Rami Rozen - AVP Corporate Development Andrei Elefant - President and Chief Executive Officer Shmuel Arvatz - Chief Financial Officer.

Matt Robison - Wunderlich Catharine Trebnick - Dougherty & Company Joseph Wolf - Barclays Alex Henderson - Needham Michael Leonard - Oppenheimer Jason North - Jefferies.

Thank you very much, and thank you all for joining us on our first quarter 2015 conference call. My name is Rami Rozen, and joining me today are Allot’s President and CEO, Andrei Elefant; as well as our Chief Financial Officer, Shmuel Arvatz.

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 excludes stock-based compensation expense, revenue adjustments due to acquisitions, reconstruction cost, expenses related to M&A activity, amortization of certain intangibles and inventory write-offs. 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 judgments 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 Report on Form 20-F filed by Allot with the U.S.

Securities and Exchange Commission, and those referenced in today’s press release, both of which, detail 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 Andrei..

Thank you, Rami, and thank you all for joining us today. In today’s call, I will highlight Allot’s results and share with you some of Allot’s achievements for the first quarter of 2015, and then I will hand over the call to our CFO, Shmuel Arvatz, for a short review of our financial performance for the quarter.

Our first quarter results came in at $29.5 million, up 4.4% year-over-year and down 3.5% sequentially. Net income for the quarter was $2.9 million, up 40% year-over-year and down 40% sequentially. Year-over-year growth, as well as improved margins, were achieved, despite foreign exchange headwinds, on which, Shmuel will elaborate later.

During the first quarter of 2015, we completed acquisition of Optenet, a global leader in the field of Security-as-a-Service. We have been collaborating with Optenet for the past two years and gained significant working experience with Optenet as a partner.

The solution is fully integrated in the Allot service gateway platform, and this partnership has already resulted in more than 10 service providers wins, half of which, are large tier-1 mobile operators. The joint activity of Allot and Optenet has generated more than $20 million in revenues over the last two years.

A large portion of that were software licenses. During the first quarter, we have one another tier-1 service provider together. I'd like to spend a few minutes to provide additional color on the deal and the strategic benefits that may stem from the acquisition.

The acquisition will significantly broaden Allot’s addressable markets by enabling Allot become leading provider of Security-as-a-service solution. With this solution, Allot will help operators deliver security services to their business and residential users.

The acquisition provides new monetization opportunities for communication service providers, enabling them to provide value to both, residential and enterprise customers. Optenet, for that, complements Allot’s existing security offering especially in the areas of data protection and content featuring.

The acquisition expands Allot’s installed base and opens cross selling opportunities. In addition to the above, Optenet’s products complement Allot’s offerings to cloud operators and large enterprises by providing enhanced security on the cloud access point.

In terms of bookings, we continued to see similar encouraging trends of growing customer diversification as the number of large deals reached 18 in total, out of which, three large orders were from new customers. Eight of the large orders came from mobile service providers and eight from fixed line service providers.

In addition, two large orders were received from clouds operators. Book-to-bill this quarter was below one. Booking was weaker this quarter, mainly due to seasonality, and the fact that couple of the large deals that we are involved in require longer time to materialize.

Having said, that we continued to grow the funnel and we specifically see growing opportunities in the areas of monetization and security. Gross margin during the quarter was 76%, above our typical range of 74% to 75%.

We believe that our service gateway solution with the value-added services continued to offer unique value proposition of service providers, which supports the achievement of a healthy gross margin. Moving on to a short review of our value-added services category.

During the first quarter of 2015, VAS represented 38% of our bookings, compared to 37% in previous quarter. As a reminder, we divide our VAS category between four groups; Security, Monetization, Analytics and Optimization.

During the quarter, the monetization and security categories were leading followed by optimization and analytics, similar to the ranking in previous quarter. Monetization and security accounted for 70% of our VAS bookings.

We continued to view VAS as our main business driver in the coming years, with key strengths coming from the security and monetization categories. Geographical revenue breakdown during the quarter was as follows. EMEA 48%, APAC 28% and the Americas 24%. We are seeing a nice pickup in our bookings and funnel of opportunities in the Americas.

During the first quarter, we had launched SmartEngage, a unique solution designed to help mobile service providers to enhanced and better monetize their engagements with their subscribers.

