Allot Ltd (ALLT) 2010 Q1 法說會逐字稿

Good day and welcome to the Allot Communications 2010 Q1 results conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Jay Kalish.

Please go ahead, sir.

Thank you very much, Zera, and thank you all for joining us today.

During this call we will discuss Allot's financial results for the first quarter of 2010.

With us on the call today are Allot's President and CEO, Mr.

Rami Hadar, as well as our new Chief Financial Officer, Nachum Falek.

On the call, Rami and will provide insights in the results and how he sees the year 2010 shaping up.

Nachum will then introduce himself and follow with an analysis of the quarter's results.

Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information.

I direct your attention to the Risk Factors contained in today's press release and in the annual report on Form 20-F filed by Allot with the US Securities and Exchange Commission on April 8, 2010.

Also please note that Rami and Nachum will be attending the RBC investor conference on June 9 in New York and will also be available for investor meetings in New York and Boston during the week of June 7.

If you would like to schedule a meeting with management during this time, please be in touch with me directly.

I would now like to turn the call over to Rami.

Thank you, Jay, and welcome everyone participating in today's call.

We continued our strong growth during the first quarter of 2010 with revenues increasing by 33% over the first quarter of 2009 and 8% over last quarter, reaching $12.5 million.

Even more significantly we reported non-GAAP EPS of $0.01, moving to profitability as we had anticipated and discussed in the past.

Our operating income was $560,000, while we held the line on operating expenses during the quarter.

I would add here that we expect a modest rise in this line during 2010 as we are investing in new opportunities in our growing target markets.

Our book-to-bill ratio continues to be above 1 and we are continuing to build a healthy pipeline of opportunities.

During the quarter, revenues included large orders from 14 service providers, eight of which were from new accounts.

Of these 14 service providers five were from the mobile side, further demonstrating our leadership in this growing market.

We received $8 million of orders from our global mobile Tier 1 customer during the quarter, as orders from this customer have now reached $25 million to date.

In addition to this customer we are in advanced discussions with three other Tier 1 mobile operators on specific projects.

We believe that these Tier 1 opportunities position Allot well for growth going forward.

However, as large service providers become a more significant part of our growth, there may still be an element of lumpiness in our revenue going forward.

This is due to actual timing of these types of orders, which are subject to long sales cycles and revenue submission requirements.

A major reason for the rise in revenues is the successful introduction of an entirely new product line.

The Service Gateway Sigma platform has received wide acceptance with our larger customers, both with mobile and wireline service providers.

The open platform approach, which incorporates a wide range of services with the platform, has given us a unique advantage over our competitors.

In addition, we are finding that customers are impressed with total throughput as well as the ease of portability, providing them with a long-term solution that grows with their need to meet increasing amount of data traffic.

The platform provides our mobile customers with a lot of room to grow in order to meet anticipated growth in data subscribers and the resulting bandwidth demand.

In the first quarter we began to phase out the AC-800, 1000, and 2500 series while introducing the new 1400 and 3000 products.

We are proud to complete this major product transition in less than one year without impacting our sales growth.

The new product lines are now not only history more faster and more feature rich than our older product, but all are now running on one common total platform, the Allot Operating System or AOS.

Another example of our leadership in the mobile space is how we are creating additional value for our customers.

We have already completed the first installation of the recently announced CellWise solution with a major Tier 1 operator.

CellWise provides a centralized policy and traffic control solution to solve cell congestion in mobile data networks.

It provides total visibility of traffic per cell and per-cell backhaul to give operators a clear picture of mobile data usage across the entire network.

As a result, CellWise enables mobile operators to apply optimization only for the congested cells at actual times of congestion, before it degrades subscriber service.

Allot's cell-level work solutions for mobile broadband networks can be fully integrated with operator or PC OS in charging systems to further enhance the operator's ability to deliver mobile broadband services efficiently and drive additional revenue from existing network infrastructure.

We are also seeing growing interest in our MediaSwift solution.

MediaSwift is a carrier class media caching and video optimization service designed to enhance subscriber quality of experience and dramatically reduce operational costs associated with the delivery of popular Internet video and peer-to-peer traffic.

This value-added service is fully integrated with Allot's Service Gateway Sigma, which steers relevant subscriber and application traffic to the caching service.

The intelligent caching mechanism focuses on large media and video files that consume large amount of bandwidth, and installs them for fast retrieval based on content popularity, frequency of use, cost of bandwidth, and infrastructure efficiency.

