Allot(US:ALLT)2023-05-16 18:41Financial Data and Key Metrics Changes - The company's Q1 2023 revenues were $21.1 million, a decrease of 34% compared to the same period last year [5] - Operating expenses (OpEx) in Q1 were $22.4 million, down 19% from Q4 2022 [7] - The gross margin for Q1 was 67%, with a target of 70% for 2024 [8] Business Line Data and Key Metrics Changes - SECaaS (Security as a Service) ARR was $9.3 million as of March 2023, slightly above December 2022 and 58% higher than March 2022 [5] - SECaaS revenues for Q1 were $2.3 million, with expectations for 2023 SECaaS revenues between $11 million and $13 million [16][21] - The DPI (Deep Packet Inspection) segment is expected to contract by 5% to 10% in 2023, with no growth anticipated for the year [11][22] Market Data and Key Metrics Changes - The company is seeing increased interest in its products from CSPs (Communications Service Providers) in both developing and developed markets, particularly for traffic management and cybersecurity solutions [9][10] - There is a growing trend among CSPs to replace end-of-life DPI products and to rethink network needs as they deploy new 5G standalone cores [9] Company Strategy and Development Direction - The company is focused on reaching profitability by the end of 2024 through revenue growth in SECaaS and strict expense control [7][21] - A strategic shift has been made to focus on larger customers with significant revenue potential, moving away from smaller deals [15][19] - The company is emphasizing partnerships with CSPs to ensure aggressive go-to-market strategies for their security services [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the transition to a SECaaS recurring revenue model has been slower than anticipated due to economic challenges [6] - The company remains optimistic about future growth in SECaaS despite current revenue recognition delays [22] - Management expects a reduction in cash burn and improved cash flow in the latter half of 2023 as cost-cutting measures take effect [8][21] Other Important Information - The company experienced a cash balance decline of $9.1 million in Q1 due to delays in collections from customers implementing tighter cash controls [8] - The company has signed contracts with several Tier 1 operators, including Verizon, which is expected to enhance credibility and interest from other potential customers [14][56] Q&A Session Summary Question: What supports the substantial revenue step-up in Q2? - Management is confident in a healthy pipeline and expects to sign new deals that will contribute to revenue in the second half of the year [24][27] Question: Update on sales efforts with targeted carriers for SECaaS? - Progress has been made in planning stages, but results are not yet reflected in ARR numbers [28][29] Question: What will Q3 operating expenses look like? - Q2 OpEx may be higher due to one-time items, but Q3 is expected to decrease as cost-cutting measures take effect [31][34] Question: DPI market stabilization? - A contraction of 5% to 10% is expected in 2023, but a flattish trend is anticipated over the multi-year horizon [35][41] Question: Impact of FX on SECaaS ARR? - The impact of foreign exchange on SECaaS ARR from Q4 to Q1 was minimal [36] Question: Churn rates within the customer base? - Mobile operators experience relatively high churn rates, but overall growth in security services continues [38][39] Question: Contribution from the Broadcom deal? - The Broadcom deal contributed approximately $5 million to $7 million annually at peak levels [42][43] Question: Future of Allot Smart Connect product line? - There is potential for future growth in DPI, but current guidance remains cautious [45][46] Question: Revenue from Far EasTone deal? - Some revenue from Far EasTone was recognized in Q1 [49] Question: Impact of Verizon deal on future business? - The Verizon deal has significantly increased interest from other customers [56]