Allot Ltd. — 2016 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2016. This is an annual report; the supplied filing does not provide clear standalone fourth-quarter financial results.
Business context and financial performance
Allot develops network traffic management, analytics, policy-control and security solutions for telecommunications operators, enterprises and other customers. It reports one operating segment and prepares its financial statements under U.S. GAAP. Amounts below are U.S. dollars.
| Metric | 2016 | 2015 | Change / context |
|---|---|---|---|
| Revenue | $90.4 million | $100.0 million | Down 9.6% |
| Product revenue | $54.4 million | $62.6 million | Down 13.1% |
| Service revenue | $35.9 million | $37.3 million | Down 3.7% |
| Gross profit / margin | $62.5 million / 69.1% | $66.5 million / 66.6% | Margin improved 2.5 percentage points |
| Operating loss | $6.8 million | $15.9 million | Loss narrowed |
| Net loss / diluted loss per share | $8.0 million / $0.24 | $19.8 million / $0.59 | Loss narrowed |
| Cash from (used in) operations | $(3.5) million | $4.2 million | Cash generation weakened |
Liquidity, debt and cash flow
- At year-end, cash and cash equivalents were $23.3 million, short-term deposits $29.8 million, and available-for-sale marketable securities $60.5 million: $113.7 million combined.
- Working capital was $124.0 million; total liabilities were $33.6 million and shareholders’ equity was $157.3 million. The company reported no long-term borrowings.
- Investing activities provided $15.0 million, primarily reflecting changes in deposits and marketable securities; purchases of property and equipment were $1.6 million. Financing activities used $3.7 million, including $3.8 million of share repurchases.
- Management said existing cash balances should cover anticipated working-capital and capital-expenditure needs for at least 12 months. Planned 2017 capital expenditures were approximately $2.9 million.
Changes versus the prior period and unusual items
- Revenue declined, primarily because of fewer transactions with large Tier 1 operators and adverse currency movements. Europe revenue fell to $34.3 million from $39.1 million; U.S. revenue fell to $2.9 million from $8.2 million.
- Operating expenses declined to $69.3 million from $82.4 million, reflecting cost reductions. The company recorded $1.3 million in 2016 restructuring costs and reported staff reductions.
- Gross margin improved partly because 2015 included a $5.8 million impairment charge on acquired intangible assets; no intangible-asset impairment was recorded in 2016. The filing also reports 2016 inventory write-offs of $1.0 million.
- Income-tax expense was $2.2 million versus $3.4 million in 2015. 2016 included a $1.8 million write-off of prepaid and withholding taxes.
- Allot repurchased 791,000 shares for approximately $3.8 million in 2016, at an average price of $4.82 per share.
Outlook, risks and contingencies
- No specific 2017 revenue or earnings guidance is provided. Management stated it did not expect operating expenses to increase in 2017, while noting that expenses could rise in later periods.
- Key risks include dependence on two Tier 1 operator groups, which generated 42% of 2016 revenue; channel partners, which generated approximately 41%; and traffic-management systems, which represented 50% of revenue.
- Other material risks include intense competition, long customer sales and acceptance cycles, net-neutrality regulation, currency exposure, evolving encryption and security threats, and dependence on a single subcontractor for manufacturing and hardware warranty support.
- A former employee’s dismissal claim was pending; the company stated it had valid defenses and counsel estimated any award would not exceed $32,000. The filing reports no material off-balance-sheet arrangements.
- Allot reported effective disclosure controls and internal control over financial reporting. Its independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether revenue and operating cash flow stabilize after the 2016 decline, and whether the reported cost reductions are sustainable.
- Renewal, order timing and deployment trends among the two major Tier 1 customers and the contribution from channel partners.
- Progress in security and other value-added offerings relative to the declining product-revenue base.
- Liquidity composition and investment risk, and the effect of future share repurchases, restructuring and the Optenet earn-out obligation.
- Management’s 2017 operating-expense and capital-expenditure expectations; the filing does not give a numeric revenue outlook.