MediaSwift accelerates content delivery to ensure smooth video viewing without interrupt or buffering delays, while reducing bandwidth use incurred on service provider's networks.

It also creates new potential revenues by enabling premium broadband service packages designed especially for Internet video and peer-to-peer consumers.

To summarize, we are pleased to report another good quarter, along with the move to profitability.

We continue to build value on the Service Gateway platform as we envisioned when we introduced it three years ago.

Our business continues to go beyond traditional DPI as we continue to focus on building service provider value on the Service Gateway platform which in turn adds incremental revenue opportunities by increasing Allot's addressable market.

I am pleased to introduce Nachum Falek on this call as Allot's new CFO.

Some of you already know Nachum from his excellent work at AudioCodes, and we were very happy that he has joined our management team.

His experience and expertise will be very valuable to Allot as we continue to grow the Company, and I wish him every success going forward.

Nachum, please go ahead with the financial overview.

Thanks, Rami, for your kind words and your encouragement.

I'm very excited about joining Allot.

The Company itself seems well positioned for growth, and I hope to play a role in being part of this story.

Let me take a few minutes to review the results we published earlier today.

I will be discussing non-GAAP numbers which exclude stock-based compensation expenses, amortization expenses, and the impact of valuation changes in our ARS portfolio.

Full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued today.

Now let me take you through the results for the quarter.

Revenue for the quarter reached $12.5 million, up 33% over the first quarter of 2009, and 8% over the fourth quarter.

As a percentage of our revenue, sales in America accounted for 22%, EMEA 58%, and Asia-Pacific 20%.

Out of total revenues during the quarter, products were 69% and services 31%.

The slight increase in service revenues portion as in last quarter was mostly due to the service being provided to the Tier 1 mobile operator that Rami discussed earlier.

Gross margin for the first quarter was 74%, slightly higher than our target of 72% to 73%.

The improvement in gross margin is a tribute to the higher portion of the SMP in our revenue this quarter and the increase in our service revenues.

While operating expenses were at the same level as last quarter, we will probably see an increase in this line during the year as we continue to invest in new growth opportunities.

As a result of all of this, we were happy to report operating income of $560,000, as compared to a loss of $120,000 in the fourth quarter.

Financial expenses for the first quarter increased to $400,000 as compared with financial income of $65,000 in the fourth quarter.

This increase was due to the changes in the exchange rate of the euro against the US dollar.

We have been watching this line item closely and are considering hedging activities to control our exposure to the euro-dollar exchange rate.

Total cash during the quarter increased by $2.5 million to $55.9 million.

During the first quarter we generated approximately $2.6 million in cash from operating activities.

This was due to early payment from customers.

As a result, while we anticipated that we would actually increase our cash burn during the quarter, we were pleased to see cash generation instead.

Going forward, we still anticipate some cash burn due to working capital requirements for large customer orders.

As you saw in the press release, during the first quarter external valuation showed a net decline in value of certain ARS in the Company's portfolio by approximately $400,000 leaving the Company with a total book value of $14 million in ARS at the end of the quarter.

Accounts receivable declined to $5.4 million at the end of the first quarter as compared with $7.8 million at the end of the fourth quarter.

Our DSO levels declined to 39 days.

Despite these collection results, we still believe that our DSO level will probably increase due to the increasing numbers of large deals becoming a greater portion of total revenues.

That concludes my remarks and we will now open the call for questions.

(Operator Instructions), Tom Erlich, RBC Capital Markets.

Hi, Rami, Nachum, and Jay.

Congrats on the results.

And Nachum, congrats on your new position and good luck going forward.

I have a few questions regarding the business environment you are seeing.

First of all, how are things going with your Tier 1 customer?

I know you have some new orders that you added during the quarter.

Can you give us a bit more color on the status of deployment, on the status of addition of new subscribers there, of countries there?

What else can you share with us?

Okay, thank you, Tom, for your kind words.

We continue to execute on the same Tier 1 mobile customer.

On operational side we are going through deployment and acceptance processes, and testing, and putting systems into commercial service.

So all is well on that front.

Looking forward and looking at what we have seen in the past quarter, this $8 million of revenues come from two sides of the house.

One is geographical expansion into new countries.

We are also seeing now certain companies that were already deployed coming back with expansion, either Omega to Sigma upgrade, or expanding more blades and more software on existing platforms as they see growth both in absolute bandwidth traffic and concurrent subscriber [sessioning].

