Allot — Interim / Quarterly Report 2015

Feb 9, 2016

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Allot Communications Announces Fourth Quarter and Full Year 2015 Financial Results

Hod Hasharon, Israel - February 9, 2016 - Allot Communications Ltd. (NASDAQ, TASE: ALLT), a leading global provider of security and monetization solutions that enable service providers to protect and personalize the digital experience, today announced its fourth quarter and year end 2015 results.

Q4 2015 – Financial Highlights:

• Non-GAAP revenues were $25.7 million, up 9% sequentially and down 16% year over year

• Non-GAAP gross margin reached 74%

• Non-GAAP operating profit was 4%

• Book-to-bill was above one. Record booking level per quarter.

• The Company recorded positive operating cash flow of $1.7 million

• Net cash and cash equivalents as of December 31 2015 totaled $123.3 million

2015 – Financial Highlights:

• Non-GAAP Revenues were $100.3 million, down 14% year over year

• Non-GAAP Gross Margin reached 75%

• Non-GAAP Operating Margin was 1%

• Book-to-bill above one.

• The Company generated $4.4 million of Operating Cash Flow

Q4 Financial results:

On a GAAP basis, total revenues for the fourth quarter of 2015 were $25.4 million compared to $23.5 million of revenue reported for the third quarter of 2015 and $30.6 million of revenue reported for the fourth quarter of 2014. Gross margin was 48% compared to 74% reported for the third quarter of 2015 and 66% during the fourth quarter of 2014. Cost of revenues includes impairment charge of $5.8 resulting from intangible assets write offs in the quarter. GAAP tax expenses amounted to $3.0 include $2.7 million of deferred tax asset and pre-paid tax expenses write-off. Net loss for the fourth quarter of 2015 was $10.4 million, or $0.31 per basic and diluted share. This compares with a net loss of $3.4 million, or $0.10 per basic and diluted share, in the third quarter of 2015 and a net loss of $2.3 million, or $0.07 per basic and diluted share, in the fourth quarter of 2014.

On a non-GAAP basis, total revenues for the fourth quarter of 2015 were $25.7 million, compared with $23.5 million of revenue reported for the third quarter of 2015 and $30.6 million of revenue reported for

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the fourth quarter of 2014. On a non-GAAP basis, net income for the fourth quarter of 2015 was $0.7 million, or $0.02 per basic and diluted share. This compares with non-GAAP net loss of $0.7 million, or $0.02 per basic and diluted share, in the third quarter of 2015 and non-GAAP net income of $3.4 million, or $0.10 per basic and diluted share, in the fourth quarter of 2014.

Q4 2015 - Key Achievements:

• During Q4 2015, 22 large orders were received, 3 of which were from new customers

• 13 of the large orders came from mobile-service providers.

• 9 of the large orders were from fixed-line service providers

• During Q4 2015, Allot received six, over $1 million deals, compared to four in the previous quarter and five during Q4, 2014.

• Received an expansion order of over $10 million from a tier-1 mobile operator.

• Introduction of the Allot Service Gateway-Virtual Edition. This version provides a virtualized framework for seamless integration and interoperability of VNF (Virtual Network Function).

• Allot's Security as a Service solutions surpassed the 10 million subscribers mark.

2016 Outlook

Based on current backlog and the Company's funnel of opportunities, the Company expects non-GAAP revenues to be in the range of $102-$108 million in 2016. In addition the Company expects operating margin improvement on a year over year basis, on a non-GAAP basis. Revenues for the second half of 2016 are expected to be higher than in the first half.

2015 financial results

On a GAAP basis total revenues for the full year 2015 reached $100.0 million, compared to $117.2 million in 2014. Net loss for the year 2015 was $19.8 million, or $0.59 per basic and diluted share, as compared with net loss of $2.5 million, or $0.08 per basic and diluted share, in 2014.

On a non-GAAP basis total revenues for the full year 2015 reached $100.3 million, compared with $117.2 million of revenue reported for the full year 2014. Net income for the full year 2015 reached $0 million, or $0.0 per basic and diluted share. This compares with non-GAAP net income of $10.5 million, or $0.31 per basic and diluted share, reported for the full year 2014.

