Tuesday, February 5, 2013

Allot's Q4: Slowdown in Europe; Prepares for Acquisition?

Allot Communications published its Q4 and 2012 results today, showing revenues of $28.5M ("Non-GAAP") and GAAP revenues of $26.4M. See "Allot Communications Reports Non-GAAP Revenues of $28.5 Million for Fourth Quarter of 2012 and $107.1 Million for the Year" - here.

It seems that Oppenheimer's forecast was correct (see "Oppenheimer Sees Slower DPI Market; Downgrades Allot" - here) - Allot missed the earlier revenues estimates (consensus of $30M).
An interesting point relates to the Israeli Government R&D loans by the Office of Chief Scientist (OCS). These loans are returned in a sales royalties model, and limit the ability of companies to be sold to foreign entities. Acquisitions of the companies receiving the loans require an approval by the OCS, and full return of loans.
The company says that "During December 2012, the Company recorded a liability for the early payment of $15.9 million due to settlement with the Israeli Office of Chief Scientist (OCS), representing the full balance of the contingent liability related to grants received, which will be paid during the first quarter of 2013". 

The result of this move is a better gross margin, savings on interest and possibly easier acquisition of Allot, following the sharp decline in its enterprise value. A question about the latter aspect was not answered during the earning call. 
During the earning call, Allot's President and CEO, Rami Hadar (pictured) and Nachum Falek, CFO, said:
  • The weakness in revenues is because of the European market. Europe was flat, so smaller in total revenues in last months - "People are more diligent on budget spending"; Still expects EMEA to the the largest region in first half of 2013
  • Book to bill ratios was less than 1 in Q4; Saw more activities in 2012 (RFPs, POCs, Trials) but expects lateness in revenues due to longer sale cycles
  • 70% of revenues come from expansions, 30% from new deals; Allot needs more new deals
  • One 10%+ customer in 2012, grow by 27% during the year (refers to Vodafone)No 10% customer in Q4
  • Believes that video optimization ($4.3M in H2) and video caching ($3.2M) will be important part of Allot's business moving on
  • South America is very healthy; North America is good (although declined in Q4 following revenue recognition in Q3) due to the last two wireless wins - positions Allot as favorable supplier
  • Net Neutrality is sill an obstacle in North America, although the need is there like in other parts of the world
  • About Procera acquisition of Vineyard (here) for the enterprise business (Riverbed OEM, in Procera's case) - "enterprise is a small part of our business"
  • Product announcements are due towards the Mobile World Congress event (later this month)

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