Allot Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone quarterly filing. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars.
Business context
Allot provides network intelligence and security solutions to communications service providers, enterprises, and government customers. Its offerings include network traffic analytics and control, and security products delivered through operators, including Security-as-a-Service (SECaaS). Network intelligence generated 72% of 2021 revenue and security 28%; SECaaS represented 3% of revenue. About 45% of revenue came through channel partners.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $145.6 million | $135.9 million |
| Product revenue | $88.2 million | $92.5 million |
| Services revenue | $57.4 million | $43.4 million |
| Gross profit / margin | $101.0 million / 69.4% | $95.8 million / 70.5% |
| Operating loss | $13.5 million | $9.0 million |
| Net loss | $15.0 million | $9.3 million |
| Basic and diluted loss per share | $0.42 | $0.27 |
| Cash flow from operations | $(8.4) million | $(12.2) million |
| Capital expenditures | $7.6 million | $7.6 million |
At year-end, Allot had $11.7 million in cash and cash equivalents, $60.7 million in short-term bank deposits, $11.5 million in marketable securities, and $80.7 million in working capital. It reported no long-term borrowings at December 31, 2021. Management said existing cash was expected to fund working capital and capital expenditure needs for at least 12 months. 2022 capital expenditure was estimated at approximately $4.3 million.
Changes versus the prior comparable period
- Revenue rose 7.1%. Services revenue increased 32.2%, while product revenue fell 4.6%, mainly due to fewer projects requiring substantial hardware.
- Services increased to 39.4% of revenue from 31.9%; products declined to 60.6% from 68.1%.
- Gross margin fell 1.1 percentage points. Product gross margin declined to 64.2% from 69.2%, primarily due to inventory write-offs; services gross margin improved to 77.4% from 73.4%.
- Operating expenses rose to $114.6 million from $104.9 million, with increases in R&D, sales and marketing, and general and administrative expense. The operating and net losses widened.
- Operating cash use improved from $12.2 million to $8.4 million, but receivables increased by $16.8 million and cash and cash equivalents declined by $11.9 million during the year.
- Security’s share of revenue rose to 28% from 17%; network intelligence remained the larger business at 72%.
Outlook, commentary, risks, and unusual items
- Management emphasized continued investment in R&D and sales and marketing, and identified recurring SECaaS revenue growth as important to future prospects. Remaining performance obligations were $89 million, of which approximately $53 million was expected to be recognized before December 31, 2022.
- No specific forward revenue or earnings guidance is provided in the supplied filing text. Management cautions that sales timing is uneven and large service-provider sales cycles can be lengthy.
- Inventory write-offs were $4.6 million in 2021 versus $1.9 million in 2020. Management cited the write-offs as a principal reason for lower product margin.
- Revenue was concentrated: the largest customer represented 11% of 2021 revenue, down from 43% in 2020. The 2020 concentration reflected a one-time project; related 2021 revenue was mainly maintenance and services.
- Key exposures include semiconductor supply constraints, foreign-exchange movements, COVID-19 uncertainty, competition and changes in 5G network architecture, customer concentration, encryption’s effect on traffic analysis, and regulatory and data-privacy requirements. Allot also uses subcontractors in Ukraine and Belarus whose work may be disrupted by geopolitical conditions.
- After year-end, on February 18, 2022, Allot received proceeds from a $40 million senior unsecured convertible note issued to Lynrock Lake. It matures February 14, 2025, with two possible one-year extensions, and has an initial conversion price of $10.30 per share. The note includes limits on additional borrowing and may dilute shareholders if converted.
- Two Netonomy founders filed a claim in November 2021 alleging breach of the acquisition agreement and seeking approximately NIS 2.6 million; Allot denies the allegations. The matter was at a preliminary stage and the outcome was uncertain.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether service-revenue growth and SECaaS adoption can continue, given SECaaS was only 3% of 2021 revenue.
- Whether receivables convert to cash and whether operating cash flow improves alongside revenue growth.
- Whether elevated inventory write-offs, product-margin pressure, and higher operating expenses persist.
- The note’s conversion, extension, repayment, and covenant terms, and their potential effect on dilution and financing flexibility.
- The status and potential financial impact of the Netonomy claim, and any material supply-chain, geopolitical, tax, or regulatory developments.