Full Year 2023 Allot Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by.
To allot fourth quarter 2023 results conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session.
Operator: Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Allot's investor relations team at ekglobalinvestorrelations at 1-212-378-8040 or view it in the news section of the company's website at www.allot.com. I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?
As a reminder, this conference is being recorded.
Have all received by now the Companys press release, if you have not received it please contact allots Investor Relations team at K Global Investor Relations at one to one to 378 a year.
Four zero or view it in the news section of the company's website at Www Dot a load dot com.
Now like to hand over the call to Mr. Kenny Green of Ek Global Investor Relations. Mr. Green would you like to begin please.
Kenny Green: Thank you, operator. Welcome to Allot's fourth quarter and fall year 2023 conference call. I would 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 Entebbe, President and CEO, and Mr. Zib Lightman, CFO. Mr. Entebbe will provide an opening statement and summarize the key highlights of the quarter.
Thank you operator.
Welcome to last fourth quarter and full year 2023 culture in school I would like to welcome all of you to the conference call and Thank you management for hosting this call.
With us on the call today are Mr. Erez, <unk>, President and CEO and Mr. Ziv Leitman CFO Eric.
Now, let me provide an opening statements and summarize the key highlights of the quarter.
Kenny Green: We will then open the call to the question and answer session, and both Erez and Zib will be available to answer those questions. You can all find the highlights, the financial highlights, and metrics, including those we typically discuss on the conference call in today's earnings press release. Before we start, I'd like to point out the safe harvest thing.
Thank you Nicole for the question and answer session in both Paris and see it.
Won't be available to answer any questions.
You can always find the highlights the financial highlights and metrics, including those we typically discuss on a conference call in today's earnings press release.
Before we start I'd like to point out the safe policy statement.
Kenny Green: This conference call contains projections or other forward-looking statements regarding future events or the future performance of the company. Those statements are only predictions, and Allot cannot guarantee that they will, in fact, occur. Furthermore, Allot does not assume any obligation to update that information.
This conference call contains projections or other forward looking state.
Regarding future events or the future performance of the company.
These statements are only predictions and are not guarantees that they will in fact occur 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 delays in the launch of services, our customers reduced demand and the competitive nature of the security service.
Kenny Green: Actual events or results may differ materially from those projected, including as a result of changing market trends, delays in the launch of services by our customers, reduced demand, and the competitive nature of the security services industry, as well as other risks identified in the documents filed by the company with its Securities and Exchange Commission. And with that, I'd now like to hand the call over to Erez Entebbe, CEO. Erez, please go ahead.
Industry as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission.
With that I would now like to hand, the call over to Debbie.
Debbie CEO Eric Please go ahead.
Erez Entebbe: Thank you, Kenny. I'd like to welcome all of you to our conference call. Thank you for joining us today. I would like to start with a summary of 2023. Our fourth-quarter revenues were $24.3 million, 26% lower than the comparable quarter last year. Our total revenues for the full year 2023 were $93.1 million, 24% lower than our revenues in 2022. In December 2023, our CCAS ARR was $12.7 million, 20% higher than our CCAS ARR in September 2023 and 38% higher than our CCAS ARR for December 2022. Our cash and equivalents as of December 31st, 2023 were $54.9 million, down from $86.4 million at the end of 2022.
Thank you Kenny and I would like to welcome all of you to our conference call. Thank you for joining us today.
I would like to start with a summary of 2023.
Our fourth quarter revenues were $24 3 million, 26% lower than the comparable quarter last year.
Our total revenues for the full year 2023 were $93 $1 million, 24% lower than our revenues in 2022.
In December 2023, our CCAR.
Our or was $12.7 million, 20% higher than our CCAR a R. R. In September 2023.
38% higher than our Zika <unk> for December 2022.
Our cash and equivalents as of December 31, 2023 were $54 $9 million.
Down from $86 $4 million at the end of 2022.
Erez Entebbe: Our backlog. Our backlog as of December 31, 2023 was $58.8 million, down from $87.7 million at the end of 2022. This includes a reduction of approximately 26 million dollars of previous years' recorded bookings we removed from the backlog after applying a new and more stringent framework. Our total FTE, or full-time employee count, as of December 31st, 2023, was 559, down from 749 at the end of 2022. We expect Q1 2024 to end with approximately 510, which is a reduction of about 35% compared to when FTE peaked in September 2022. Our non-GAAP operating loss for the year 2023 was $55.2 million compared to $23.1 million loss for 2022.
Our backlog.
Excuse me our backlog as of December 31st 2023.
$58.8 million down from $87 $7 million at the end of 2022.
