Business context and reporting period
Allot Ltd. filed this Form 20-F for the fiscal year ended December 31, 2018. Although the request refers to 2018 Q4, the filing reports annual results; it does not provide a clear standalone fourth-quarter income statement or cash flow. All amounts below are U.S. dollars.
Allot develops network-intelligence and security solutions for service providers and enterprises. Network-intelligence products generated 74% of 2018 revenue; security solutions generated 26%.
Financial highlights
Unless noted, amounts are in millions. Results are audited and prepared under U.S. GAAP.
| Metric | 2018 | 2017 | Change/comment |
|---|---|---|---|
| Revenue | $95.8 | $82.0 | Up 16.9% |
| Product revenue | $56.2 | $48.7 | Up 14.9% |
| Service revenue | $39.7 | $33.3 | Up 19.3% |
| Gross profit / margin | $66.5 / 69.4% | $53.5 / 65.2% | Margin expanded 4.2 percentage points |
| Operating loss / margin | $(10.2) / (10.6%) | $(17.4) / (21.2%) | Loss narrowed |
| Net loss / diluted loss per share | $(10.4) / $(0.31) | $(18.1) / $(0.54) | Loss narrowed about 42% |
| Operating cash flow | $1.0 | $(0.2) | Turned positive |
| Capital expenditures | $3.5 | $2.8 | Primarily equipment and IT investment |
At year-end, cash and cash equivalents were $16.3 million, short-term bank deposits $22.5 million, restricted deposits $0.7 million, and available-for-sale securities $64.3 million. Working capital was approximately $102.0 million. The company reported no long-term borrowings and said existing cash resources should cover working capital and capital expenditures for at least 12 months. Shareholders’ equity in the audited balance sheet was $135.9 million.
Material changes versus the prior comparable period
- Revenue rebounded from the 2017 decline, with management citing improved sales execution, organizational changes supporting sales, and stronger demand for Visibility and Control offerings.
- Gross margin recovered to 69.4% from 65.2%, while operating expenses rose $5.8 million to $76.7 million. R&D increased to $25.4 million net, sales and marketing to $40.8 million; general and administrative expense fell to $10.4 million.
- Financial income rose to $2.2 million from $0.9 million, mainly reflecting foreign-exchange differences and higher interest income. Income-tax expense rose to $2.4 million, including increased write-offs of withholding taxes.
- Operating cash flow improved to positive $1.0 million, but working-capital movements included a $3.4 million increase in receivables and a $3.4 million increase in inventory. Cash and cash equivalents increased by about $1.0 million during the year.
- Allot adopted ASC 606 in 2018. The adoption increased 2018 revenue by a net $92,000 versus the prior accounting treatment and produced an opening retained-earnings adjustment of $712,000.
Outlook, commentary, risks and unusual items
- Management expected 2019 gross margin to remain at approximately the 2018 level and forecast about $3.6 million of 2019 capital expenditures, mainly for R&D and customer-success lab equipment and IT infrastructure. No revenue or earnings guidance was provided in the supplied filing text.
- Allot continued to report a history of losses and cautioned it may not achieve or sustain profitability. It intends to continue investing in areas it believes support future growth.
- Customer concentration remains material: one Tier 1 mobile and fixed operator accounted for 22% of 2018 revenue, down from 32% in 2017. Channel partners generated approximately 48% of revenue, and Europe represented 48% of revenue.
- Key business risks include competition and industry consolidation, increasing encryption that can impair DPI-based products, long service-provider sales and deployment cycles, reliance on CSP spending, and dependence on a single subcontractor for Service Gateway Tera hardware. Regulatory changes, privacy requirements, currency movements, cybersecurity incidents, and Israel-related operational risks are also identified.
- Allot acquired Netonomy in January 2018 for total estimated consideration of $4.38 million, including cash, holdback and contingent consideration. The acquisition added $3.66 million of in-process R&D intangible assets and $0.87 million of goodwill; the contingent payment is tied to revenue performance through September 2020.
- The company reported no material off-balance-sheet arrangements, no long-term borrowings, and no expected material impairment charges for 2018. An employee dismissal claim remained pending; counsel estimated the award would not exceed $190,000.
Most important facts for investors to verify
- Confirm the annual-versus-quarterly scope: this 20-F covers the year ended December 31, 2018 and does not provide standalone Q4 results in the supplied text.
- Reconcile apparent inconsistencies in the selected-financial-data table: it displays shareholders’ equity as negative $135.9 million, while the audited balance sheet reports positive $135.9 million; it also lists total liabilities of $53.491 million, whereas the audited current and long-term liability components sum to $53.941 million.
- Assess whether revenue growth and the improved gross margin can continue, and whether operating expenses can be supported by recurring revenue and cash generation.
- Monitor the major Tier 1 customer, channel-partner contribution, European exposure, and the timing of large customer orders and acceptance criteria.
- Review cash conversion, inventory and receivables growth, the Netonomy earn-out and holdback obligations, and the impact of the 2019 lease-accounting adoption, which management expected to add about $6.7 million of right-of-use assets and lease liabilities.