Allot’s SmartEngage elevates customer experience management by using advanced traffic awareness capabilities delivered via the Allot service gateway to detect specific browsing activity and present subscriber with offerings that are relevant for him.

With regard to our cloud access optimization solution, we increased our sales in this category by 26% year-over-year. The main benefit for the cloud operators are the greater visibility gains with the service gateway together with their ability to manage and secure the access to the cloud, specifically for business applications such as Office 365.

In the last quarter, we had received two large orders from communications service providers, delivering cloud services to enterprises across Europe. These wins came as the result of our carrier-grade proven technology, ease of deployment of these networks, as well as multi-tenancy capability.

Before summarizing, I will turn the call over to Shmuel Arvatz, to review our financial results..

Thank you, Andrei. During the first quarter of 2015, we completed the acquisition of Optenet, which will enhance our offering and market positioning in the Security-as-a-Service segment. We continued to improve our gross margin and operating margin on a year-over-year basis, as well as generated positive cash flow from operations.

Before I begin reviewing the financial results of this quarter, I would like to inform everyone that on this call, unless otherwise noted, I would refer entirely to the non-GAAP financial measures when discussing operational results.

Non-GAAP financial measures differ in certain respects from the generally accepted accounting principles and exclude share-based compensation expenses, revenue adjustment due to acquisitions, expenses related to M&A activity, restructuring costs and amortization of certain intangible assets. Turning to our first quarter results.

Revenue for the quarter were $29.5 million, up 4% year-over-year and down 4% sequentially. As a percentage of revenue, sales in the Americas accounted for 24%, EMEA 48% and Asia Pacific 28%. During the quarter, we had one 10% customer. As Andrei mentioned, we are encouraged by the improvement in our booking and funnel in the Americas.

Product revenues for the quarter accounted for 68% of revenues, while service revenues were 32% compared to 65% and 35% split during the first quarter of 2014. Moving on, gross margin for the quarter was 76% of revenues compared to 73% during the first quarter of 2014, up 3%.

Gross margin may fluctuate on a quarterly basis, however, these results exceed our target model of 74% to 75%. Operating expenses during the quarter were $19.4 million, a $1.1 million decrease compared to the previous quarter.

The reduction in OpEx resulted from cost reduction measures implemented in our R&D department, as well as lower sales and marketing expenses mostly due to the reduction in referrals and similar variable fees. Our headcount, including Optenet, has increased to 529 employees, up from 462 employees at the end of last year.

Following the acquisition of Optenet, we expect OpEx to be in the range of $20 million to $21 million level in the second quarter this year. Operating results for the quarter were negatively impacted by the currency changes, mostly due to the depreciation of the euro against the U.S. dollar.

On a constant currency rate, as prevailed in the first quarter of 2014, revenues and operating profit for the quarter would have been higher by about $2.6 million and $2.1 million, respectively.

On a constant currency rate, as prevailed in the fourth quarter of 2014, revenues and operating profit for the quarter would have been higher by about $1.4 million and $800,000, respectively. Net income for the quarter was $2.9 million or $0.09 per diluted share, compared to $2.1 million or $0.06 per diluted share in the same quarter last year.

Turning to the balance sheet. Our cash reserves, comprised of cash, cash equivalents and investments, totaled $123.8 million, including the payment of the first installment to Optenet shareholders in March. We generated $2.1 million in operating cash flow. DSO was 72 days, which is slightly below our target model of 75 to 90 days.

With that, I'll turn the call back to Andrei..

Thank you, Shmuel. To summarize, during the first quarter, we completed the acquisition of Optenet, which significantly enhanced Allot’s offering of advanced security services to operators worldwide. Revenues for the quarter continued to grow mainly, driven by strong performance of our monetization and security offering.

Despite Forex headwind, our profitability continues to improve and we are taking additional measures to improve it further on. With that, I will open the call for a Q&A session.

Operator?.

Certainly, yes. [Operator Instructions] We'll now take our first question from Matt Robinson of Wunderlich. Please go ahead..

Thanks for taking my question. I think will focus a little bit on the backlog and bookings. I think this is the first time in nine quarters, where your book-to-bill has been fractional.