This includes a reduction of approximately $26 million of previous year's recorded booking we removed from the backlog after applying a newer and more stringent framework.
Our total FTE or full time employee count.
As of December 31, 2023 was 559 down from 749 at the end of 2022.
We expect Q1 2024, two and was approximately 510, which is a reduction of about 35% compared to when the FTE peaked in September 2022.
Our non-GAAP operating loss for the year of 2023.
It was $55 2 million compared to $23 $1 million loss for 2022.
Erez Entebbe: The operating loss in 2023 includes approximately $23 million of reserve for credit losses, as we have already reported in previous press releases. However, the transition of the business into the CTAS recurring revenue model has proven to be slower than we originally anticipated. During 2023, two large operators we expected would launch services, one in North America and one in Europe, decided to cancel their launches for now due to their own internal issues. These cancellations were the main reason for where our 2023 CCAS revenues ended up, lower than we had expected at the beginning of the year. In addition, our core DPI business is experiencing macro-related headwinds. Budget tightening by both governments and CSPs led to lower 2023 smart bookings and revenues than we expected at the beginning of the year.
The operating loss in 2023 includes approximately $23 million of reserve for credit loss as we already reported in previous press releases.
The transition of the business and to seek US recurring revenue model has proven to be slower than we originally anticipated during.
During 2023, two large operators, we expected would launch services one in North America, and one in Europe decided to cancel their launches.
For now due to their own internal issues.
Cancellations were the main reason for our 2023 see cash revenues for where our <unk> two.
2023 C test revenues ended up lower than we had expected at the beginning of the year.
In addition, our core GPI business is experiencing macro related headwinds.
[noise] budget tightening by both governments and CSP led to lower 2023, smart bookings and revenues than we expected at the beginning of the year.
Erez Entebbe: After reassessing our ability to collect on several deals we had signed in previous years, we took a significant reserve for credit loss. I will emphasize that we have not given up on these debts and are continuously working to secure their payment. As a result of these issues, our negative net cash flow was $31.5 million.
After reassessing our ability to collect on several deals we have signed in previous years, we took a significant reserve for credit loss I would emphasize that we have not given up on these debts and are continuously working to secure their payments.
As a result of these issues our negative net cash flow was $31 5 million.
Erez Entebbe: We went through several rounds of cost-cutting and restructuring through the year and ended 2023 with a significantly reduced cost base. 2023 was extremely disappointing for us all. We have made significant changes in the company as we look to drive improved results going forward. All of us, our board, the management team, and myself personally, are all fully committed to turning the situation around. We are committed to doing whatever is needed to stop the losses and cash bleed in 2024 and put Allot on the track for profitable growth. I would like to turn now to discuss the changes we have made at Allot and what to expect going forward as a result. Over the past couple of years, there have been several changes to our board. David Rice joined as our new chairman. Cynthia Paul, Rafi Kesten, and Efrat Markov joined the board as well. Several long-serving board members stepped down, including Yigal Yakobi, who is a co-founder of Allot and until recently was our chairman, as well as Itzik Danziger and Manuela Chonowitz.
We went through several rounds.
We went through several rounds of cost cutting and restructuring through the year and ended 2023 with a significantly reduced cost base.
'twenty 'twenty sweep was extremely disappointing for us all.
We have made significant changes in the company as we look to drive improved results going forward.
All of US our board the management team and myself personally are all fully committed to turning the situation around.
We are committed to doing whatever is needed to stop the losses and cash relief in 2024 and put a lot on the track for profitable growth.
I would like to turn now to discuss the changes we made in a lot and what to expect going forward as a result.
Yeah.
Over the past couple of years, there were several changes to our board.
David Wright joined as our new Chairman.
Cynthia Paul Philosophy tests, then the froth Marco joined the board as well.
Several long serving board members stepped down including <unk>, our Kobe, who is the cofounder of our Lord and until recently was our chairman as well as <unk> and <unk>.
Erez Entebbe: I want to take this opportunity to thank the various board members. I would especially like to thank and acknowledge Igor Jacobi, whose contribution to Allot was immeasurable. As we announced in July, given the challenges facing our business, the board formed an executive committee that has been working with management to identify and recommend opportunities for further improvement, with a focus on driving sustainable profitability and enhancing shareholder value. Management, together with the executive committee, worked together to form the budget and operating plan for 2024. As I stated earlier, we had several rounds of cost-cutting, primarily by reducing headcount. Our FTE is down from a peak of 770 in September 2022 to 559 at the end of 2023. I expect our FTE count to be around 510 by the end of Q1, about 35% lower than when it peaked in September 2022.
