Allot

Earnings Release • Nov 7, 2017

Allot Communications Announces Third Quarter 2017 Financial Results

Revenues rose and non-GAAP loss narrowed compared to prior quarter

Hod Hasharon, Israel – November 7, 2017 - Allot Communications Ltd. (NASDAQ: ALLT, TASE: ALLT), a leading global provider of innovative network intelligence and security solutions for service providers worldwide, today announced its third quarter 2017 financial results, ended September 30, 2017.

Q3 2017 – Financial Highlights

• Revenues were \$20.9 million, up 7% from the previous quarter;
• GAAP gross margin was 62%, Non-GAAP gross margin was 68%;
• GAAP operating loss of \$4.4 million, Non-GAAP operating loss of \$1.3 million;
• Book-to-bill above one for the third consecutive quarter;

Management Comment

Erez Antebi, President & CEO of Allot Communications, commented, "I am particularly encouraged by the fact that in Q3 we continued to see an increase in revenues compared to all previous quarters this year, and it was the third consecutive quarter with a Book-to-Bill ratio above 1. We also focused our effort during the quarter on the reorganization of our Customer Facing Units and other internal areas to better serve our customers and align our efforts to our business strategy. Looking ahead into Q4, we see significant interest in the market for our offerings and our pipeline continues to strengthen. I expect continued growth as we approach the end of the current year and I believe we are now well positioned as a company for next year. I see Allot with much growth potential and I believe Allot will establish itself as an important player in the security market over the coming years."

Financial Results Summary

Total revenues for the third quarter of 2017 were \$20.9 million, up 7% compared to \$19.5 million in the second quarter of 2017.

Net loss on a GAAP basis for the third quarter of 2017 was \$4.6 million, or \$0.14 per basic and diluted share, compared with a net loss of \$4.0 million, or \$0.12 per basic and diluted share, in the prior quarter. During the third quarter of 2017 the Company incurred a one-time cost related to its restructuring activities of \$2.2 million.

On a non-GAAP basis, net loss for the third quarter of 2017 was \$1.3 million, or \$0.04 per basic and diluted share, a reduction from a non-GAAP net loss of \$2.3 million, or \$0.07 per basic and diluted share, in the prior quarter.

Cash and investments as of September 30, 2017 totaled \$109.9 million. The Company recorded a negative operating cash flow of \$1.0 million during the third quarter of 2017.

2017 Outlook

Management reiterates its guidance for full year revenue issued earlier in the year. Expectations remain for revenues to come in between \$80 - \$84 million and better fourth quarter revenues compared with the third quarter of 2017.

The book to bill ratio for the year is expected to be above 1.

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Conference Call & Webcast:

The Allot management team will host a conference call to discuss third quarter 2017 earnings results today, November 7, 2017 at 8:30 AM ET, 3:30 p.m. 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: ALLT, TASE: ALLT) is a leading global provider of innovative network intelligence and security solutions for service providers worldwide, enhancing value to their customers. For more information, please 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 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 are 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: Sigalit Orr Director Corporate Communications International dialing +972-54-268-1500 sorr@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	Nine Months Ended
		September 30,	September 30,
	2017 2016		2017	2016
		(Unaudited)	(Unaudited)
Revenues	\$ 20,857	\$ 20,985	\$ 58,794	\$ 66,882
Cost of revenues	7,840	6,880	20,820	20,547
Gross profit	13,017	14,105	37,974	46,335
Operating expenses:
Research and development costs, net	5,202	5,942	16,099	18,760
Sales and marketing	9,779	8,697	27,506	27,814
General and administrative	2,449	2,635	7,509	7,902
Total operating expenses	17,430	17,274	51,114	54,476
Operating loss	(4,413)	(3,169)	(13,140)	(8,141)
Financial and other income, net	8 2	309	556	637
Loss before income tax expenses	(4,331)	(2,860)	(12,584)	(7,504)
Tax expenses	294	561	1,148	1,431
Net loss	(4,625)	(3,421)	(13,732)	(8,935)
Basic net loss per share	\$ (0.14)	\$ (0.10)	\$ (0.41)	\$ (0.27)
Diluted net loss per share	\$ (0.14)	\$ (0.10)	\$ (0.41)	\$ (0.27)
Weighted average number of shares used in computing basic net loss per share	33,303,744	33,012,229	33,199,633	33,241,185
Weighted average number of shares used in computing diluted net loss per share	33,303,744	33,012,229	33,199,633	33,241,185

