Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Allot Communications Ltd. (NASDAQ:ALLT)

Q22012 Earnings Call

July 31, 2012 8:30 am ET

Executives

Jay Kalish - Executive Director Investor Relations

Rami Hadar - President and Chief executive Officer

Nachum Falek - Chief Financial Officer

Analysts

Ittai Kidron - Oppenheimer

Matt Robison - Wunderlich Securities

Kiera Kilkowski - Bank of America Merrill Lynch

Daniel Meron - RBC Capital Markets

Peter Misek - Jefferies

Brent Bracelin - Pacific Crest

Catharine Trebnic - Northland Securities

Jay Srivatsa - Chardan Capital Markets

Sanjit Singh - Wedbush Securities

Daniel Cummins - ThinkEquity

Operator

Good day, and welcome to the Allot Communications, Ltd 2012 Q2 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jay Kalish. Please go ahead, sir.

Jay Kalish

Thank you very much, Carol and thank you all for joining us on our second quarter 2012 conference call. Joining me today are Allot's President and CEO, Rami Hadar, as well as our Chief Financial Officer, Nachum Falek.

The press release announcing our second quarter results is available on the investor relations section of our website at www.allot.com. All results and expectations we review on the call are on a non-GAAP basis unless otherwise described as GAAP.

Non-GAAP net income and non-GAAP net income per share excludes stock based compensation expenses, as well as amortization of intangible assets, and certain one time charges incurred relating to M&A activities and compliance with regulatory matters, Please note that all earnings per share amounts are on a fully diluted basis.

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.

With that, I would now like to turn the call over to Rami.

Rami Hadar

Thank you, Jay and thank you all for joining us today. The second quarter picked up where the first quarter ended shallow. For the first quarter, revenues grew 43% over last year, and 9% over the first quarter and reached $26.4 million. Net profit was $5 million or $0.15 per share for the quarter and cash flow remained positive.

We achieved this while we began integrating Ortiva into our lot with acquisition closing on May 15. The book-to-bill ratio was over 1 for the quarter as the backlog continues to grow.

While we do issue press releases with every new order, during the quarter, we received large orders from 14 service providers six of which were from new customers. Six of these orders were from mobile operators, and two of these represented new customers for Allot.

During the quarter we received an order for third AC deployment which was an expansion deal with a current Tier 1 mobile operator in EMEA and another demonstration of how LTE represents a new growth opportunity for us. The large orders made up almost 60% of revenues during the quarter demonstrating how we are penetrating deeper into our customer's network,

On operation side, we had one 10% customer during the quarter with Tier 1 Latin American Fixed/Mobile operator. The Ortiva post-merger integration has been going according to plan and we remain excited about the unique video optimization solution.

As we all saw during the quarter, we announced the deployment of their solution with Three UK, a subsidiary of the Hutchison Group, one of the major operators in the world. Our video optimization solution has now been deployed in two Hutchison operating companies. Also during the quarter we signed a global purchase agreement with Hutchison for the supplies of our video optimization solution.

In addition, we are seeing a healthy funnel of opportunities for this product and have a number of customers looking to try the platform. Based on this, I reiterate what we said last quarter that we still expect between $3 million to $5 million in revenues from the Ortiva solution during the second half of 2012.

Currently we are gaining market share as you can see from our results today and believe we are well positioned in the market. Despite the macroeconomic environment, the market fundamentals of fixed/solid as data and smartphones sales continues to grow significantly.

As an example, Barclays anticipates that smartphone sales will grow 42% this year and the Yankee Group expects that within two years, Americans will own 175 million smartphones. According to the Nielsen Group, the average U.S. mobile subscriber more than doubled his or her monthly average data use which now reached 454 megabytes per month.

As long as these fundamental spread continues the need for solutions like ours continues to rise as well. The relatively small part of the CapEx budget along with the great return on investments and the ability to drive new sources of revenues are the main reasons for our growth to date.

So while we are seeing that values of our fees remains healthy, that our key processes is taking longer, more related to pricing issues than actual need. We continue to monitor market developments and demand for our solutions. While still in its early stages, the customers are showing increased interest in our value added service offerings, which is the most comprehensive in the market.

We are winning and increasing the amount of business as a result of these services which provide our customers with additional functionality and value, both for current needs and for future offering which are now appearing under (inaudible).

Allot's fixed line customers report that video traffic currently use over 50% of bandwidth and is rapidly increasing. On the wireless side, according to Allot's latest Global MobileTrends report, video now represents 42% of mobile data traffic worldwide, and rising aggressively.