I want to take this opportunity to thank the various board members.
I would like to especially thank and acknowledge you gotta Jacobi, whose contribution to our loss was immeasurable.
As we announced in July given the challenges facing our business. The board formed an executive committee that has been working with management to identify and recommend opportunities for further improvement with a focus on driving sustainable profitability and enhancing shareholder value.
Management together with the Executive Committee work together to form the budget and operating plan for 2024.
As I stated earlier.
We had several rounds of cost cutting primarily by reducing head count.
Our FTE is down from a peak of 770 in September 2022 to 559 at the end of 2023.
I expect our <unk> to be around 510 by the end of Q1 about 35% lower than when it peaked in September 2022.
Erez Entebbe: At a high level, our plan for the company in 2024 is to reach breakeven, while also investing in the business to drive profitable multi-year growth. As you know, Allot operates in two business lines: Allot Smart and Allot Secure. On the Allot Smart front, while we continue to see growing interest globally from governments as they look to block illegal activities such as drug trafficking, child pornography, and terrorism, our CSP and enterprise businesses remain soft. While some of the weakness is due to cutbacks in spending by governments and CSPs, we also need to continue shifting our resources and focusing toward developing countries and governments, as developed countries and enterprises embrace the cloud. On the Allot Secure front, while spending by CSPs remains challenging, and deployments are taking longer than we previously expected, our CCAS revenues continue to grow double digits with a strong customer base. Now, we'd like to discuss our Allot Smart Biz. I believe we have a very strong product. We are winning many of the new greenfield opportunities we see, i.e. CSPs that have no DPI and wish to add one.
At a high level our plan for the company in 2024 is to reach breakeven.
While also investing in the business to drive profitable multiyear growth.
As you know.
Although it operates in two business lines are not smart and secure.
We are look smart front, while we continue to see growing interest globally from governments as they look to block illegal activities, such as drug trafficking child pornography and terrorism.
Our CSP and enterprise businesses remained soft.
While some of the weakness is due to cutbacks in spending by government since csp's.
We also need to continue shifting our resources and focusing toward developing countries and governments as developed countries and enterprises embrace the cloud.
And we are look secure front, while spending by Csp's remains challenging and deployments are taking longer than we previously expected. Our CCAR revenues continued to grow double digits with a strong customer base.
I would like to discuss now our allot smart business.
I believe we have a very strong product we are winning many of the new greenfield opportunities, we see I E. Csp's that have no GPI and wish to add one.
Erez Entebbe: In multiple CSPs, we are replacing our competition where the opportunity arises. This is true for some CSPs in EMEA, APAC, and North America, and this is also true in our enterprise business. The decision to replace an installed and working DPI system is not common since it is a big and expensive decision for a CSP. But when they have decided to do so, it historically has resulted in market share gains for Allot. We have had significant challenges with collection in several large deals. As a result, we modified our sales compensation and accountability procedures to emphasize collection and significantly reduce the chances of such problems occurring again.
And multiple CSP, we are replacing our competition, where the opportunity arises.
This is true for <unk> in EMEA and APAC.
APAC and North America, and this was also true in our enterprise business.
The decision to replace and installed and working DPI system is not common since it is a big and expensive decision for our CSP.
But when they have decided to do so it historically has resulted in market share gains for outlook.
We have had significant challenges with collection and several large deals as a result, we modified our sales compensation and accountability procedures to emphasize collection and significantly reduce the challenge.
Senses of such problems occurring again.
Erez Entebbe: I would like to discuss our 2024 plan for SMART, which took a conservative view of our planned bookings and revenues. Our approach was built bottom-up, segment-by-segment, and region-by-region, from the backlog, expected maintenance and support contracts, small expansion deals, and large deals, with a conservative success probability. Entering into 2024, we have a significantly larger pipeline of large deals in several geographies, in the government business, and in Allot Smart opportunities in low ARPU countries. As part of our plan, despite the reduction in overall resources due to cost-cutting initiatives, we have increased resources for Allot Smart Sales in several areas where we see a strong pipeline. In addition, we have identified several market segments we have not focused on historically where we see a need for our solution. These include certain specific use cases for fixed wireless access needs and small tier 3 or 4 CSPs.
I would like to discuss our 2024 plan for smart.
We took a conservative view of our plan to bookings and revenues. Our approach was built bottom up segment by segment and region by region from the backlog expected maintenance and support contracts small expansion deals and large deals with a conservative success probability.
Entering into 2024, we have a significantly larger pipeline of large deals in several geographies.
In the government business and in a lot smart opportunities and low ARPA countries.