Can you give us a flavor of the magnitude of backlog compared to six months ago and a year ago? And over the past two years, can you give us an indication, what the range of backlog was, in terms of weeks, and when it was at the lowest level?.

I can give you an indication on our backlog because of the book-to-bill that is below one. It's certainly declined from previous quarter. I don't have in front of me the other - the answer to the other question that you had.

Shmuel, do you have the number?.

Yes, overall the backlog went down, and it’s below the level we had in the end of 2014. Since we gave - traditionally we give book-to-bill only as a measure of below and higher than one, the backlog was not there discussed, we will not open now to disclose the exact number of backlog, but obviously it's below what we had in last year..

That’s true. I understand. You don't really - I wouldn't expect to get that specific, but I don't think that's an adequate answer.

We should know if the backlog is - obviously it's lower than it was actually last year, but is it lower than the prior quarter, or the prior quarter before that, how severe should we look at this?.

I think in order to provide an accurate answer, we need to look at the numbers also in the - with the right currencies. So to give you the accurate answer, we don't have it in front of us. So we can say that compared to previous quarter, we are down.

Also compared to the quarter before that, we are down, as we were around one in the book-to-bill ratio two quarters ago. Now on top of that, there were currency impacts. So it's hard to say and to provide an accurate answer on that to compare it to the exact level of the backlog in the different quarters last year.

I think the way that it should be looked at is the seasonality, and we had couple of orders, as I mentioned, that we are still working on them. In general, I would say that we haven't lost deals, so what we have in the funnel is still in our funnel.

And again as we always state, there is a lumpiness in other business, and that we can't expect exactly when specific order will end. And this quarter our book-to-bill was below one..

So it sounds like your backlog is maybe similar to what it was actually in September, and can we think in - how does it compare - how does it feel to you compare the outlook that you had in the back half of 2013?.

What Andrei said that the backlog was below the level we had in December as well as in September. And I would say that the fluctuation and that dependency on large transaction is built in our business model, and one negative or positive quarter we believe does not indicate change in the trend in our business.

And as Andrei said, we are still negotiating some large deals that we’re planning there for the first quarter, and probably next quarter will be no better where we are in terms of bookings for the year..

That's why I asked, Andrei, about comparing it to what it was like back in late 2013, because there was definitely a shift in trend then. So, if you could give us a qualitative perspective of how things look now compared to then, Andrei that would be helpful..

Again I would repeat the answer. The backlog compared to December, and as Shmuel said and as I said, also to September went down. Again to compare based on a specific order or couple of orders that we continued to work in and based on that define the exact trends, I'm not sure that I’ll give a precise answer if I based my answer on this one..

Okay. Thanks for candid response, Andrei..

Yes, Matt, take into account that last quarter we had slightly above one, so practically one. So obviously now we are negative, so we are below March quarter, which is also as a result of the flat quarter or slightly above one that we had in the fourth quarter..

Thank you. Our next question comes from Catharine Trebnick of Dougherty & Company..

Thank you. Hi, could you discuss the competitive landscape? It seems like you're pivoting more to the value-added services, specifically the Security-as-a-Service.

And typically, who do you compete against, and are these new wins that you're winning as a Security-as-a-Service or are they incremental to where your gateway is, and then are you displacing anyone with the win, or is it totally new win within the operator?.

Okay. So first of all, the security additional enhancements that we have on our platform. The Security-as-a-Service solutions are coming on top of our DPI and the basic service gateway capabilities.

Some of the wins that I mentioned earlier together with Optenet, we delivered security services on existing platforms that were deployed there in the market with existing customers. However we did win some new customers together, leveraging this advantage that we have.

In these projects, we competed against the security providers and not against DPI players, including a major deal that we won last quarter together with a tier-1 operator. We mentioned that in one of our press releases.

And that project was purely about Security-as-a-Service, and we competed against other security providers and not against our traditional DPI competitors..

And then you had said that bookings in the United States or in the Americas have improved, could you describe, at least, on where the opportunities are for those bookings and the orders are coming from? Not necessarily the carriers, but what products and services, are most interesting to the Americas carriers from your product portfolio?.

It's mainly around monetization and security services. I would say security first, and then monetization services. These are the areas that help us to improve our performance in the Americas this quarter..

