Allot

Earnings Release • Aug 7, 2018

Allot Announces Second Quarter 2018 Financial Results

Revenues increased 18% Year over Year with Continued Improvement in Margins

Hod Hasharon, Israel – August 7, 2018 - Allot Communications Ltd. (NASDAQ: ALLT, TASE: ALLT), a global provider of leading innovative network intelligence and security solutions for service providers worldwide, today announced its second quarter 2018 financial results.

Q2 2018 – Financial Highlights

• Revenues were \$23.0 million, up 18% year-over-year;
• GAAP gross margin improved to 70.8% up from 65.8% in Q2 2017;
• Non-GAAP gross margin was 72.2% up from 67.6%in Q2 2017;
• GAAP operating loss narrowed to \$2.8 million compared to \$3.8 million in Q2 2017;
• Non-GAAP operating loss narrowed to \$1.3 million compared to \$2.4 million in Q2 2017;
• Book-to-bill was above one for the sixth consecutive quarter;
• Cash and cash equivalents increased to \$105.9 million;

Financial Outlook

• Management continues to expect 2018 revenues to grow to between \$91 95 million, with revenues trending toward the upper half of the range;
• 2018 Book to Bill is expected at above 1;

Management Comment

Erez Antebi, President & CEO of Allot, commented:

"I am very pleased with our progress as demonstrated through our second quarter results, which represent another quarter of growth and improvement in margins. We are investing additional resources in pursuing and capturing the increasing growth opportunities we see in our end markets. We expect these investments to continue to bring us growth.

"Much of our growth in the first half of the year came from actionable intelligence use cases and we are pleased with our improvements in this market segment. Furthermore, we are very encouraged by the market traction we are seeing for our security solutions. We expect to announce soon a new unified security deal for Telefonica Spain. We look forward to close additional security deals over the quarters and years ahead."

Q2 2018 Financial Results Summary

Total revenues for the second quarter of 2018 were \$23.0 million, up 18% compared to \$19.5 million in the second quarter of 2017.

Gross profit on a GAAP basis for the second quarter of 2018 was \$16.3 million (gross margin of 70.8%), a 27% improvement compared with \$12.8 million (gross margin of 65.8%) in the second quarter of 2017.

Gross profit on a non-GAAP basis for the second quarter of 2018 was \$16.6 million (gross margin of 72.2%), a 26% improvement compared with \$13.2 million (gross margin of 67.6%) in the second quarter of 2017. The higher level of gross margin represents a favorable sales mix in the quarter.

Net loss on a GAAP basis for the second quarter of 2018 was \$2.4 million, or \$0.07 per basic share, an improvement compared with a net loss of \$4.0 million, or \$0.12 per basic share, in the second quarter of 2017.

Non-GAAP net loss for the second quarter of 2018 was \$1.2 million, or \$0.04 per basic share, an improvement compared with a non-GAAP net loss of \$2.3 million, or \$0.07 per basic share, in the second quarter of 2017.

Cash and investments as of June 30, 2018 totaled \$105.9 million, compared to \$104.7 million in March 31, 2018.

# #

Conference Call & Webcast:

The Allot management team will host a conference call to discuss second quarter 2018 earnings results today, August 7, 2018 at 8:30 am ET, 3:30 pm Israel time. To access the conference call, please dial one of the following numbers:

US: +1-888-668-9141, UK: +44(0) 800-917-5108, Israel: +972-3-918-0609.

A live webcast and, following the end of the call, an archive of the conference call, will be accessible on the Allot Communications website at: http://investors.allot.com/index.cfm

About Allot Communications

Allot Communications Ltd. (NASDAQ, TASE: ALLT) is a provider of leading innovative network intelligence and security solutions for service providers worldwide, enhancing value to their customers. Our solutions are deployed globally for network and application analytics, traffic control and shaping, network-based security services, and more. Allot's multi-service platforms are deployed by over 500 mobile, fixed and cloud service providers and over 1000 enterprises. Our industry leading network-based security as a service solution has achieved over 50% penetration with some service providers and is already used by over 20 million subscribers in Europe. Allot. See. Control. Secure. For more information, visit www.allot.com