As part of our plan despite the reduction in overall resources due to cost cutting initiatives. We have increased resources for allot smart sales in several areas, where we see a strong pipeline.
In addition, we have identified several market segments, we have not focused on historically, where we see a need for our solutions.
These include certain specific used cases for the fixed wireless access needs and small tier three or four csp's.
Erez Entebbe: We allocated resources to go after these market segments, and while we do not expect significant sales in 2024 due to the long sales cycle, we feel it can help make a difference for us in the years ahead. Now, we'd like to discuss our Allot Secure business. I believe in AllotSecure; we have a very effective and highly differentiated product. We are the leaders of network-native security solutions for the mass market. The clearest evidence of our leadership is the significant list of marquee customers who have launched network-native security services for their customers. Verizon, Vodafone, Jio, Telefonica, Hutchison, PPF Group, Firestone.
We allocated resources to go after these market segments and while we do not expect significant sales in 2024 due to the long sales cycle, we feel it can help make a difference for us in the years ahead.
We'd like to discuss now our secure business.
I believe in the allot secure we have a very effective and highly differentiated product.
We are the leaders of network Native security solutions for the mass market.
The clearest evidence of our leadership as a significant list of marquee customers, who have launched network native security services for their customers.
Verizon Vodafone Geo Telefonica Hutchison.
<unk> group far Eastone, our strong customer base is a testimony to the quality of our solution.
Erez Entebbe: Our strong customer base is a testament to the quality of our solution. While the relevant network-based security market for CSPs is developing slower than we had originally hoped and expected, we are experiencing strong double-digit growth. This business remains our growth driver into the future, and we believe we are well positioned with existing customers and potential new customers. To ensure staying power, we have reduced our expenses to reduce cash burn while waiting for the market to catch up.
While the relevant network native security market for CSP is developing slower than we had originally hoped and expected we are experiencing strong double digit growth.
This business remains our growth driver into the future and we believe we are well positioned with existing customers and potential new customers.
To ensure staying power, we reduced our expenses to reduce cash burn while waiting for the market to catch up.
Erez Entebbe: We are taking a conservative approach as we plan for 2024. While we expect to have new CCAS launches in 2024, we built our Internal Revenue Forecast to rely almost entirely on the revenues we expect to see from our current customers in their existing go-to markets. We will be emphasizing working with existing customers in order to expand the customer base to whom the services are offered and to make for more aggressive go-to-market strategies. As we have discussed previously, for new CECAS customers, we are focusing on a select number of interesting opportunities. One exciting new launch in 2023 was, of course, Verizon Business, which successfully launched its network-based security service, incorporating Allot Network Secure.
We are taking a conservative approach as we plan for 2024.
While we expect to have immune <unk> launches in 2024.
We built our internal revenue forecast to rely almost entirely on the revenues, we expect to see from our current large customers with their existing go to market.
We will be emphasizing working with existing customers in order to expand the customer base to homeless services are offered and to make for a more aggressive go to market strategies.
As we have discussed previously for a new <unk> customers, we are focusing on a select number of interesting opportunities.
One exciting new launch in 2023 was of course, Verizon business, which has successfully launched its networks major security service incorporating a loaf network secure.
Erez Entebbe: The launch is going well, the number of customers is growing, and we are discussing with Verizon several expansion opportunities for different customer segments. While we cannot be assured of our success in adding additional customer segments, I believe Verizon is the largest signed CCAS opportunity for Allot. We remain excited about our CCAS opportunities, as operators continue to be interested in launching network-based security services, and we have a differentiated, scalable solution for CSC.
The launch is going well the number of customers is growing and we are discussing with Verizon several of expansion opportunities to different customer segments.
While we cannot be assured of our success in adding additional customer segments. I believe Verizon has the largest science seek us opportunity for allot.
We remain excited about our <unk> opportunities as operators continue to be interested in launching network based security service and we have a differentiated scalable solution for CSP.
Erez Entebbe: Looking ahead, I want to summarize our expectations for 2024. Reaching profitability is our main goal for 2024. Accounting for what we consider an achievable revenue target, together with a significantly reduced cost base, we expect to break even on our non-GAAP operating profit for the full year. As there is seasonality in the year, with the second half typically better than the first half, we expect to start with some losses in the beginning and to make up for it in the second half.
Looking ahead I want to summarize our expectations for 2024.
Reaching profitability is our main goal for 2024.
Accounting for what we consider an achievable revenue targets together with a significantly reduced cost base, we expect to breakeven on our non-GAAP operating profit for the full year.
As there is seasonality of the year with the second half typically better than the first half we expect to start with some loss in the beginning and to make up for it in the second half.
