Allot Ltd. — 2020 Annual Report (Form 20-F)
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Financial statements are audited and prepared under U.S. GAAP; amounts below are in U.S. dollars.
Business context and key financial metrics
Allot provides network intelligence and security solutions to communications service providers and enterprises. Its offerings include network analytics and traffic management, and network-based security services. Network intelligence solutions generated 83% of 2020 revenue; security solutions generated 17%.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $135.9 million | $110.1 million |
| Gross profit / margin | $95.8 million / 70.5% | $76.3 million / 69.3% |
| Operating loss | $9.0 million | $9.0 million |
| Net loss | $9.3 million | $8.7 million |
| Net loss per diluted share | $0.27 | $0.25 |
| Cash from operating activities | Use of $12.2 million | Source of $16.1 million |
| Working capital | $87.8 million | $79.4 million |
| Total liabilities | $71.4 million | $83.3 million |
Revenue rose 23.4%. Product revenue increased 37.2% to $92.5 million, while service revenue increased 1.7% to $43.4 million. Operating expenses increased 23.1% to $104.9 million, broadly matching revenue growth. The company reported no long-term borrowings.
At year-end, Allot held $23.6 million in cash and equivalents, $27.2 million in available-for-sale securities, and $48.4 million in short-term and restricted deposits, plus $0.2 million in long-term deposits. Management said existing cash resources should meet working-capital and capital-expenditure needs for at least 12 months. 2021 capital expenditures were estimated at approximately $9.6 million.
Material changes versus 2019
- Revenue growth was led by product sales and a significant EMEA customer project. Europe’s share of revenue increased to 70% from 33%; Asia and Oceania declined to 17% from 39%.
- Gross margin improved by 1.2 percentage points, including product gross margin improvement attributed to product mix.
- Operating loss was essentially unchanged, while net loss widened by $0.7 million, reflecting higher income-tax expense and slightly lower financial income.
- Research and development expense rose 38% to $43.4 million net of grants. General and administrative expense more than doubled to $13.9 million, mainly due to higher credit-loss expense; 2020 credit-loss provision was $1.9 million.
- Operating cash flow shifted from a $16.1 million inflow to a $12.2 million outflow. Working-capital movements included lower deferred revenue and trade payables, and higher other receivables and prepayments.
Outlook, commentary, risks and unusual items
- Management provided no specific revenue or earnings guidance in this filing. It expects to continue investing in research and development and other growth areas.
- Management said COVID-19 had not caused a major revenue decline or customer payment inability to date, but had somewhat lengthened sales cycles and delayed launches of signed deals. Future effects remain uncertain.
- Customer concentration is substantial: the two largest customers represented 54% of revenue in 2020, with the largest alone at 43%. A project agreement with an existing EMEA customer accounted for a substantial portion of 2020 revenue; most related revenue was recognized in 2020. The contract was for a specific project and had no renewal provision.
- Other key risks include competition and technology shifts toward 5G, possible displacement of standalone network functions, network encryption limiting traffic visibility, dependence on a single subcontractor for the Service Gateway Tera platform, and reliance on channel partners.
- Foreign-exchange exposure remains relevant, particularly to Israeli-shekel expenses and euro-denominated revenue. The company had $19.7 million of outstanding forward contracts at year-end; it cautions that hedges may not fully offset currency movements.
- There were no open litigations at December 31, 2020. A former employee filed a claim on February 17, 2021 alleging unfair dismissal; the claim was preliminary and the company could not estimate its likelihood of success.
- Allot reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Review the concentration and timing of the large EMEA project, including how much 2020 revenue was non-recurring and the remaining maintenance revenue.
- Track customer concentration, deferred revenue, backlog conversion and the extent to which security-service revenue-share arrangements are scaling. The filing gives no numerical backlog value.
- Assess whether operating cash flow recovers after the 2020 working-capital outflow and whether planned capital expenditure remains near $9.6 million.
- Monitor credit losses, inventory write-offs, expense growth and the company’s path to profitability; Allot reported a net loss in 2020 and a history of losses.
- Review the Israeli tax-loss carryforwards, valuation allowance, tax-benefit eligibility and the disclosed $0.7 million uncertain-tax-position provision, as well as the status of the employee claim.