"During the fourth quarter, value added services represented more than 50% of overall bookings while security and monetization continue to be the prime drivers for our business. The improvement in VAS is the reason for the booking strength and in addition, helped us to reach record bookings level on a quarterly basis." Said Andrei Elefant, President & CEO of Allot Communications. "We continue to witness longer conversion cycles of bookings into revenues, mainly with new customers. Our book to bill is above 1 and we are starting the year with higher backlog than a year ago. This supports our expectations to achieve top line growth during 2016 as well as improved profitability."

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The Company also announced today that its Board of Directors had approved offering certain employees, including certain executive officers, who hold options the opportunity to exchange their "underwater" options that have an exercise price in excess of $7.00. Employees will be offered one restricted share unit for every three options. Executive officers will be offered 0.8 new stock options for every stock option exchanged at an exercise price of the higher of the fair market value of the Company's shares on the date of grant of the new options or $6.00. Restricted share units and options will each vest over a two year period beginning on the date of grant. Up to approximately 870,000 underwater options may be exchanged in the program. All other terms and conditions of the restricted share unit and options will be subject to the Company's Incentive Compensation Plan.

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Conference Call & Webcast:

The Allot management team will host a conference call to discuss fourth quarter 2015 earnings results today at 8:30 AM ET, 3:30 p.m. Israel time. To access the conference call, please dial one of the following numbers: US: +16462543362, UK: +44(0)2034271907, Israel: +97237219510, participant code 3528304.

A replay of the conference call will be available from 12:00 AM ET on February 10 2016 for 30 days. To access the replay, please dial: US: National free number 18669325017, or +13473669565; UK: National free number 08003587735, or +44(0)2034270598, access code : 3528304#. A live webcast of the conference call can be accessed on the Allot Communications website at www.allot.com. The webcast also will be archived on the website following the conference call.

About Allot Communications

Allot Communications (NASDAQ, TASE: ALLT) is a leading provider of security and monetization solutions that enable service providers to protect and personalize the digital experience. Allot’s flexible and highly scalable service delivery framework leverages the intelligence in data networks, enabling service providers to get closer to their customers, safeguard network assets and users, and accelerate time-to-revenue for value-added services. We employ innovative technology, proven know-how and a collaborative approach to provide the right solution for every network environment. Allot solutions are currently deployed at 5 of the top 10 global mobile operators and in thousands of CSP and enterprise networks worldwide. 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,

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inventory write-off expenses, changes in deferred tax asset and prepaid income tax expenses write-off, 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

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

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

RevenuesCost of revenuesGross profitOperating expenses:Research and development costs, netSales and marketingGeneral and administrativeTotal operating expensesOperating LossFinancial and other income (loss), netLoss before income tax benefitTax expenses (benefit)Net LossBasic net Loss per shareDiluted net Loss per shareWeighted average number of sharesused in computing basic netearnings per shareWeighted average number of sharesused in computing diluted netearnings per share	Three MonthsDecember	Ended2014(Unaudited)30,635$ 10,42820,2077,36512,0553,32522,745(2,538)200(2,338)(84)(2,254)$ (0.07)$ (0.07)$ 33,282,94233,282,94231,	December 31,Year Ended
	2015		20152014
	(Unaudited)		(Unaudited)(Audited)
	25,382$ 13,18512,1976,47610,1423,20919,827(7,630)232(7,398)2,982(10,380)$ (0.31)$ (0.31)$ 33,559,69833,559,698		99,967$ 117,186$ 33,42734,73966,54082,44726,42229,01443,31844,59912,70211,94182,44285,554(15,902)(3,107)(584)660(16,486)(2,447)3,35650(19,842)$ (2,497)$ (0.59)$ (0.08)$ (0.59)$ (0.08)$ 33,419,91733,143,16833,419,91733,143,168

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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)