In terms of cash we expect not to burn cash in 2024 as a whole we expect our cash will initially continue to go down and bottomed out at around $50 million after which it will start going up to reach a similar cash level at the end of 2024.
Erez Entebbe: In terms of cash, we expect not to burn cash in 2024 as a whole. We expect our cash will initially continue to go down and bottom out at around $50 million, after which it will start going up to reach a similar cash level at the end of 2024 as we had at the end of 2023, i.e., $55 million. We expect our CCAS revenue to continue to grow sequentially quarter over quarter throughout 2024. However, we have decided that this year we will not be providing further guidance for the yearly or quarterly numbers.
As we had at the end of 2023, I E $55 million.
We expect our <unk> revenue to continue to grow sequentially quarter over quarter throughout 2024.
We have decided that this year, we will not be providing further guidance for the yearly or quarterly numbers.
<unk>, we have made the tough decisions necessary to rightsize, our cost structure to provide us with staying power given that <unk> is taking longer to scale than we had initially projected.
We have scalable proven products, we have a strong customer base.
Operator: To summarize, we have made the tough decisions necessary to right-size our cost structure to provide us with staying power given that Seacast is taking longer to scale than we had initially projected. We have scalable, proven products. We have a strong customer base. It is time for us to execute and reallocate resources to the best ROI opportunities to drive sustainable, profitable growth. Now I would like to open the call for Q&A, and Ziv and myself will be available to take your questions. Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.
At this time for us to execute and reallocate resources to the best ROI opportunities to drive sustainable profitable growth.
And now I would like to open the call for Q&A and given myself will be available to take your questions operator.
Thank you <unk>.
Ladies and gentlemen at this time, we will begin the question and answer session. You will have a question. Please press star one if you wish to carefully request. Please press star two.
Stinker equipment conduit the handset before pressing the numbers the questions will be pulled in the order. They RFP. Please standby, while we poll for your questions.
I repeat if you have a question please press star one.
The first question is from Matt.
Chuck <unk> of Northland Capital markets. Please go ahead.
Yes, good morning.
Whereas when you talked about how you need to shift focus towards ESP in the emerging markets as opposed to mature markets cause I guess, Steve in mature markets are starting to embrace the cloud and Thats a hedge.
Operator: Your questions will be polled in the order they are received. Please stand by while we poll for your questions. I repeat, if you have a question, please press star 1. The first question is from Nehal Chokshi of Northland Capital Markets. Please go ahead.
That makes for I guess less fertile ground for you guys to hop to deals.
Click on that commentary there.
Yes.
I think that there yeah CSP is in developed countries.
Nehal Sushil Chokshi: Yeah, good morning. Therese, we talked about how you need to shift focus towards BSPs in emerging markets as opposed to mature markets because I guess BSPs in mature markets are starting to embrace the cloud, and that makes for less fertile ground for you guys to hunt for deals. Can you double-click on that commentary there?
Starting to embrace the cloud.
We see very few greenfield opportunities in there.
For DPI in developed countries on the other hand.
In developing countries.
Oh, sorry, but another important point is that in most developed countries.
The use cases or sorry, the way that the operators are selling for example, mobile services are flat fees. All you can eat.
Erez Entebbe: Yes, I think that CSPs in developed countries are starting to embrace the cloud, and we see very few greenfield opportunities for DPI in developed countries. On the other hand, in developing countries, And another important point is that in most developed countries, the way that the operators are selling, for example, mobile services, are flat fees: all you can eat, 50 gigabytes a month capacity, do whatever you like, things like that. In developing countries where bandwidth is still a lot more expensive and R2s are much lower, there are still use cases like policy-based charging, you know, social networks free on the weekend, things like that. So we see there both much more significant growth in the terms of operator customer base, we see a broader set of use cases that require DPI, and we see there are simply more opportunities. So it's not that we're abandoning developed countries, And what about the refresh opportunity within the short market? How's that?
50 gig amongst the capacity to do whatever you like things like that.
In developing countries, where bandwidth is still a lot more expensive and rfps are much lower.
Is there are there are.
Still use cases like policy based charging you know social networks free on the weekend things like that.
So we see their both much more significant growth in terms of.
Operator customer base, we see.
Broader set of use cases that require DPI.
And we see there are simply more opportunities. So it's not that we're that we're abandoning the developed countries, but we're shifting some of our resources to developing countries.
Lower <unk> countries, because that's where we see more opportunity for DPI.
And what about the refresh opportunity within mature markets how is that.
Bookings.
A refresh opportunities within sorry could you repeat that.
Within the mature markets within existing customers is there.
Refresh with the mature market customers.