GAAP to Non-GAAP Reconciliation:

The difference between GAAP and non-GAAP revenues is related to the acquisitions made by the Company and represents revenues adjusted for the impact of the fair value adjustment to acquired deferred revenue related to purchase accounting. Non-GAAP net income is defined as GAAP net income after including deferred revenues related to the fair value adjustment resulting from purchase accounting and excluding stock-based compensation expenses, amortization of acquisition-related intangible assets, deferred tax asset adjustment, restructuring expenses, changes in taxes related items and other acquisition-related expenses.

These non-GAAP measures should be considered in addition to, and not as a substitute for, comparable GAAP measures. The non-GAAP results and a full reconciliation between GAAP and non-GAAP results is provided in the accompanying Table 2. The Company provides these non-GAAP financial measures because it believes they present a better measure of the Company's core business and management uses the non-GAAP measures internally to evaluate the Company's ongoing performance. Accordingly, the Company believes they are useful to investors in enhancing an understanding of the Company's operating performance.

Safe Harbor Statement

This release contains forward-looking statements, which express the current beliefs and expectations of Company management. Such statements involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements set forth in such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to compete successfully with other companies offering competing technologies; the loss of one or more significant customers; consolidation of, and strategic alliances by, our competitors, government regulation; the timing of completion of key project milestones which impact the timing of our revenue recognition; lower demand for key value-added services; our ability to keep pace with advances in technology and to add new features and value-added services; managing lengthy sales cycles; operational risks associated with large projects; our dependence on third party channel partners for a material portion of our revenues; court approval of the Company's proposed share buy-back program; and other factors discussed under the heading "Risk Factors" in the Company's annual report on Form 20-F filed with the Securities and Exchange Commission. Forward-looking statements in this release are made pursuant to the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Relations Contact: GK Investor Relations Ehud Helft/Gavriel Frohwein +1 646 688 3559 allot@gkir.com

Public Relations Contact: Vered Zur VP Marketing vzur@allot.com

TABLE - 1 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except share and per share data)

	Three Months Ended				Six Months Ended
			June 30,		June 30,
		2018 2017			2018 2017
		(Unaudited)				(Unaudited)
Revenues	\$	23,003	\$	19,502	\$	44,735	\$	37,937
Cost of revenues		6,712		6,662		13,636		12,980
Gross profit		16,291		12,840		31,099		24,957
Operating expenses:
Research and development costs, net		6,298		5,364		12,091		10,897
Sales and marketing		10,182		8,747		20,215		17,727
General and administrative		2,579		2,519		5,045		5,060
Total operating expenses		19,059		16,630		37,351		33,684
Operating loss		(2,768)		(3,790)		(6,252)		(8,727)
Financial and other income, net		806		112		1,036		474
Loss before income tax expenses		(1,962)		(3,678)		(5,216)		(8,253)
Tax expenses		455		352		887		854
Net Loss		(2,417)		(4,030)		(6,103)		(9,107)
Basic net loss per share	\$	(0.07)	\$	(0.12)	\$	(0.18)	\$	(0.27)
Diluted net loss per share	\$	(0.07)	\$	(0.12)	\$	(0.18)	\$	(0.27)
Weighted average number of shares used in
computing basic net loss per share		33,655,940		33,200,982		33,606,236		33,146,715
Weighted average number of shares used in
computing diluted net loss per share		33,655,940		33,200,982		33,606,236		33,146,715