Okay, very well.

When you collect from your Tier 1 customer, which currency is most dominant there?

Is that dollars or euros, or --?

Euros.

Euros?

Okay, great.

Another question.

I think you referred to your pipeline that has three major Tier 1 carriers in the pipe.

Are those mobile carriers or landline?

Where on the globe could you locate them?

What else can you share with us there on this?

Or maybe how can we size the opportunity?

We are not telling about the funnel, so I would like to be a little bit careful.

But two of the three are mobile Tier 1 accounts.

Okay, okay.

Last one from me before I yield the floor.

The FCC has obviously taken a blow in court regarding net neutrality.

Are you starting to feel that carriers in the US are more open to discussing future projects with you guys?

What is the atmosphere there right now?

So we're seeing some carefully move, but -- and everybody, at least from our customers' point of view, actually welcome very much the court decision.

Nevertheless, they will be waiting out to see how things will play out.

Will FCC try to challenge the court's ruling in any way or shape?

Or redefining broadband governance and so on?

So all in all, it is a step in the right direction.

We are encouraged also to see some of these operators speak up.

Really our view on their point of how it is for them fair to use their own networks, the wire, leveraging equipment and technology like Allot's.

But overall I think this thing has not played out yet, and we are following very carefully.

Great.

Thanks for answering my questions and good work on the quarter.

Good luck again, Nachum.

(Operator Instructions) Marc Silk, C.

Silk & Sons.

Hi, guys.

Congratulations on another stellar quarter.

Rami, can you comment on the explosion of cloud computing and what that means for your products?

Or if that can contribute to cloud in the networks as well?

Yes, we get some inquiries from some of our service providers totally when it comes to managed services.

Where we can add value in cloud computing is really about ensuring quality of experience and quality of connection to these types of products and services.

Obviously, if you are offering a service in the cloud centralized in one certain location around the globe, and you have many customers worldwide, the quality of the connection, the bandwidth assigned to it, [are delayed], will affect the success of that service very much.

And this is where we can add a lot of value.

Our products enable a unique positive experience differentiation to either certain customers, certain (inaudible) [holes], or certain applications.

So we can definitely add value on that front.

Okay.

Regarding your RFPs, are you involved in more RFPs than you ever have before?

Maybe let us know the progression of these RFPs as opposed to -- like two years ago you were in X many and now are in this many.

Or -- you don't have to give a specific number, but just show the growth or decrease.

Yes, I mean to qualify my answer, our funnel in RFP is a very subjective measure.

Nevertheless, yes; when I compare our funnel today to a year ago, totally three years ago, it is larger and more deeper in terms of the amount of opportunities.

And like I was asked on the last call, about half of the deals in our funnel today are mobile related.

Last thing -- I know I have two questions, but on the CI TV show, can you give us any maybe feedback or anecdotes from that show?

We didn't participate, Marc.

Okay.

Thank you.

Jonathan Kreizman, Oscar Gruss.

Hi, this is [Dove] on Jonathan's behalf.

Congratulations on the results.

My question is about competitors.

Did you have any competitive losses, any big deals that you were going for?

And if so, if you could elaborate a little bit on what regions or to who you lost them.

Yes, obviously, we have competitors in two forms.

One is the pure-play folks in our space like Sandvine, like Cisco's [Fire] P-Cube acquisition, and a few others.

So there is three or four pure-play DPIs.

Then there is other, larger players who are trying to introduce DPI functions in existing equipment.

No major shift from last quarter.

Obviously, we have competition.

We don't win all of our deals.

Major areas?

I would say that when we show up to deal, if we have good coverage in a country and we have good relationship, we have a pretty good win ratio.

But certain deals we don't participate.

For example, we don't play in the US cable market which to my understanding is dominated by Sandvine.

So this is for example an area where we pretty much don't participate.

All right.

Thank you very much.

That's all for me.

As we have no further questions at this time I would like to hand the call back to our hosts for today for any addition or closing remarks.

Thank you again for joining us today.

As I mentioned, Rami and Nachum will be in New York for the week of June 7 and participating in the RBC conference on June 9.

Anyone who would like to meet with them at that time, either be in touch with the host of the conference or be in touch with me directly.

Thanks again for participating, and we look forward to speaking with you again soon.

Ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.

You may now disconnect.