All right. Thank you..

Thank you. Our next question comes from Joseph Wolf of Barclays..

Hi, thank you. I had a question about the - little bit more Optenet. And you gave the headcount of 529 versus 462.

Are all 67 people from the acquisition, or has there been some organic hiring as well? And where is the company physically located, how are you managing that facility?.

Okay. I'll start with the second question. The headquarter of the company is in Madrid. And they have some additional offices in some other countries, but most of the people are in Madrid.

And what we are going over the last year is that we are shifting resources from certain areas that we see less traction in into the solutions where we see the main growth engine, namely the monetization and security.

So part of the increase in the headcount is a result of the transitions that we are doing, both internally and through the acquisition..

But how many people were added by - can you just go through the terms of the deal? You said there were - I think in the press release, it was $5.5 million with a $26 million earn-out, and then in the cash flow statement, it looks there was a $10 million payment.

Could you just go through some of the terms of the deal and how you expect the earn-out and the cash flow to happen?.

Yes, the deal has about €5.5 million upfront. And additional amount that was deposited in escrow for covering future payments, so it's not in our control. So we put everything as cash payment. So overall in the cash flow statement, you see about $10 million that were paid in the transaction.

Now to your other question, this quarter the increase in employees’ headcount was totally because of the acquisition. It's about 80 people. Actually the headcount for the core business was down by about five employees..

Okay. That's helpful. And then, you gave some guidance on OpEx, $20 million to $21 million in 2Q.

Is that the level we should be thinking about for the full-year? How should we be thinking about OpEx in comparison to the revenues going forward?.

Yes. You should assume maybe same level for Q3, and in Q4 we may exceed the $21 million..

And then, just one last question. I knew we were going back and forth on the backlog with the first question. Can you give us a sense of the deal size with the security and monetization? How long are deals sitting in backlog.

If we're trying to do any analysis of what the outlook for 2015 looks like right now, based on a combination of currency and the funnel that you're describing, how should we be thinking about how long things sit in backlog, the timing it takes to close these deals, the size of these deals, anything we can use to think about growth rates for this year?.

I believe the security projects are similar in nature to what you we saw in the past, meaning with existing customers that already rolled out the service, we have built with them or we sell additional licenses or expansions on the security offering, and these projects are typically deployed very quickly, sometimes even within the quarter.

When we talk about the new customers, then it's a longer process, it requires the deployment of the service gateway into the network and integration into the infrastructure of the operator, or the cloud provider and these may take three to six months on a typical project..

Okay. Thank you..

Thank you. [Operator Instructions] Our next question comes from Alex Henderson of Needham..

Hi guys. Couple of quick, just sort of housekeeping questions.

Can you give us roughly what the services were as a percentage of revenues?.

Yes, the services in the quarter as a percentage of revenues were 35% - sorry product was 68% products, and the product in the same quarter last year was 65%. The remaining 100% is to the services..

Right.

And any comment about the enterprise piece as a percentage of revenues, or whether you saw any traction in the enterprise, and what are you doing on the spending to support enterprise growth?.

As I mentioned in my previous statement, the cloud vertical increased in terms of revenue by 26%. So it's growing faster than some other parts of the business and we continue to invest in that direction.

As I mentioned in previous calls, we identified the cloud access as - private and public cloud access optimization has a vertical that makes sense for us. We have, we believe, very good solution for that aspect and there is demand for solutions in that area.

We are investing mainly in sales and marketing in order to expand our reach to that the vertical. And the result, as mentioned, was nice increase by 26% this quarter. It's still not representing the bigger part of our business, but it's growing quite nicely..

Are we talking about approaching 10% of revenues with this or no?.

It's almost 10%. On a typical level, last year it was around 20%. And of course as mentioned, it's growing faster than the other parts - some other parts of the business..

So, if I strip out the cloud growth. If it's 20% of revenues, that 5% contribution to revenue growth implies that your non-cloud business is actually declining year-over-year.

Is that accurate?.

It was - if I take only that - again there are some areas that are growing faster like value-added services, some areas that are even declining, but you're right, if we take based on revenues, there is a big contribution of the cloud access solutions.

And again as mentioned earlier, the security and monetization services also contributed to the growth..

