Allot Ltd (ALLT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allot Communications 2011 Q1 results conference call.

This conference is being recorded.

At this time, I would like to turn the conference over to your host today, Mr.

Jay Kalish.

Please go ahead, sir.

Thank you very much 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 today's call are Allot's President and CEO, Mr.

Rami Hadar, as well as our Chief Financial Officer, Mr.

Nahum Falek.

On the call, Rami will review the Company's major achievements over the past quarter as well as on future trends, and Nahum will then follow with a short 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.

Please note that management will be participating in a number of investor conferences in the United States and in Israel over the next month.

Details regarding these conferences appear on our website.

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

Thank you, Jay, and thank you all for joining us today.

The first quarter of 2011 was another good quarter for Allot as we continued to grow our top and bottom line.

Revenues during the quarter reached $17.2 million, a 38% jump over the first quarter last year, and 6% over the previous quarter.

Profitability continued to grow as well, which Nahum will discuss in his presentation.

Our operating income was $2.2 million on a non-GAAP basis, and we increased our operating margin to 13%.

We intend to continue to leverage our financial model during 2011 by taking a portion of the increased revenues down to the bottom-line while reinvesting a portion in sales and marketing and R&D.

This represents the eighth consecutive quarter for which we reported both topline growth and a book-to-bill ratio of greater than 1.

During the quarter, we received large orders from 16 service providers, 8 of which were from new accounts.

As we reported, we received initial orders from five new mobile service providers in EMEA and APAC markets.

On the operational side, we received acceptance and recognized revenues on two major [routine] deployments, one with a mobile operator and one on the cable side.

Each of the operators was over 10% customer for the quarter.

This explains the strong quarter in EMEA, which made up 71% of revenue.

We also received two large follow-on orders in APAC during the quarter where we anticipate acceptance and revenue recognition over the next two quarters.

On a general level, right now around 50% of our current business is on the wireline side, which continues to be our fastest growing business sector.

During the first quarter, we saw an uptick in orders for mobile customers for our MediaSwift and ServiceProtector products.

Of the five new mobile deals we reported this quarter, three orders of Service Gateway Sigma platforms was MediaSwift, ServiceProtector and our Subscriber Management Platform or SMP already built in on day one.

This represented a nice offset for us, improves Allot's value preposition and moves us well beyond classical DPI functionality.

In these accounts, we increased our value proposition by acting as system integrator and reselling the PCRS together with our service gateway providing a unified solution.

These examples show how we are penetrating deeper into our customers' networks and providing more added value and incremental revenues both for the customers and for Allot.

During the quarter, we launched our latest addition to the Service Gateway Sigma family product line.

Our new Sigma E has an industry leading throughput of 160 gigabits per second.

This new platform has a greater ability to integrate numerous value-added services within a single chassis, enabling service providers to explore new ways to drive incremental revenues over the network.

This new platform provides the type of speed that our [216] customers already need, and provides our mobile customers with an expansion task in long-term drawing room to meet their challenges they will encounter as they roll out LTE network.

An increasing number of customers are deploying our Service Gateway platform to understand individual subscriber's behavior and data usage, and develop ways to capture and monetize this billable activity.

The latest trend is in the area of intelligent charging for which we released an enhanced version of this functionality over our entire product range.

Few of our mobile customers are currently integrating our Service Gateway platform with policy, and charging role function in the online charging elements or OCEs.

They are now recognizing that Allot solution are the real-time elements within the intelligent charging system enabling their marketing department to developing also customers, more customized billing plans which are tailored to each subscriber's usage and applications and drive incremental revenue.

A good example of intelligent charging is to offer subscribers the option to choose the tier service package which includes and/or excludes certain applications, such as a teenager plan which may include high priority music download traffic, but exclude other less interesting applications.

The individual subscriber chooses which application to include and exclude and is charged per usage accordingly.

In other words, Allot now has the unique ability to comport policy enforcement with intelligent charging and one in-line carrier plus network element.

To sum up, we started 2011 with another growth quarter on the top line and bottom lines.

The successful introduction of our new Service Gateway, Sigma E platform, demonstrate our continued technological leadership and we're enabling our customers to find new ways to drive revenues over their networks.