Erez Entebbe: Refresh opportunities with Anne, sorry, could you repeat that? Within the mature markets, within existing customers, is there a refresh with the mature market customers? There are, there is some.
There is some joneses.
Because there is some but it's less than what it was say five years ago.
So we're just seeing more opportunities elsewhere.
What we are seeing in developed countries.
Erez Entebbe: There is some, but it's less than what it was, say, five years ago. So we're just seeing more opportunities elsewhere. What we are seeing in developed countries is that we are seeing new use cases, mostly around fixed wireless access, both by the large carriers and by smaller carriers.
As we're seeing new use cases, mostly really around fixed wireless access.
Both by the large carriers and by smaller carriers and that's why I said that we're looking around at different use cases that fixed wireless access carriers and tier three and four carriers in these mature markets.
Erez Entebbe: And that's why I said that we're looking around at different use cases that fixed wireless access carriers and Tier 3 and 4 carriers in these mature markets are going to use. But that's not a segment that we focused on in the past, so we'll be focusing on it more now. And like I mentioned earlier, I don't expect that to bring significant revenues already in 2024 because of the long sales cycle that it takes, so I expect that we'll see the fruits of that more in 2025 and beyond. But we do see a need there. The fruits of investing in emerging markets will be volt borne in calendar 2020. No, no, no, no, no, I'm sorry. No, I didn't explain myself.
We are going to are going to use but that's not a segment that we were focusing on in the past so we'll be focusing on it more now.
And like I mentioned.
Sure.
And what I read earlier, I don't expect that to bring significant revenues already in 2024 because of the longer sales long sales cycle that it takes so I expect that we will see the fruits of that more in the 2025 and beyond.
But we do see a need there.
The fruits of the investment in emerging markets for diesel born in counterparts.
No no no no no I'm, sorry, I missed that.
No I didn't I didn't explain myself I said that in mature markets high occupancy markets, Okay, Europe, North America et cetera.
We do see new use cases coming up for fixed wireless access carriers.
Erez Entebbe: I said that in mature markets, high-output markets, okay, Europe, North America, etc., we do see new use cases coming up for fixed wireless access carriers and for smaller operators, Tier 3 and Tier 4 operators. These are areas that we did not focus on in mature markets until now, so we're putting resources to focus on selling into those markets, in mature markets, into those segments today. But I expect, since the sales cycles are long, that we won't be able to conclude significant revenues from that in 2024, and we'll see the fruits of that in 2025. In developing countries, low R2 countries, I fully expect to see business continuing to grow in 2024. I misunderstood, sorry, I misunderstood, not you, on a counter-23 basis. What percent of your DPI revenue came from emerging markets? And Zeke, maybe you have the numbers?
And for smaller operators tier three tier four operators.
These are areas that we did not focus on in the mature markets until now so we're putting resources to focus on those selling into those markets and mature markets into those segments today, but I expect since the sales cycle or long that we wont be able to to conclude significant revenues from that in 2020.
And we will see the fruits of that in 2025.
In developing countries low our two countries I fully expect to see.
Business continuing to grow in 2024.
Got it understood alright.
Understood.
Okay.
And.
On a calendar 'twenty three base that's.
What percent of your Dci revenue came from our merchant markets.
And <unk>, maybe you have some numbers.
Long term.
This numbers.
But.
Yeah.
What we do disclose that.
And in 2023 and about 60% of the.
Zib Lightman: I don't have the exact number, but what we do disclose is that in 2023, about 60% of the business's revenues derived from EMEA, which is developed and developing countries, 18% from America, and 22% from Asia. And what I'm trying to establish is that the sales motion in the emerging market, is that already an established sales motion where you already have?
Of the business of the revenues derived from EMEA.
Which is.
Developed in.
Developing countries.
18% from America.
The 22% from.
Hey, Joe.
What I'm trying to establish is that the sales motion and the emerging market is that already established sales motion where you already have.
Erez Entebbe: We've established that you can sell your DPI market at these low RPS. It is established. It's not new for us.
Establish that you can sell your Dci market and to do some more work for Barclays.
It is established it's not new for us we've been selling there in 2000.
Erez Entebbe: We've been selling there in 2023 and even before, and I expect that we will sell more in 2023 and before that, and I expect that we will sell more in 2024. So how does the overall DPI pipeline look today relative to the past? I think it looks significantly stronger, and like I said, I think we see a stronger pipeline of large deals, actually, both for government and for emerging market opportunities. Great, thanks. I'll see you this morning.
'twenty, three and even before and we do not expect that we will sell more in 2023 and before that and I expect that we will sell more in 2024.