TABLE - 2 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

		Three Months Ended June 30,	Six Months Ended June 30,
	2018	2017	2018 2017
		(Unaudited)	(Unaudited)
GAAP Revenues	\$ 23,003	\$ 19,502	\$ 44,735	\$ 37,937
Fair value adjustment for acquired deferred revenues write down	-	1 3	-	3 7
Non-GAAP Revenues	\$ 23,003	\$ 19,515	\$ 44,735	\$ 37,974
GAAP cost of revenues	\$ 6,712	\$ 6,662	\$ 13,636	\$ 12,980
Share-based compensation (1)	(90)	(96)	(170)	(192)
Amortization of intangible assets (2)	(232)	(242)	(465)	(474)
Non-GAAP cost of revenues	\$ 6,390	\$ 6,324	\$ 13,001	\$ 12,314
GAAP gross profit	\$ 16,291	\$ 12,840	\$ 31,099	\$ 24,957
Gross profit adjustments	\$ 322	351	635	703
Non-GAAP gross profit	\$ 16,613	\$ 13,191	\$ 31,734	\$ 25,660
GAAP operating expenses	\$ 19,059	\$ 16,630	\$ 37,351	\$ 33,684
Share-based compensation (1)	(630)	(870)	(1,254)	(1,618)
Amortization of intangible assets (2)	(175)	(135)	(350)	(269)
Expenses related to M&A activities (3)	(151)	-	(189)	(89)
Changes in tax related items (4)	(170)	-	(170)	-
Non-GAAP operating expenses	\$ 17,933	\$ 15,625	\$ 35,388	\$ 31,708
GAAP financial and other income	\$ 806	\$ 112	\$ 1,036	\$ 474
Expenses related to M&A activities (3)	(292)	306	(142)	379
Non-GAAP Financial and other income	\$ 514	\$ 418	\$ 894	\$ 853
GAAP taxes on income	\$ 455	\$ 352	\$ 887	\$ 854
Tax expenses (in respect of net deferred tax asset recorded)	(19)	(64)	(38)	(130)
Non-GAAP taxes on income	\$ 436	\$ 288	\$ 849	\$ 724
GAAP Net Loss	\$ (2,417)	\$ (4,030)	\$ (6,103)	\$ (9,107)
Share-based compensation (1)	720	966	1,424	1,810
Amortization of intangible assets (2)	407	377	815	743
Expenses related to M&A activities (3)	(141)	306	4 7	468
Changes in tax related items (4)	170	-	170	-
Fair value adjustment for acquired deferred revenues write down	-	1 3	-	3 7
Tax expenses in respect of net deferred tax asset recorded	1 9	6 4	3 8	130
Non-GAAP Net income (Loss)	\$ (1,242)	\$ (2,304)	\$ (3,609)	\$ (5,919)
GAAP Loss per share (diluted) Share-based compensation	\$ (0.07) 0.02	\$ (0.12) 0.03	\$ (0.18) 0.04	\$ (0.27) 0.05
Amortization of intangible assets	0.01	0.01	0.02	0.02
Expenses related to M&A activities	(0.01)	0.01	0.00	0.01
Fair value adjustment for acquired deferred revenues write down	-	0.00	-	0.00
Changes in taxes and headcount related items	0.01	0.00	0.01	0.00
Tax benefit (in respect of net deferred tax asset recorded)	0.00	0.00	-	0.01
Non-GAAP Net loss per share (diluted)	(0.04)	\$ (0.07)	\$ (0.11)	\$ (0.18)
Weighted average number of shares used in computing GAAP diluted net loss per share	33,655,940	33,200,982	33,606,236	33,146,715
Weighted average number of shares used in computing non-GAAP diluted net loss per share	33,655,940	33,200,982	33,606,236	33,146,715

AND ITS SUBSIDIARIES ALLOT COMMUNICATIONS LTD. TABLE - 2 cont.

RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

	Three Months Ended March 31,			Six Months Ended June 30,
		2018		2017		2018		2017
	(Unaudited)				(Unaudited)
(1) Share-based compensation:
Cost of revenues	\$	9 0	\$	9 6	\$	170	\$	192
Research and development costs, net		171		217		326		446
Sales and marketing		215		246		437		487
General and administrative		244		407		491		685
	\$	720	\$	966	\$	1,424	\$	1,810
(2) Amortization of intangible assets
Cost of revenues	\$	232	\$	242	\$	465	\$	474
Sales and marketing		175		135		350		269
	\$	407	\$	377	\$	815	\$	743
(3) Expenses related to M&A activities
General and administrative	\$	-	\$	-	\$	3 8	\$	8 9
Research and development costs, net		151		-		151		-
Financial expenses (income)		(292)		306		(142)		379
	\$	(141)	\$	306	\$	4 7	\$	468
(4) Changes in tax related items
Sales and marketing	\$	100	\$	-	\$	100	\$	-
General and administrative		7 0		-		7 0		-
	\$	170	\$	-	\$	170	\$	-