It was also a successful quarter in terms of new customer wins as we added five new mobile customers while continuing to executing our strategy of penetrating deeper into our customer's network.

I will now turn the call over to Nahum for short financial review.

Nahum, please go ahead.

Thanks, Rami, and good morning, everyone.

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 and amortization expenses.

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 walk you through the results for the quarter.

Revenues for the first quarter increased to $17.2 million, up 38% over the first quarter of 2010 and 6% over the fourth quarter of 2010.

As a percentage of our revenues, sales in America was accounted for 17%; EMEA 71%; and Asia-Pacific 12%.

Out of total revenues during the quarter, products were 72% and services 28%.

Gross margin for the first quarter remained stable at 72%.

Our operating expenses grew in line with our budget and as we anticipated and discussed over the past few quarters.

During the quarter, the sales and marketing line grew about around 10% as a result of intense internal and external marketing efforts.

We participated in major mobile telecom trade shows and also kicked off our internal sales effort.

For the quarter we were happy to report earnings per share of $0.08 as compared to $0.07 in the fourth quarter.

Despite the increase in sales and marketing line, total OpEx grew by around 4.6%, less than the 6% increase in our top line.

This is a good demonstration of the leverage in our model as the balance of this increase went directly to the bottom line with our operating margin increasing to 13% from 12% in the fourth quarter.

As we have discussed in the past, we plan to continue to leverage a portion of the topline growth to the bottom line, while continuing to reinvest in the business in order to meet the increasing opportunities we are seeing in the market.

Cash balances including cash equivalent and marketable securities increased to $61 million as we generated $1 million in cash from operating activities.

Our DSO increased during the quarter to 71 days, mainly due to orders which we had quick acceptance cycle as we shipped and recognized the orders within the first quarter.

Inventory increased to $12 million from $11 million at the end of 2010.

This reflects increased orders as well as equipment which we shipped to customers, but have not yet invoiced to recognize its revenues due to acceptance testing of other customer [terms]; our operational inventory actually declined during the first quarter.

Deferred revenues went up in the first quarter by $1.5 million, reaching to $16 million at quarter end.

This increase represents payments we received from customers for deals in which we did not yet recognize revenues.

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

(Operator Instructions.) Daniel Meron, RBC.

Thank you.

Hello, Rami, Nahum and Jay, congrats on the solid execution.

Rami, can you provide us with a little bit more color on the business dynamics either by industry or -- mostly on geography, but also by wireline versus wireless does seem like the mobile segment is doing pretty well, but if you can just give us more color also on the cable and fixed line.

Thank you.

Yes, hello, Daniel.

No way drastic changes since our last term quarter.

Mobile remains with good fundamentals, all the underlying reasons that was there throughout 2010 continued to be with us into 2011.

Obviously, data over mobile continued to grow, with it the number of active subscribers which are helping us in terms of subscriber licenses.

We are seeing the beginning of the trend of migration to LTE.

Actually, on an LTE point of view, we received our first major LTE order this quarter.

And I think but it seems that LTE will be an overlay on top of 3G, and not actually a moving equipment from 3G to LTE, which hopefully will turn into another growth engine for us moving forward.

Obviously, from mobile point of view, we still see Europe leading the attack and therefore a strong EMEA quarter.

And also just in terms of occurrence, it so happens that this quarter we recognized two very large deals we've been talking about, and thus the healthy and the very higher percentage of EMEA.

Otherwise, it's -- no fundamental changes in the dynamics of EMEA versus Asia versus Americas.

It's still the same.

EMEA is strong, should be an average of probably 50-some percent of our revenues as we move forward.

APAC follows nicely being more creative on mobile application.

There is where we also see success in Tier 1.

Fixed players in Americas are for us still a market to happen in a big way.

Solid in Latin America, but hope to see further an improvement as network proxy issue is ironed out.

Okay.

And just a follow up on two things.

First of all, can you discuss a little bit about the pipeline that you have as far as the deals ahead?

If you can provide any quantitative or qualitative ways for us to understand how the pipeline is going to look like right now and whether or not you see increase in the overall demand in interest.

