that.

And provide the visibility to the individual subscriber on what he or she has been "saved from or protected against" over the last week or months or whatever.

I am not familiar with other products that have that combined capability and I think that, that combined capability is what makes this an interesting business proposition, business value-added service for the CSPs.

Okay.

And on a personal note, so Erez, what is your -- what differentiates your management style from the last management team, meaning what have you seen that you say, you know what, this should have been done this way.

And the kind of changes that you're making, that maybe we don't see?

Look, I'd really appreciate not to refer to a previous management team that I was not part of.

I can tell you what I think.

I think that we need to have -- we need to look at the markets, and we need to see where we should be going to generate growth.

And then we need to do a lot of fact-based decisions, and we need to work very hard and deliver results.

That's about what I can tell you.

There are no further questions at this time.

Before I ask Mr. Antebi to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in 2 hours.

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Mr. Antebi, would you like to make a concluding statement?

On behalf of the management of Allot, I'd like to thank you for your interest and your support of our business.

And I look forward to talking to you in our next quarterly call.

Thank you, very much.