And so how does the overall GPI pipeline look like today relative to some 12 months ago.
Thanks Brooks.
Significantly stronger.
And like I said I think we have we see that.
A stronger pipeline of large deals actually Boston.
For governments and for <unk>.
Emerging market.
With two entities.
Okay, great. Thanks, I'll cede the floor.
Erez Entebbe: Thank you. The next question is from Rory Wallace of Outbridge Capital. Please go ahead. Hi Responsive.
Thank you.
The next question is from Rory Wallace.
The outrage capital. Please go ahead.
Tire resins as I was just wondering if you could comment a bit further on that increased pipeline that youre seeing in the DPI business or the smart business and specifically are you seeing any improvement in close rates or actual large deal closures I know the pipeline.
Rory Wallace: I was just wondering if you could comment a bit further on that increased pipeline that you're seeing in the DPI business or the smart business. And specifically, are you seeing any improvement in close rates or actual large steel closures? I know the pipeline progress is encouraging, but there were definitely issues over the past couple of years with steel slippage.
Progress is encouraging but they were definitely issues over the past couple of years with deal slippage.
Erez Entebbe: So just curious if you have a sense if the market is returning to healthier behavior, specifically with the customers you're targeting and Eric Martinuzzi. I don't think that we can; I think it's premature for me to say that the market is getting much healthier and that we're seeing better close rates. I think it's still taking a long time to close deals. I do see a larger pipeline of large deals that I definitely see, but I would be cautious and wait before commenting whether these deals will start closing faster than they have during this year or something like that. I'm not sure yet. I'm hopeful, but I'm not sure.
Just curious if you have a sense if the market is returning to healthier behavior, specifically with the customers you are targeting.
Okay.
Okay.
I don't think that we can.
It's premature for me to say that the market is.
It is getting much healthier.
Seeing better close rates.
It's still taking a long time to close.
I do see a larger pipeline of large deals but.
That's a different Lucy but.
I would be cautious on weight on commenting whether these deals will start closing faster than they have during this year or.
Something like that.
I'm not sure yet I am hopeful, but I'm not sure.
Okay.
Okay.
Erez Entebbe: Okay, and then with the Verizon deal and the opportunity to target additional customer segments outside of fixed wireless, I was wondering if you could comment on how the launch is performing in any more detail, if they've made any changes to how they're marketing the service within the FWA segment, and just any sort of pulse taking you can give us on how that's performing. Unfortunately, I can't share any numbers on this, but I would say that it's performing according to plan, perhaps even slightly better than planned, and from everybody that we talked to in Verizon, it's considered a very successful launch and a very successful service, and that's why we have to be looking together with them to add additional market segments to the service and broaden the scope of whom this service is being offered to. Overall, I think it's going very well in my mind.
Then with the Verizon deal and the opportunity to target additional customer segments outside of the <unk> fixed wireless.
Wondering if you could comment on how the launch is performing.
Any more detail if they've made any changes to how they're marketing the service within the <unk> segment.
And just in any any sort of pulse taking you can you can give us on how that's performing.
Unfortunately, I can't share any numbers on this.
But I would say that it is.
Its performing according to plan.
Perhaps even slightly better than plan.
And from.
From everybody that we talk to and Verizon It's considered a very successful launch in a very successful service and that's why where we are.
We're working together with them on.
On changing or not changing sorry on the on adding additional market segments.
As to the service.
And broadening.
So for whom the services being offered to.
Overall, it's I think it's going very well in my mind.
Erez Entebbe: Okay, and then how about the Seacast business outside of Verizon and any trends that you're observing there? I know you've talked a lot about changing the structure of that business to emphasize profitability and efficiency and also to sort of cross-pollinate the learnings of some of those successful customers. Well, I think that the answer... I would say... I'd say almost all. I'm saying almost all just because I don't want to; maybe there's one or two that I missed in my mind when I went through the list.
Okay, and then how about the <unk> business outside of Horizon and any.
Trends that you're observing there I know you've talked a lot about changing the.
The structure of that business to emphasize profitability and efficiency and also to sort of cross pollinate. The learnings at some of those successful customers we've had.
Well I think.
<unk>.
Okay.
<unk>.
I would say that almost all.
I'm, saying almost all just because they don't want to.
Maybe there's one or two the domestic in my mind when they go through the list everybody Who's launched this is very happy with the service.
We're seeing good returns we're seeing good penetration.
The operators that are that are providing the service are happy with it and but I think that's that's great.
Now, we're working closely with those step.
Is that are providing the service today to try and expand that to get higher penetration get into more segments and so on in that.