That's one part.

The other part you also mentioned net neutrality.

If you can elaborate on that, on where we stand in the US.

Well, starting from the easier point, net-neutrality, I don't think we've seen any major advancements in the last term quarter and we spoke about it at length on our last term call.

I still remain hopeful that some reasonable compromise will be made over 2011.

In the meantime, we are adding more functions like value-added services like intelligent charging which don't read on net neutrality.

In terms of the pipeline, solid like last quarter, where we are seeing kind of a growing trend.

But nicely with our value-added services in deeper customer penetration.

We are seeing customers come back for more value-added services.

We think deal size increase because we are selling more functions into service providers.

If you're looking for deltas, it's actually in the depth and size of the deal.

Okay, very good.

And then last one from me, Nahum, can you provide us with some view of the outlook?

How do you think the next several quarters should look like, and how we should think about the longer-term outlook of the Company?

Yes, Daniel.

So as in the past, we're not giving any official guidance.

I think that as Rami said, we have LTE pipeline.

Book-to-bill is above one, and obviously we're building a nice backlog.

In terms of OpEx, we have everything set in place.

But on the other end, we do want to leverage the growth that we are seeing in the top line, you know, to reinvest in the Company and in the future.

So therefore, assuming we'll continue to grow the topline, I can only assume that we will also recruit new people, investing in the future, and therefore OpEx will grow up as well.

But very committed to the bottom line as well and we do want to see the leverage in the model.

Okay, thank you, good luck.

Thanks, bye-bye.

Matt Robison, Wunderlich Securities.

Hi, yes, it's Matt from Wunderlich.

Thanks and congrats on the good results.

First a couple of bit of housekeeping in the first multipart question for Nahum.

Just give us the CapEx depreciation headcount and headcount plans.

And then I guess I'd be interested to know if with this -- these two -- this recognition with these two big customers if there was any kind of seasonal effect there that might make for a touch sequential comparison in the June quarter.

And Rami, if -- I caught the EMEA percentage, but I didn't catch the other regions.

If you could help me with that.

Yes, Matt, I do remember you asking about the headcount and I can mention that at the end of the first quarter, we had 271.

As for the rest of the operation, we actually did issue a cash flow report.

So you can read all the numbers from that, and if anything we can take it offline.

And --

That's great.

Well -- the seasonal effect just might make it tough for you guys this quarter?

I don't think so.

The two -- our customers in EMEA that we have reached their acceptance and therefore revenue recognition was planned.

We've been talking one in cable, one in mobile.

We've been talking about them.

It was planned to happen in Q1.

The team executed.

And obviously there is other deals in our backlog that should mature throughout the year.

Having said that, as you know, implementing solution based telecom projects is a long cycle.

You're always subject to gaining, passing a very rigorous testing and getting acceptance from customers.

So you got to execute and then come and give the customers ample time to sign off on acceptance.

So the bottom-line again, this was planned, Matt, and we should be able to continue executing going forward.

And so the customers that -- you have a bunch of customers in the backyard for last year.

It doesn't seem like you've started to recognize much revenue for those.

Should we expect that to start to happen in the current quarter?

Yes, very naturally.

Nothing changed there, Matt.

As time goes by, usually a large multimillion dollar deals with Tier 1 customers, whether fixed or mobile.

For the moment you got the PO and until you are delivering, still commissioned and past acceptance, typically two to four quarter past.

So it's a pipeline of deals which mature over time.

Okay.

And what did you say the APAC and America's percentages were?

Oh, so America's was 17 percent; EMEA, 71; and APAC, 12.

Okay.

Thank you.

Great, thanks, Matt.

Take care, Matt.

Catharine Trebnick, Avian Securities.

Hi, good morning or good afternoon.

Could you possibly give us the split between the tier 1 and tier 2 customers?

Well, it's -- we don't have the number on top of our heads, but I would say a guesstimate roughly 30%, 40% would be a good ballpark.

Okay, thanks.

And then my other question is, is it possible to give -- well, this doesn't make any sense now because you just gave us the EMEA region.