TABLE - 2 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES

RECONCILATION OF GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017 2016			2017 2016
			(Unaudited)				(Unaudited)
GAAP Revenues Fair value adjustment for acquired deferred revenues write down	\$	20,857 -	\$	20,985 3 3	\$	58,794 3 7	\$	66,882 134
Non-GAAP Revenues	\$	20,857	\$	21,018	\$	58,831	\$	67,016
GAAP cost of revenues	\$	7,840	\$	6,880	\$	20,820	\$	20,547
Share-based compensation (1)		(87)		(62)		(279)		(236)
Amortization of intangible assets (2)		(232)		(326)		(706)		(807)
Restructuring expenses (4)		(887)		(127)		(887)		(127)
Non-GAAP cost of revenues	\$	6,634	\$	6,365	\$	18,948	\$	19,377
GAAP gross profit	\$	13,017	\$	14,105	\$	37,974	\$	46,335
Gross profit adjustments		1,206		548		1,908		1,304
Non-GAAP gross profit	\$	14,223	\$	14,653	\$	39,882	\$	47,639
GAAP operating expenses	\$	17,430	\$	17,274	\$	51,114	\$	54,476
Share-based compensation (1)		(489)		(1,015)		(2,107)		(3,820)
Amortization of intangible assets (2)		(135)		(133)		(404)		(403)
Expenses related to M&A activities (3)		-		-		(89)		-
Restructuring expenses (4)		(1,264)		(1,163)		(1,264)		(1,163)
Non-GAAP operating expenses	\$	15,542	\$	14,963	\$	47,250	\$	49,090
GAAP financial and other income	\$	8 2	\$	309	\$	556	\$	637
Expenses related to M&A activities (3)		162		2 6		541		169
Non-GAAP Financial and other income	\$	244	\$	335	\$	1,097	\$	806
GAAP taxes on income	\$	294	\$	561	\$	1,148	\$	1,431
Tax expenses (in respect of net deferred tax asset recorded)		(67)		(62)		(197)		(194)
Non-GAAP taxes on income	\$	227	\$	499	\$	951	\$	1,237
GAAP Net Loss	\$	(4,625)	\$	(3,421)		\$ (13,732)	\$	(8,935)
Share-based compensation (1)		576		1,077		2,386		4,056
Amortization of intangible assets (2)		367		459		1,110		1,210
Expenses related to M&A activities (3)		162		2 6		630		169
Restructuring expenses (4)		2,151		1,290		2,151		1,290
Fair value adjustment for acquired deferred revenues write down		-		3 3		3 7		134
Tax expenses (in respect of net deferred tax asset recorded)		6 7		6 2		197		194
Non-GAAP Net income (Loss)	\$	(1,302)	\$	(474)	\$	(7,221)	\$	(1,882)
GAAP Loss per share (diluted)	\$	(0.14)	\$	(0.10)	\$	(0.41)	\$	(0.27)
Share-based compensation		0.02		0.03		0.07		0.12
Amortization of intangible assets		0.01		0.02		0.03		0.03
Expenses related to M&A activities		0.01		0.00		0.02		0.01
Restructuring expenses		0.06		0.04		0.06		0.04
Fair value adjustment for acquired deferred revenues write down		-		0.00		0.00		0.00
Tax expenses (in respect of net deferred tax asset recorded)		0.00		0.00		0.01		0.01
Non-GAAP Net loss per share (diluted)	\$	(0.04)	\$	(0.01)	\$	(0.22)	\$	(0.06)
Weighted average number of shares used in
computing GAAP diluted net earnings per share		33,303,744		33,012,229		33,199,633		33,241,185
Weighted average number of shares used in
computing non-GAAP diluted net earnings per share		33,303,744		33,012,229		33,199,633		33,241,185