Erez Entebbe: Everybody who's launched this is very happy with the service and the clinic, and... I would say that, in terms of new customers, we made the decision to do a few things. One is to focus on a significantly smaller number of new customers than we have been focusing on or we have been looking at, I don't know, just a year, a year and a half ago. We have significantly reduced our cost base in order to enable ourselves, I would say, the stamina and the ability to continue to grow the CCAS business while waiting for the whole market at large to embrace the concept of network-native security and start I am convinced that at some point in the future, it will happen, but right now, it has not happened yet, so we're spending much less resources and focusing on those opportunities that we believe we have a high chance of converting into successful deals, and we believe that those specific operators will put the right go-to-market emphasis, priority, and so on on this type of service.
And I think that's very positive and Thats what were building our 2024 forecast on.
I would say that.
In terms of new customers.
We made the decision to do a few things one is to focus on a significantly smaller number of new customers than we have been focusing on are we have been looking at.
Just a year or year and half ago.
We have significantly reduced our cost base.
In order to to make to enable ourselves.
I would say the stamina and.
Yes.
And the ability to to continue to grow.
The <unk> business, what while waiting for four.
The whole market at large to embrace the concept of network native security and start locking at a much much larger numbers that we seek to date I am good.
But at some point in the future it will happen, but right now it has not yet so we're focusing our spending much less resources are focusing on those opportunities that we believe we have a high chance of converting into successful deals and we believe with those specific operators will put through.
<unk> go to market emphasis priority and so on on this on this type of service.
Zib Lightman: Okay, and then as far as the operating expenses are concerned, were there any restructuring expenses in the Q4 non-GAAP operating expense number, and what's a good number to use when the restructuring activities are complete as far as the baseline of non-GAAP operating expenses is concerned? So, the total office. For Q4, it was... around $29.6 million. Out of it, approximately $9 million. It was a one-time deal. All these are for credit loss. So, it's... It's less than $21 million excluding doubtful debt or the credit loss. We had a few millions of other one-time items.
Okay, and then as far as the operating expenses were there any restructuring expenses in the Q4 non-GAAP operating expense number and whats a good number to use.
The restructuring activities are complete as far as the baseline of non-GAAP operating expenses.
So.
The total opex.
For Q4, which was.
Around the 29 six.
$6 million or at all.
<unk> grew approximately $9 million it was onetime.
Our vision for credit loss.
So it's.
We can about it's less than $21 million.
Excluding the doubtful debt all the credit loss.
We had.
<unk>.
A few millions of.
One time items.
Zib Lightman: And we did say that at the end of the year we had 559 FTEs, while at the end of Q1, we are expecting around 510. So it's about another 9% reduction in it. So it's also a few millions a year.
And.
We did say that at.
At the end of the year, we had the.
559 Ftes.
At the end of Q1.
We are expecting around 510.
Hello, it's about.
9% reduction in head count.
So it's also a few millions.
Zib Lightman: That's helpful. So is it fair to think about that non-GAAP OPEX number adjusting for one-time items would be somewhere in the vicinity of $17 million or so a quarter in Q2 when you go through the restructuring and you have that new lower headcount? Again, as I said, we decided not to provide the guidance. I think it's a 17-minute... It's too low, but I would guess it would not be 19. Sorry, he said he couldn't tonight, so it will be lower than 19.
That's helpful. So is it fair to think about that non-GAAP opex number.
Adjusting for one time items.
And somewhere in the vicinity of $17 million or so a quarter in Q2. When you go through the restructuring and have that new lower head count.
Again as Alan.
<unk> said that we decided not to provide the guidance im saying thats a $17 million.
Is too low.
But.
But I would guess it will be 19.
Sorry <unk>.
<unk>.
Lower than below the 19.
Zib Lightman: And, okay, that's helpful. That narrows it down. So, thank you for taking my question. If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Mr. Antebi, would you like to make your concluding statement?
Okay.
Helpful that narrows it down so thank you for taking my questions.
Is there any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
There are no further questions at this time, Mr. <unk> would you like to make your concluding statement.
Erez Entebbe: I want to thank everyone for joining our call, and I want to thank you all for your support of Allot, and I look forward to meeting with you and talking to you, either in person sometime in the near future, and if not, in the next learning call. Thank you very much. Thank you. This concludes the Allot 4th Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect. Thanks, everyone!
Yes.
I want to thank everyone for joining our call and I want to thank you all for your support of <unk>.
And I look forward to meeting with you and talking to you.
Either in person, sometimes in near future and if not in the next earnings call. Thank you very much.
Thank you this concludes the alone.
First quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.
No.
Yes.
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