Is the cloud and security piece heavily skewed to the Americas, and that's part of why you're seeing strength in the Americas geography, because that seems like that's the primary driver of it..

We see the pickup both in the Americas and EMEA. These are the main areas where we see strength in this category..

Okay.

The other question I had for you, again it's a little bit of bookkeeping is, could you give us the 10% customer number for the quarter, and if there was any customer solidly above 10%, was there anybody that was particularly large?.

There was one customer. One 10% customer in the quarter..

Okay. Thank you very much..

Thank you. Our next question comes from Michael Leonard of Oppenheimer..

Hi, guys can you hear me?.

Yes, please. Go ahead..

Yes..

Yes..

Okay. Thank you for taking my question. Back to the growth in the quarter. You guys saw a big slowdown, and it's actually your third straight slowdown in year-over-year growth. And I just want to get a sense of why that is? Is that simply a function of more difficult comps, and where is that slowdown primarily coming.

Are you seeing that more in value-added services or DPI? I just want to get a better understanding of this slowdown in growth that has kind of persisted now..

Can you repeat the first part of the question?.

Yes. I'm just trying to understand the - you have this slowdown in year-over-year growth rates, that we've seen for three consecutive quarters now..

Okay..

I just want to understand what's driving that, and how much that is difficult comps versus demand related issues?.

Well, year-over-year growth, just to maybe update the rest of the people, in 2015, we had - the first half of 2015 was a challenging two quarters for Allot. Therefore you saw when - once we rebounded, you saw year-over-year a very significant increase in terms of revenues.

We started after this second quarter of 2015 going into Q3 2015 we got back to our normal growth base. And since then we continued to grow in a more moderate way. I would say again, given the Forex headwinds that we saw, I believe that we achieved the nice growth in Q1, and we also improved our profitability this quarter.

And I believe that the directions that we were taking and we talked about them over last year are showing that these are the right direction. These are the growth engines for us..

Okay. And you’re - I assume a lot of the issues came from EMEA and FX. Can you give me any idea of what’s your growth or revenue, how it would have looked in EMEA on a constant currency basis? I think you mentioned a $2.8 million number.

Is the majority of that in EMEA?.

Yes, in constant currency, so year-over-year growth could have been 9% compared to 4% actually achieved by us, mostly because of the erosion of the euro against the U.S. dollar.

The overall impact on the financial operating results was about $2.1 million, because we had some benefits in expenses, mostly because of the euro and the shekel that was weakening against the U.S. dollar..

Okay, thank you. Last question. You mentioned some larger deals that are taking a little bit longer to close.

Are those large deals that you typically have, or are deal kind of closing times extended on deals in the past might have closed sooner?.

These are types of deals that we typically have. And as we mentioned in previous calls, there is lumpiness in our business and this is natural. Sometimes it takes more time to close a deal. Not everything depends only on us. In this specific quarter, we have two of the deals that we expected to close in Q1, moved and taken us longer to close.

Again as mentioned earlier, we haven't closed any deal and we continue to see the opportunities..

Okay. And the longer deal times were not competitive.

You would not characterize it as competitive issue?.

No. In these specific deals, no..

Okay. Awesome. Thank you guys. Good luck..

Thank you. Our next question comes from James Kisner of Jefferies..

Hi. This is Jason North for James. Two questions on the cloud. First, did the mix shift towards cloud, was that a factor that helped gross margins during the quarter? And secondly, the number of large cloud deals per quarter have been about two to three for the last four quarters.

Do you see that ramping up throughout the course of the year, or do you expect that to be to continue around this level? Thank you..

In terms of large deals, you're right. We had between two to three deals per quarter. However in many cases, some of these deals are smaller than our large deal barrier. In general, I would say that when we are selling into cloud operators our solutions, typically the gross margins are higher than the average. However it depends on the specific deal.

But on average, I would say both in cloud access optimization and in the other growth factors like security and monetization, value-added services, in these areas our gross margins are higher.

It many times depends on the exact mixture of the products that the cloud operator purchases in how many value-added services are deployed on top of our basic service gateway..

Great. Thank you..

Thank you. There are no further questions at this time..

Thank you everyone for joining us on our first quarter 2015 conference call. Thanks. Bye..

Thank you very much..