					TABLE - 2
				ALLOT CO	MMUNICATION	S LTD.
		RECO	CILATION OF G	AND IAAP TO NON-GAA	TS SUBSIDIARIEP CONSOLIDAT	SED STATEMENT		S OF OPERATIO	NS
				(U.S. dollars in th	ousands, except per	share data)
					Three Months E	nded		Three Months En	ded
					**Db 31 **	2015		Db 31 20	14
					**ecemer, **			**ecemer, **
	GAAP operating LossShare-based compensation (1)				$ % ofRevenues(7,630)$ -30%1624(Unaudited)		(Unaudited)
							$ % ofRevenues
							(2,538)$ -8%2223
	Impairment and amortization of intangible assets (2)Expenses related to M&A activities (3)Inventory write off - cost of revenuesFair value adjustment for acquired deferred revenues write downNon-GAAP Operating incomeGAAP net LossShare-based compensation (1)Impairment and amortization of intangible assets (2)Expenses related to M&A activities (3)Inventory write off - cost of revenuesChanges in deferred tax and prepaid tax assetsFair value adjustment for acquired deferred revenues write downNon-GAAP net incomeGAAP Loss per share (diluted)Share-based compensationImpairment and amortization of intangible assetsExpenses related to M&A activitiesInventory write off - cost of revenuesChanges in deferred tax and prepaid tax assetsFair value adjustment for acquired deferred revenues write downNon-GAAP Net income per share (diluted)1) Share-based compensation:Cost of revenuesResearch and development costs, netSales and marketingGeneral and administrative(2) Impairment and amortization of intangible assetsCost of revenuesSales and marketing(3) Expenses related to M&A activitiesGeneral and administrativeResearch and development costs, netSales and marketingFinanacial expensees				,6,658--271923$ 4%(10,380)$ -41%1,6246,658-89-2,628271712$ 3%(0.31)$ 0.050.20-0.00-0.070.010.02$ 79$ 3666315481,624$ 6,374$ 2846,658$ -$ ---89(89)$		,471652,86811
							3,100$ 10%
							(2,254)$ -7%2,223471652,868-11
							3,384$ 11%
							(0.07)$ 0.070.020.000.08-0.00
							0.10$
							85$ 487860791
							2,223$
							397$ 74
							471$
							65$ ---
							65$

• (1) Share-based compensation:

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TABLE - 2 cont. 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)

GAAP operating lossShare-based compensation (1)Impairment and amortization of intangible assets (2)Expenses related to M&A activities (3)Inventory write off - cost of revenuesFair value adjustment for acquired deferred revenues write downNon-GAAP Operating incomeGAAP Net LossShare-based compensation (1)Impairment and amortization of intangible assets (2)Expenses related to M&A activities (3)Inventory write off - cost of revenuesChanges in deferred tax and prepaid tax assetsFair value adjustment for acquired deferred revenues write downNon-GAAP net income (loss)GAAP loss per share (diluted)Share-based compensationImpairment and amortization of intangible assetsExpenses related to M&A activitiesInventory write off - cost of revenuesChanges in deferred tax and prepaid tax assetsFair value adjustment for acquired deferred revenues write downNon-GAAP Net income per share (diluted)1) Share-based compensation:Cost of revenuesResearch and development costs, netSales and marketingGeneral and administrative(2) Impairment and amortization of intangible assetsCost of revenuesSales and marketing(3) Expenses related to M&A activitiesGeneral and administrativeResearch and development costs, netSales and marketingFinanacial expensees	$ % ofRevenues(15,902)$ -16%7,1708,733678-304983$ 1%(19,842)$ -20%7,1708,733871-2,628304(136)$ 0%(0.59)$ 0.210.260.03-0.070.02(0.00)$ 324$ 1,6372,8022,4077,170$ 8,075$ 6588,733$ 452$ 45181193871$ Year EndedDecember 31, 2015(Unaudited)	Year EndedDecember 31, 2014
		(Audited)
		$ % ofRevenues
		(3,107)$ -3%8,0941,859982,86845
		9,857$ 8%
		(2,497)$ -2%8,0941,859982,868-45
		10,467$ 9%
		(0.08)$ 0.240.050.000.08-0.00
		0.31$
		353$ 1,9193,3212,501
		8,094$
		1,596$ 263
		1,859$
		98$ ---
		98$

• (1) Share-based compensation:

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TABLE - 3

ALLOT COMMUNICATIONS LTD.