But split by region, any between the mobile, DSL and cable customers, or do you not do that?

I did say on my script that in terms of booking for the quarter, it was roughly 50% mobile.

And I can add that; again roughly 30% was fixed, of any type and 20% enterprise.

Okay, excellent.

And then my final question is, is it possible it sounds like the revenue from value added service is really picking up nicely.

Is there any possible way to give us a percentage of the revenue that might be attributed to value-added services?

Good point.

Now that we are starting to see some consistency in the growth and it's meaningful enough, hopefully starting next quarter we'll give you some breakdown on that.

But it's a little bit too early.

All right, thank you.

I'll jump on to the queue.

Thank you.

(Operator Instructions).

Matt Robison, Wunderlich Securities.

Yes, thanks for the follow-up.

Rami, just for the sake of clarity, when you say value-added services, you mean additional software functions for your customers to offer value-added services, or are you start to get in the job shop business of helping -- of providing services to your customers?

No, no, no, it's the value-added services we've been talking about like the ServiceProtector that protects against [Dido's] Network accounts; the MediaSwift, which is the video optimization and video caching solution, our subscriber management licensing.

And now in a way intelligent charging, if you may, is also value-added service.

These can't even form of integrated blade or integrated piece of software on to the Service Gateway.

This is not professional services.

Yes, okay.

So it's really -- okay, it says a feature addition to products that are in your installed base.

Correct.

But I'm actually insulted by the word feature.

Feature would mean, okay, you have 10 more gigabits of speed or 2 more ports.

These are major functions that increase an operator's ability to monetize the network.

In some cases, we make external standalone products redundant by integrating these functions into the Service Gateway.

Please pardon the insult, but I appreciate the explanation.

You're forgiven, Matt.

All right, that's it from me.

Greg Weaver, Invicta Capital.

Hi, nice job, guys.

Any 10% customers in the quarter and of those, are any of them new?

Yes, of the top 10%, one of them is new.

It was 10% over this quarter revenue level.

There again, thinking about your next question, and whether it's going to be on an annual basis, it's too early for us.

We don't know.

I'm sorry.

You cut off.

How many 10% customers?

Two customers in this quarter were above 10%.

One is the Tier 1 service providers in Europe that we're talking about in the last 18 months, and the other one is a new one from Europe as well.

And together they added up to how much of your revenue?

We will not get into it on a quarterly basis, Greg.

Excuse us.

Okay.

I'll ask you the other usual question about FX, foreign exchange.

Any thoughts there in terms of your OpEx on a go-forward basis?

So I would say that from time to time we're doing edging activities trying to monitor the exposure between the Israeli shekels and the U.S.

dollars.

Right now we're edged for the next almost completely couple of quarters.

But we will take any changes on the exchange rate.

Obviously, we will try to benefit from it.

For the short term going forward, you wouldn't see any changes due to the exchange rate.

But you know, the shekel being a little bit weaker this time, it might interest us in the future.

Thanks, Nahum, nice job.

Thank you, Greg.

Ron Shuttleworth, M Partners.

Hi, gentlemen.

Nice quarter.

Just one quick question on your orders.

So this forms your backlog I'm assuming.

Did you receive any revenues; did you recognize any revenues from these orders during the quarter?

You mean from the backlog that we had at the beginning of the quarter?

Yes, just during the quarter you received 16 large orders and 16 large service providers.

Did you recognize any revenue from that this quarter or will that be coming in the subsequent quarters?

Not necessarily.

If it's a follow-on order, usually part of them we can recognize within a given quarter.

So I would say that part of the 16 -- yes, we already recognize.

Part of them will be recognized in the next quarter or two.

In general, as we mentioned, book-to-bill was above one.

So obviously, the backlog increased during the third quarter.

Perfect.

Okay, thank you.

Thanks.

Thank you, Ron.

(Operator Instructions).

We have no further questions at this point.

I want to thank you all for joining us today.

Look forward to meeting you as we're on the road over the next few weeks.

And if you have questions, please feel free to be in touch with us on a regular basis.

Thank you all for being here today.

Thank you, ladies and gentlemen.

That will now conclude today's call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.