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Allot(ALLT) - 2021 Q3 - Earnings Call Transcript
ALLTAllot(ALLT)2021-11-09 20:24

Financial Data and Key Metrics - Revenue grew 10% YoY to 38.2millioninQ32021[7]−Non−GAAPoperatingprofitwas38.2 million in Q3 2021 [7] - Non-GAAP operating profit was 0.3 million, compared to a loss of 1millioninQ32020[7]−Thismarksthe15thconsecutivequarterofYoYrevenuegrowth[7]−Enterprisebusinessrevenuereached1 million in Q3 2020 [7] - This marks the 15th consecutive quarter of YoY revenue growth [7] - Enterprise business revenue reached 6.6 million in Q3 2021 [10] - Annual Recurring Revenue (ARR) was 4.6millioninSeptember2021,withexpectationsof4.6 million in September 2021, with expectations of 5 million to 6millionbyDecember2021[33]BusinessLinePerformance−AllotSmartproductlinecontinuestogrow,withdealsintrafficmanagement,congestionmanagement,anddigitalenforcement[9]−AllotSecureproductlinesignedseveralrecurringsecurityrevenuedeals,includingadealwithDISHintheUSforcybersecurityontheir5Gnetwork[8]−Enterprisebusinessisexpectedtocontinuedouble−digitgrowthfortheremainderof2021[10]MarketPerformance−GrowinginterestinAllot′sproductsforblockingillegalactivitiessuchasdrugtraffickingandterrorism[10]−NorthAmericanmarketshowsstronginterestinnetwork−basedsecurityservices,withadvanceddiscussionswithtwoadditionaloperators[26]−APACregionsawadealwhereAllotreplacedacompetitor′sproductandlaunchedasecurity−as−a−serviceoffering[9]CompanyStrategyandIndustryCompetition−Allotistransformingintoacybersecuritycompany,withmostfuturegrowthexpectedfromthissector[12]−Thecompanyisinvestinginadaptingproductstovariouscontainerizedcloud−nativeenvironmentstocapitalizeon5Gopportunities[12]−Allotiswinningdealsduetoitscomprehensiveproductoffering,commercialpartnershipmodel,andstrongtrackrecord[27]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Managementisoptimisticaboutthenetwork−basedcybersecuritymarket,despiteasix−monthdelayinrecurringrevenuetargets[35]−Thecompanyexpectsrecurringsecurity−as−a−servicerevenueof6 million by December 2021 [33] Business Line Performance - Allot Smart product line continues to grow, with deals in traffic management, congestion management, and digital enforcement [9] - Allot Secure product line signed several recurring security revenue deals, including a deal with DISH in the US for cybersecurity on their 5G network [8] - Enterprise business is expected to continue double-digit growth for the remainder of 2021 [10] Market Performance - Growing interest in Allot's products for blocking illegal activities such as drug trafficking and terrorism [10] - North American market shows strong interest in network-based security services, with advanced discussions with two additional operators [26] - APAC region saw a deal where Allot replaced a competitor's product and launched a security-as-a-service offering [9] Company Strategy and Industry Competition - Allot is transforming into a cybersecurity company, with most future growth expected from this sector [12] - The company is investing in adapting products to various containerized cloud-native environments to capitalize on 5G opportunities [12] - Allot is winning deals due to its comprehensive product offering, commercial partnership model, and strong track record [27] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the network-based cybersecurity market, despite a six-month delay in recurring revenue targets [35] - The company expects recurring security-as-a-service revenue of 4.1 million to 4.3millionforfull−year2021,4.3 million for full-year 2021, 10 million to 15millionfor2022,and15 million for 2022, and 20 million to 30millionforthe12monthsfromJuly2022toJune2023[33]−TheMAR(MonthlyActiveRevenue)metricisexpectedtoexceed30 million for the 12 months from July 2022 to June 2023 [33] - The MAR (Monthly Active Revenue) metric is expected to exceed 180 million for 2021 and an additional 180 million for 2022 [34] Other Important Information - The company is facing delays in recognizing security-as-a-service revenue due to technical issues, CSP commercial launch delays, and integration challenges [15][16][17] - Allot is working closely with CSPs to improve go-to-market strategies and shorten integration times [17][20] - The company has signed 18 security-as-a-service deals, with seven already launched and 11 expected to launch in the future [23] Q&A Session Summary Question: Clarification on the number of signed deals and launches [39] - Answer: 18 signed deals, with seven launched and 11 not yet launched [40] Question: Impact of the strong shekel on financials [41] - Answer: Every 10% change in the exchange rate impacts the company by more than 5 million but less than 10million.Thecompanyhassomehedginginplace,butthefulleffectwillbeseenin2022[42]Question:High−leveloutlookfor2022[44]−Answer:TheDPImarketisexpectedtogrowinsingledigits,withpotentialforflatgrowthin2022.Thepreviousforecastshouldbereducedby10 million. The company has some hedging in place, but the full effect will be seen in 2022 [42] Question: High-level outlook for 2022 [44] - Answer: The DPI market is expected to grow in single digits, with potential for flat growth in 2022. The previous forecast should be reduced by 12.5 million due to delays in SECaaS revenue [45] Question: Conservatism in the new forecast [46] - Answer: The new forecast is based on a bottom-up approach, with detailed data on each customer, making it more accurate than the previous top-down approach [47] Question: Supply chain issues impacting DPI expectations [50] - Answer: The company has managed supply chain issues by buying inventory early and making long-term commitments, but challenges may arise if shortages persist [51] Question: Pipeline growth compared to 2020 [53] - Answer: The pipeline has grown significantly, with expectations of 12 to 18 new launches in 2022 [54] Question: Time to launch for new deals [55] - Answer: On average, it takes about one year to launch from signature, but there is variability [56] Question: Impact of Broadcom deal on Allot Smart growth [61] - Answer: The Broadcom deal has contributed to growth, but the market is expected to normalize, with potential for flat growth in 2022 [63] Question: Competitive environment in SECaaS and 5G NetProtect [86] - Answer: Allot faces competition from DNS security providers like Infoblox and Akamai, as well as router security providers like McAfee and F-Secure. In 5G NetProtect, competitors include traditional DDoS security companies like Netscout Arbor and Radware [88][91] Question: ARR guidance and assumptions [93] - Answer: The ARR guidance for December 2022 is based on the seven launched operators plus 12 to 18 new launches, but not all will contribute to ARR due to free periods and staggered launches [96]