AND ITS SUBSIDIARIES

RECONCILATION OF GAAP TO NON-GAAP CONSOLIDATED REVENUES

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

GAAP RevenuesFair value adjustment for acquired deferred revenues write downNon-GAAP Revenues	Three Months Ended20152014(Unaudited)(Unaudited)25,382$ 30,635$ 2711125,653$ 30,646$ December 31,	Year EndedDecember 31,
		20152014(Unaudited)(Audited)
	25,382$ 27125,653$	99,967$ 117,186$ 304$ 45$ 100,271$ 117,231$

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TABLE - 4 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands)

	December 31,	December 31,
	2015	2014
	(Unaudited)	(Audited)
ASSETSCURRENT ASSETS:Cash and cash equivalentsShort term depositsRestricted cashMarketable securitiesTrade receivables, netOther receivables and prepaid expensesInventoriesTotal current assetsLONG-TERM ASSETS:Severance pay fund	15,470$ 42,70020364,92123,8744,51310,169161,850282	19,180$ 59,00054,27123,7595,383 10,109
		171,702
		262
Deferred taxes	501	1,716
Other assetsTotal long-term assetsPROPERTY AND EQUIPMENT, NETGOODWILL AND INTANGIBLE ASSETS, NETTotal assetsLIABILITIES AND SHAREHOLDERS'EQUITYCURRENT LIABILITIES:Trade payablesDeferred revenuesOther payables and accrued expensesTotal current liabilitiesLONG-TERM LIABILITIES:Deferred revenuesAccrued severance payOther long term liabilitiesTotal long-term liabilities	2,7123,4955,18938,109208,643$ 7,107$ 14,06614,34935,5224,9126514,1539,716	4,948
		6,926
		5,957
		28,363
		212,948$
		6,300$ 12,70414,524
		33,528
		4,1582820
		4,440
SHAREHOLDERS' EQUITYTotal liabilities and shareholders' equity	163,405208,643$
		174,980
		212,948$

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TABLE - 5 ALLOT COMMUNICATIONS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands)

	Three Months Ended	Year Ended
	December 31,	December 31,
	20152014(Unaudited)(Unaudited)(10,380)$ (2,254)$ 6959821,6092,2226,32247115-197(1)49640254273(872)1,566270(52)(1,010)2,9331,355(280)1,5329281,838665313234(900)3421,7348,069--(5,950)(20,500)(203)(612)(878)(13,286)(2,870)5,8223,502---152(14,229)(20,594)1974(166)(147)74(12,642)(12,451)28,11231,63115,470$ 19,180$	20152014
		(Unaudited)(Audited)
Cash flows from operating activities:		(19,842)$ (2,497)$ 2,8173,3087,1518,0958,3351,858153-349(8)464100967793(847)(6,851)(199)(1,321)(950)3,6891,215(224)2,2183,1099201,0731,9611,911(329)2,800
Net LossAdjustments to reconcile net income to net cash provided by operating activities:DepreciationStock-based compensation related to options granted to employeesAmortization of intangible assetsCapital lossDecrease (Increase) in accrued severance pay, netDecrease in other assetsDecrease in accrued interest and amortization of premium on marketable securitiesIncrease (Decrease) in trade receivables
Decrease (Increase) in other receivables and prepaid expenses
Decrease (Increase) in inventoriesIncrease (Decrease) in long-term deferred taxes, netIncrease in trade payablesIncrease in employees and payroll accrualsIncrease in deferred revenues
Increase (Decrease) in other payables and accrued expenses
Net cash provided by operating activitiesCash flows from investing activities:		4,38315,835
		38,00029,500(21,700)(50,500)(203)(2,218)(3,391)(34,098)(22,736)22,2218,266(10,052)--(2,083)
Redemption of short-term depositsInvestment in short-term depositInvestment in restricted cashPurchase of property and equipmentInvestment in marketable securitiesProceeds from redemption or sale of marketable securitiesAcquisitionsLoan provided to third party, net
Net cash used in investing activitiesCash flows from financing activities:		(8,050)(40,944)
		1231,476(166)
Exercise of employee stock optionsPurchase of treaury stocksNet cash provided by (used in) by financing activities
		(43)1,476
		(3,710)(23,633)19,18042,813
Increase (Decrease) in cash and cash equivalentsCash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
		15,470$ 19,180$

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Investor Relations Contact:

Rami Rozen

AVP Corporate Development International access code +972-52-569-4441 rrozen@allot.com

Public Relations Contact:

Sigalit Orr

Director Corporate Communications International access code +972-54-268-1500 sorr@allot.com