Allot Communications CEO Discusses Q2 2012 Results - Earnings Call Transcript

Allot Communications Ltd. (ALLT)

Q22012 Earnings Call

July 31, 2012 8:30 am ET

Executives

Jay Kalish - Executive Director Investor Relations

Rami Hadar - President and Chief executive Officer

Nachum Falek - Chief Financial Officer

Analysts

Ittai Kidron - Oppenheimer

Matt Robison - Wunderlich Securities

Kiera Kilkowski - Bank of America Merrill Lynch

Daniel Meron - RBC Capital Markets

Peter Misek - Jefferies

Brent Bracelin - Pacific Crest

Catharine Trebnic - Northland Securities

Jay Srivatsa - Chardan Capital Markets

Sanjit Singh - Wedbush Securities

Daniel Cummins - ThinkEquity

Presentation

Operator

Good day, and welcome to the Allot Communications, Ltd 2012 Q2 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jay Kalish. Please go ahead, sir.

Jay Kalish

Thank you very much, Carol and thank you all for joining us on our second quarter 2012 conference call. Joining me today are Allot's President and CEO, Rami Hadar, as well as our Chief Financial Officer, Nachum Falek.

The press release announcing our second quarter results is available on the investor relations section of our website at www.allot.com. All results and expectations we review on the call are on a non-GAAP basis unless otherwise described as GAAP.

Non-GAAP net income and non-GAAP net income per share excludes stock based compensation expenses, as well as amortization of intangible assets, and certain one time charges incurred relating to M&A activities and compliance with regulatory matters, Please note that all earnings per share amounts are on a fully diluted basis.

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 judgments, 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.

With that, I would now like to turn the call over to Rami.

Rami Hadar

Thank you, Jay and thank you all for joining us today. The second quarter picked up where the first quarter ended shallow. For the first quarter, revenues grew 43% over last year, and 9% over the first quarter and reached $26.4 million. Net profit was $5 million or $0.15 per share for the quarter and cash flow remained positive.

We achieved this while we began integrating Ortiva into our lot with acquisition closing on May 15. The book-to-bill ratio was over 1 for the quarter as the backlog continues to grow.

While we do issue press releases with every new order, during the quarter, we received large orders from 14 service providers six of which were from new customers. Six of these orders were from mobile operators, and two of these represented new customers for Allot.

During the quarter we received an order for third AC deployment which was an expansion deal with a current Tier 1 mobile operator in EMEA and another demonstration of how LTE represents a new growth opportunity for us. The large orders made up almost 60% of revenues during the quarter demonstrating how we are penetrating deeper into our customer's network,

On operation side, we had one 10% customer during the quarter with Tier 1 Latin American Fixed/Mobile operator. The Ortiva post-merger integration has been going according to plan and we remain excited about the unique video optimization solution.

As we all saw during the quarter, we announced the deployment of their solution with Three UK, a subsidiary of the Hutchison Group, one of the major operators in the world. Our video optimization solution has now been deployed in two Hutchison operating companies. Also during the quarter we signed a global purchase agreement with Hutchison for the supplies of our video optimization solution.

In addition, we are seeing a healthy funnel of opportunities for this product and have a number of customers looking to try the platform. Based on this, I reiterate what we said last quarter that we still expect between $3 million to $5 million in revenues from the Ortiva solution during the second half of 2012.

Currently we are gaining market share as you can see from our results today and believe we are well positioned in the market. Despite the macroeconomic environment, the market fundamentals of fixed/solid as data and smartphones sales continues to grow significantly.

As an example, Barclays anticipates that smartphone sales will grow 42% this year and the Yankee Group expects that within two years, Americans will own 175 million smartphones. According to the Nielsen Group, the average U.S. mobile subscriber more than doubled his or her monthly average data use which now reached 454 megabytes per month.

As long as these fundamental spread continues the need for solutions like ours continues to rise as well. The relatively small part of the CapEx budget along with the great return on investments and the ability to drive new sources of revenues are the main reasons for our growth to date.

So while we are seeing that values of our fees remains healthy, that our key processes is taking longer, more related to pricing issues than actual need. We continue to monitor market developments and demand for our solutions. While still in its early stages, the customers are showing increased interest in our value added service offerings, which is the most comprehensive in the market.

We are winning and increasing the amount of business as a result of these services which provide our customers with additional functionality and value, both for current needs and for future offering which are now appearing under (inaudible).

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