TABLE - 3 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands)

	June 30, 2018	December 31, 2017 (Audited)
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	\$ 20,371	\$ 15,342
Short term deposits	20,943	31,043
Restricted deposit	580	428
Marketable securities	64,037	63,194
Trade receivables, net	24,626	22,737
Other receivables and prepaid expenses	2,772	2,649
Inventories	8,010	7,897
Total current assets	141,339	143,290
LONG-TERM ASSETS:
Severance pay fund	298	302
Deferred taxes	263	301
Other assets	742	1,135
Total long-term assets	1,303	1,738
PROPERTY AND EQUIPMENT, NET	5,482	5,002
GOODWILL AND INTANGIBLE ASSETS, NET	38,208	34,495
Total assets	\$ 186,332	\$ 184,525
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Trade payables	\$ 6,357	\$ 5,857
Deferred revenues	11,828	11,370
Other payables and accrued expenses	19,479	14,277
Total current liabilities	37,664	31,504
LONG-TERM LIABILITIES:
Deferred revenues	4,382	3,878
Accrued severance pay	769	747
Other long term liabilities	5,236	5,267
Total long-term liabilities	10,387	9,892
SHAREHOLDERS' EQUITY	138,281	143,129
Total liabilities and shareholders' equity	\$ 186,332	\$ 184,525

TABLE - 4 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands)

2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities: Net Loss \$ (2,417) \$ (4,030) \$ (6,103) \$ (9,107) Adjustments to reconcile net income to net cash used in operating activities: Depreciation 555 535 1,053 1,065 Stock-based compensation related to options granted to employees 720 966 1,424 1,809 Amortization of intangible assets 407 376 815 743 Capital loss 3 6 ³ 3 9 ⁷ Decrease (Increase) in accrued severance pay, net (7) 5 6 2 6 8 4 Decrease (Increase) in other assets (395) 258 393 566 Decrease in accrued interest and amortization of premium on marketable securities 169 376 415 502 Decrease in trade receivables (2,635) (1,469) (1,889) (209) Decrease (Increase) in other receivables and prepaid expenses 1,597 1,028 (282) 406 Decrease (Increase) in inventories 164 (2,087) (113) (2,849) Decrease in long-term deferred taxes, net 1 9 6 7 3 8 ¹³⁴ Increase (Decrease) in trade payables (113) 4,287 489 6,136 Increase (Decrease) in employees and payroll accruals 214 340 (285) 616 Increase (Decrease) in deferred revenues 943 (108) 1,674 (961) Increase in other payables and accrued expenses 2,920 269 3,405 760 Net cash provided by (used in) operating activities 2,177 867 1,099 (298) Cash flows from investing activities: Increase in restricted deposit (352) - (152) - Redemption of (Investment in) short-term deposits (4,000) 4,805 10,100 5,278 Purchase of property and equipment (874) (949) (1,568) (1,760) Investment in marketable securities (10,896) (8,950) (17,957) (15,538) Proceeds from redemption or sale of marketable securities 11,422 7,662 16,413 12,411 Acquisitions - - (3,048) - Net cash provided by (used in) investing activities (4,700) 2,568 3,788 391 Cash flows from financing activities: Exercise of employee stock options 5 9 1 7 ¹⁴² 4 1 Net cash provided by financing activities 5 9 1 7 142 4 1 Increase (Decrease) in cash and cash equivalents (2,464) 3,452 5,029 134 Cash and cash equivalents at the beginning of the period 22,835 20,008 15,342 23,326 Cash and cash equivalents at the end of the period \$ 20,371 \$ 23,460 \$ 20,371 \$ 23,460 June 30, June 30, Three Months Ended Six Months Ended