All of this explains the acquisition of Oversi Networks, which we announced this morning. Oversi now gives us the leading video caching solution, something that an increasing number of service providers are seeking.

We have been offering caching for the past two years through an OEM relationship and as demand for this started to grow, we looked to acquire a solution of our own. With acquisition, we now offer a complete video suite for our service providers to the meet ever-increasing internet video challenge. With our Oversi, the solution has been deployed its medium and large services providers worldwide, so several important reasons.

The scalable solution is optimized for large scale caching deployments and therefore a good fit for our growing Tier 1 customer base. Distributed hierarchical caching architecture allows us to place caching at optimized points in the network and the solution is equally suitable for both, fixed and mobile service providers which are all seeking this type of solution to meet ever increasing internet video traffic.

With our (Inaudible), we believe this will be another company which we can integrate into Allot relatively quickly and seamlessly. We are excited about the Oversi team joining us and becoming another important part of Allot.

Nachum will review some financial considerations with you. In summary, it was another good quarter with another steady rise in the top line and bottom line stability despite closing the Ortiva transaction and the continued healthy cash generation. The addition of Oversi is yet another piece in the service gateway strategy of offering the most comprehensive intelligent platform in the market again in line with our broad strategy we have ensured to see over the past year.

With value-added services becoming an ever increasing differentiator, we continue to broaden our service offering as well as acquire those value add services which our customers see as critical during the near and long-term.

I will now hand the call over to Nachum for a short financial overview. Nachum, please go ahead.

Nachum Falek

Thanks, Rami, and welcome everyone. Let me take a few minutes to review the results we published earlier today.

I will be discussing non-GAAP numbers, which excludes stock-based compensation, amortization expenses and certain expenses related to M&A activities and compliance matters. Full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for review on our website and in the press release issued today.

Now, let me walk you through the results for the quarter. Revenue for the second quarter increased to $26.4 million, up 43% over the second quarter o f2011 and 9% over the first quarter of 2012. As a percentage of our revenues, sales in Americas accounted for 38%, EMEA 40% and Asia-Pacific, 22%. We had one 10% customer during the quarter.

As Rami mentioned, this revenue sheet reflects the increased bookings in the Americas we discussed last quarter. Out of total revenue during the quarter products were 74% and services 26%.

Gross margin for the second quarter was 71.8%, similar to the first quarter level. Our operating expenses increased to $14.1 million and in line with our expectations. As we closed the Ortiva acquisition on May 15, this number includes one-half-quarter of Ortiva's operating expenses.

For the quarter, we were happy to report earnings per share of $0.15, flat with the first quarter, but again including the additional operating expenses from Ortiva. On the balance sheet side, cash balance has declined from $165 million to $160 million due to the cash payment we made at the Ortiva closing.

During the first quarter, we generated $4.8 million in cash from operating activities. Our DSO went down to 60 days from DSO level of 62 days we had in the first quarter. Inventory increased from $10.7 million to $11.7 million. This was due mainly to the consolidation of Ortiva's inventory.

With regards to the Oversi acquisition we announced today, here are a few financial aspects of the deal. The purchase price is $60 million, plus up to $5 million amount based on 2012 performance.

On a non-GAAP basis, we currently expect that transaction will be breakeven by the first quarter of 2013, and we generated around $2 million in revenues per quarter in 2012. Gross margin should be similar to Allot's current level and operating expenses are estimated at approximately $3 million per quarter during 2012. We expect that during 2012, this will negatively impact our earnings per share by our around $0.02 in the fourth quarter.

In terms of headcount, currently Oversi has 34 employees. The acquisition has been approved by the board of directors of Allot and Oversi, and is expected to close during the third quarter after the satisfaction of customer in closing condition.

That concludes my remarks and we now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Ittai Kidron from Oppenheimer. Please go ahead.

Ittai Kidron - Oppenheimer

Great results and good acquisition. Rami, can you talk a little about what strategy here? You are buying a lot of companies now. First of all, thanks on the color on Ortiva. It's nice to see you are executing well on that one, but how do you see a year from now Oversi and Ortiva getting integrated? Is that the path or there are parallel paths and how do you maintain the sales force focus on your core product? How do you balance those delicacies?

Rami Hadar

Very well. So, first I thank you, Ittai, for the positive feedback. From a strategy product point of view, we now completed our move into providing value in the video delivery space. In my mind, these are two small size acquisitions that basically give us the two halves over the same direction.

While Ortiva give us the vide optimization, Oversi gives us video caching. These are two major functions that enhance, improve, optimize the delivery of video traffic which, as I said on the call, is getting bigger and bigger portions of broadband network. So, for us, we complete again the moving to video by doing the Oversi acquisition as well.