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

RECONCILATION OF GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended September 30,			Nine Months Ended September 30,
		2017	2016		2017			2016
		(Unaudited)			(Unaudited)
(1) Share-based compensation (*):
Cost of revenues	\$	8 7	\$	6 2	\$	279	\$	236
Research and development costs, net		7		273		453		978
Sales and marketing		221		333		708		1,422
General and administrative		261		409		946		1,420
	\$	576	\$	1,077	\$	2,386	\$	4,056
(2) Amortization of intangible assets
Cost of revenues	\$	232	\$	326	\$	706	\$	807
Sales and marketing		135		133		404		403
	\$	367	\$	459	\$	1,110	\$	1,210
(3) Expenses related to M&A activities
General and administrative	\$	-	\$	-	\$	8 9	\$	-
Finanacial expensees		162		2 6		541		169
	\$	162	\$	2 6	\$	630	\$	169
(4) Restructuring expenses
Cost of revenues	\$	887	\$	127	\$	887	\$	127
Research and development costs, net		154		370		154		370
Sales and marketing		976		720		976		720
General and administrative		134		7 3		134		7 3
	\$	2,151	\$	1,290	\$	2,151	\$	1,290

(*) Excluding share-based compensation related to the restructuring plan, which was already included under restructuring expenses.

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

September 30, December 31, 2017 2016 (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents \$ 24,328 \$ 23,326 Short term deposits 21,743 29,821 Marketable securities 63,851 60,507 Trade receivables, net 22,651 24,158 Other receivables and prepaid expenses 4,432 3,879 Inventories 9,111 7,235 Total current assets 146,116 148,926 LONG-TERM ASSETS: Severance pay fund 290 252 Deferred taxes 6 7 ²⁶⁷ Other assets 528 1,136 Total long-term assets 885 1,655 PROPERTY AND EQUIPMENT, NET 4,870 4,387 GOODWILL AND INTANGIBLE ASSETS, NET 34,862 35,972 Total assets \$ 186,733 \$ 190,940 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables \$ 6,468 \$ 3,275 Deferred revenues 12,116 11,133 Other payables and accrued expenses 12,247 10,538 Total current liabilities 30,831 24,946 LONG-TERM LIABILITIES: Deferred revenues 3,650 3,597 Accrued severance pay 743 592 Other long term liabilities 5,045 4,502 Total long-term liabilities 9,438 8,691 SHAREHOLDERS' EQUITY 146,464 157,303 Total liabilities and shareholders' equity \$ 186,733 \$ 190,940

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

2017 2016 2017 2016 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities: Net Loss \$ (4,625) \$ (3,421) \$ (13,732) \$ (8,935) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 494 570 1,559 1,765 Stock-based compensation related to options granted to employees 770 1,197 2,579 4,176 Amortization of intangible assets 367 459 1,110 1,210 Capital loss 7 - 1 4 2 0 Decrease (Increase) in accrued severance pay, net 2 9 (52) ¹¹³ (25) Decrease in other assets 4 2 ^{375 608 747} Decrease in accrued interest and amortization of premium on marketable securities 9 2 ^{283 594} 1,023 Decrease (Increase) in trade receivables 1,716 (3,621) 1,507 (3,079) Decrease (Increase) in other receivables and prepaid expenses (897) 251 (491) 493 Decrease (Increase) in inventories 973 1,663 (1,876) 1,524 Decrease in long-term deferred taxes, net 6 7 6 2 ^{201 185} Increase (Decrease) in trade payables (2,943) (1,229) 3,193 (4,134) Increase (Decrease) in employees and payroll accruals 489 (13) 1,105 (610) Increase (Decrease) in deferred revenues 1,997 (1,520) 1,036 (1,584) Increase (Decrease) in other payables and accrued expenses 401 (34) 1,161 (438) Net cash used in operating activities (1,021) (5,030) (1,319) (7,662) Cash flows from investing activities: Decrease in restricted cash - 203 - 203 Redemption of short-term deposits 2,800 5,648 8,078 15,381 Purchase of property and equipment (297) (448) (2,057) (1,184) Investment in marketable securities (3,672) (4,117) (19,210) (21,097) Proceeds from redemption or sale of marketable securities 3,002 3,215 15,413 21,805 Net cash provided by investing activities 1,833 4,501 2,224 15,108 Cash flows from financing activities: Exercise of employee stock options 5 6 6 9 9 7 9 5 Purchase of treasury stocks - - - (3,326) Net cash provided by (used in) financing activities 5 6 6 9 9 7 (3,231) Increase (Decrease) in cash and cash equivalents 868 (460) 1,002 4,215 Cash and cash equivalents at the beginning of the period 23,460 20,145 23,326 15,470 Cash and cash equivalents at the end of the period \$ 24,328 \$ 19,685 \$ 24,328 \$ 19,685 September 30, Three Months Ended Nine Months Ended September 30,