Allot Communications Ltd. (ALLT)

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Allot Communications Ltd. (ALLT)

Q2 2008 Earnings Call Transcript

August 12, 2008 8:30 am ET


Jay Kalish – Executive Director, IR

Rami Hadar – CEO and President

Doron Arazi – CFO


Dan Meron – RBC Capital Markets

Stephen Silk – C. Silk & Sons

Walt Sosnowski – SRC Capital



Good afternoon, ladies and gentlemen, and welcome to the Allot Communications second quarter 2008 earnings results conference call. My name is Steffi and I will be your coordinator for today's conference. For the duration of the call, you will be on listen only. However, at the end of the call, you will have the opportunity to ask questions. (Operator instructions)

I am now handing you over to Jay Kalish, Executive Director Investor Relations to begin today's conference.

Jay Kalish

Thank you very much and thank you all for joining us today. During this call, we will discuss Allot's financial results for the second quarter of 2008.

With us on today's call are Allot's President and CEO, Mr. Rami Hadar, as well as Mr. Doron Arazi, the Chief Financial Officer.

On the call, Rami will provide his perspective on the quarter and our business drivers going forward, and then Doron will provide some color on the financial results. Following all of this, we will take your questions. 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 on June 27, 2008.

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

Rami Hadar

Thanks, Jay, and I would like also to welcome everyone who has joined us on the call today. We are pleased with the quarter's results, which are in line with our internal plan.

Revenues totaled $9.5m, representing 14.5% growth over the last quarter and over 10% year-over-year growth. Gross which margins remained at a healthy 74%, and our balance sheet continues to be strong with cash, cash equivalent, deposits and marketable securities at $62m and no debt.

We believe that the growth that we are seeing in the business is due to several factors. From an industry standpoint, we are seeing early success in the wireless market, whereas data traffic continues to grow at the rate of 200% to 300% per year. A large part of this increase is being driven by the deployment of HSPA networks and the growing popularity of data capable handsets. While this is still a market in the very early stages of Internet and DPI solutions, we have already penetrated three Tier-1 operators, including two of the world's largest international operators, and feel that our Service Gateway positions us well for additional opportunities in this expanding market.

From the customer standpoint, significant portion of revenues during the quarter came from larger deals from nine existing and new Tier-1 and Tier-2 operators.

From a product standpoint, the Service Gateway Omega continues to gain momentum in the market, particularly among many of our Tier-2 customers. This need is fuelled by the migration from 1 gig to 10 gig networks, a trend that we have begun to see at the end of last year. Our installed base of the Service Gateway continues to increase and for the second running quarter, it represented over 10% of orders we received. In addition, our sales channel [ph] for the product continues to deliver.

Last month, we announced that the Service Gateway Omega platform achieved outstanding results in independent validation testing, performed by Isocore. Isocore, a leader in carrier class technology validation, reported exceptional results for the Allot Service Gateway in all categories throughput measurements, session scalability, application recognition and high availability. The Allot Service Gateway is the industry's first 10 gig DPI platform ever to undergo independent testing. The results clearly validate the carrier class nature of this exciting product.

During NXTcomm in June, we introduced the first set of value-added services that we will be including in the Service Gateway in the near future and we received healthy interest from potential customers for these at the show. We unveiled a partnership with PeerApp to deliver video optimization, Qosmos to deliver Voice over IP optimization and NebuAd for targeted web advertising, as well as our own DDos and spam protection service based on the Esphion acquisition.

These are merely examples of the power and flexibility of the Service Gateway and how it is designed for customers to both optimize and monetize their networks. As I’ve mentioned in the past, over-the-top video traffic is growing at some 80% per year. And I'm not speaking only of user-generated video content, such as YouTube and Joost. Network TV is broadcasting and rebroadcasting selected shows over the Web site, such as, and BBC online service to name a few.

Recent reports indicate tens of millions view on these Web sites monthly. This content is driving a new and large wave of growth in data traffic over both fixed and mobile networks. We expect to further drive the operators' need to optimize their networks by implementing DPI solutions. We continue to believe that Tier-1 opportunities in the wireline space are in front of us and are actively engaged in a number of these opportunities.

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