Allot Ltd. (Allot Communications Ltd.) — FY 2015 Form 20-F
Reporting period: Year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing; Q4-specific results are not clearly provided. Financial statements are audited and prepared under U.S. GAAP. Amounts below are U.S. dollars unless stated otherwise.
Business context and financial performance
Allot provides network traffic management, analytics, monetization and security solutions to communications service providers and enterprises. It acquired substantially all of Optenet’s business and assets in March 2015 to expand its security offerings.
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $100.0 million | $117.2 million |
| Product revenue | $62.6 million | $77.2 million |
| Service revenue | $37.3 million | $39.9 million |
| Gross profit / gross margin | $66.5 million / 66.6% | $82.4 million / 70.3% |
| Operating loss | $15.9 million | $3.1 million |
| Net loss | $19.8 million | $2.5 million |
| Basic and diluted loss per share | $0.59 | $0.08 |
| Cash from operating activities | $4.2 million | $15.8 million |
Product gross margin declined to 57.4% from 64.5%. The filing reports no long-term borrowings. At year-end, cash and cash equivalents were $15.5 million, short-term bank deposits $42.7 million, available-for-sale securities $64.9 million and restricted deposits $0.2 million. Working capital was $126.8 million; total liabilities were $44.8 million and total assets $208.2 million.
Material changes versus FY 2014
- Revenue fell 14.7%. Product revenue declined 18.9%; service revenue declined 6.6%.
- Management attributed weaker product revenue to longer booking-to-revenue conversion cycles, foreign-currency effects and fewer large Tier 1 operator equipment upgrades.
- Gross margin fell to 66.6%, while operating expenses remained substantial at $82.4 million. Operating loss widened to $15.9 million.
- FY 2015 included a $5.8 million impairment of acquired intangible assets, following decisions to phase out the Ortiva and Oversi product lines. The company also recorded $3.4 million in income tax expense, including write-offs of deferred and prepaid tax assets.
- Cash from operations decreased to $4.2 million. Cash and cash equivalents declined by $3.7 million during the year.
- Revenue concentration eased but remained significant: two Tier 1 operator groups contributed 37% of revenue, versus 44% in 2014. One customer accounted for 27% and another for 10% in 2015.
Outlook, commentary, risks and unusual items
- Management stated that existing cash and investments should cover working capital and capital needs for at least the next 12 months. It expected approximately $2.5 million of capital expenditures in 2016, primarily for R&D lab equipment, and did not expect operating expenses to increase in 2016. No specific revenue or earnings guidance is provided.
- At the beginning of 2016, Allot announced that MediaSwift E and VideoClass would be withdrawn from sale and support on a scheduled timetable, citing encrypted video and lower bandwidth costs for VideoClass. This follows the decision to end certain acquired product lines.
- Optenet acquisition consideration was estimated at $17.9 million, including $9.9 million paid in cash and contingent consideration initially valued at $8.1 million. The earn-out is based on product revenue over five years and is capped at approximately $27.5 million.
- Key risks include intense competition and technology substitution; long and uneven sales cycles; dependence on major customers and channel partners; reliance on a single hardware manufacturing subcontractor; product failures; foreign-exchange exposure; and emerging-market weakness. New U.S. net-neutrality rules may constrain service providers’ traffic-management practices and affect demand.
- Government R&D grants impose conditions on manufacturing and technology transfers outside Israel; noncompliance could require repayment with interest and penalties. The company also faces Israeli tax-benefit eligibility risks and potential tax consequences if its 2015 PFIC position is challenged. Management believes it was not a PFIC in 2015, but provides no assurance.
- The company reported no material off-balance-sheet arrangements and no material pending legal proceeding in the supplied filing text. It has no long-term debt and had no declared cash dividends. A share repurchase authorization of up to $15 million was approved; 25,000 shares costing $166,000 were repurchased in 2015.
Most important facts for investors to verify
- Whether the lower revenue base and reduced Tier 1 upgrade activity persist, and whether the company converts bookings into recognized revenue more promptly.
- Whether gross margins and operating performance stabilize after the impairment and product-line exits; confirm the commercial and support transition for MediaSwift E and VideoClass.
- Cash generation and the composition, liquidity and investment risk of the $123.1 million in cash, deposits and marketable securities, alongside the company’s 12-month liquidity assessment.
- Customer concentration, especially the two operators representing 37% of 2015 revenue, and the durability of their purchase orders.
- Optenet earn-out payments and realized revenue contribution, as well as any further impairment or integration costs.
- Tax-asset write-offs, future tax expense, Israeli grant and tax-benefit compliance, and the company’s PFIC assessment for U.S. investors.