In terms of execution, strategy is great. Ittai, you are right, we are on track with Ortiva integration and we will commence aggressively to do the same with Oversi which actually would be easier given the geographical closeness to Allot.

In terms of sales, what we are planning to do is we are actually using the Ortiva sales people and the same with Oversi sales people, at least in the first year to overlay our sales team and basically promote and leverage our installed base and sales relationships to promote their respective product. Only after that, will they resume regular geographical responsibility within Allot sales force.

In terms of products, in order to contribute to our revenue are immediately and breakeven as fast as possible, we are offering the product with a simple integration basically invoking our relay offset and redirection and load balancing functions within the service gateway, but obviously within the several quarters, we will gradually absorb the product and blend and move them onto our array of platforms and array of blades. The Ortiva integration plan is already in place and being executed and we will use this couple of weeks from Oversi closing to put in place an aggressive integration plan with Oversi.

A year from now my vision is, we fill off of these products as a standalone basis, both companies have a nice fun on an installed base of existing customers so they will be offered as a standalone basis, but more importantly there will be also in an integrated manner which provide cost efficiency and performance improvement over standalone solution within the service gateway platform.

Ittai Kidron - Oppenheimer

Very good. Nachum, regarding the financials. You have talked about Ortiva contributing, I thought that was $3 million to $5 million maybe, if I got me wrong correct me, in the fourth quarter of this year, and now you are talking about Oversi contributing $2 million. I'm trying to understand if that $2 million is 100% incremental or basically the replacement of the volume that you already have through your OEM relationship? I am trying to understand how incremental this is versus replacement of existing revenue line already.

Nachum Falek

Yes. Okay, Ittai, so we say that in terms of Ortiva, we said $3 million to $5 million in the second half of the year, and in terms of Oversi, we said $2 million per the quarter on a standalone basis, meaning just additional revenues coming from Oversi. We didn't discuss anything in terms of replacing or anything of let's say performance at Allot as a standalone.

Ittai Kidron - Oppenheimer

Okay, so you mean that on a combined basis, those two acquisitions should give you around $4 million to $5 million per quarter into fourth quarter of this year and going forward? Am I about right?

Nachum Falek

A little bit aggressive, again, we said $3 million to $5 million in the second half of this year for Ortiva, and $2 million from Oversi kicking in starting Q4 of this year and both combined, they are $5 million to $7 million in the second half.

Ittai Kidron - Oppenheimer

$5 million to $7 million. That means two quarters, third and fourth combined?

Nachum Falek

Yes. Remember, Ittai that Oversi will not be consolidating the third quarter on a full basis. So at this time, at least a month before the closing.

Ittai Kidron - Oppenheimer

Very good. Lastly, on the gross margin, you've talked about Oversi being in line with your current gross margins, but as you replace some of that OEM business longer term as the opportunity for that base to actually accretive to your gross margins?

Nachum Falek

Yes. The challenge is how to factor that in, given that maybe some of the incremental sale we will get from Oversi, how are they going to be coupled which we sold on an OEM basis or some of this will be actually replaced. So there is some overlap with the numbers we did on a standalone and an OEM basis.

Operator

We will now take our next question from Matt Robison from Wunderlich Securities.

Matt Robison - Wunderlich Securities

Good morning. First I want to talk a little bit more about Oversi versus your current caching OEM. I presume there is pretty significant differences between the approach of these vendors. So can you verify that and at what timeframe would you expect to start to adapt the Oversi technology to fill and support the customers that you are currently supporting with OEMs, and I know with the Ortiva, you had a nice hardware story there with a same kind of basic form factor as you have been using is get off of a case for Oversi.

Then, if you can comment, and this might be kind of a tough one, but I am kind of interested to know Oversi will be the use of DPI for analytics versus enforcement seems to be a kind of range most carriers with those approaches. If you could comment a little bit on how your business winds up with the use of it for analytics versus enforcement. I would like to get some comment on that.

Rami Hadar

Good morning, Matthews. I guess there are three questions in your statement. First, on the technical differences between our current OEM solution and the Oversi solution. (Inaudible) both aim to solve the same target of providing caching solutions for popular video and peer to peer content at the edges of the network.

What I would say about the Oversi product is, it does lend itself to a larger scale and deployment, which really was attractive to us and one of the technical reasons we eventually chose Oversi. Also, the technology little bit to more in line to our hierarchal deployment which we ease the introduction into mobile networks eventually as well. So that's on the technical side on the two solutions.

In term of enjoying a head start and integration with platform, you are right to remember that in Ortiva, we were based on ATCA platform and we are already in a process of moving them to our ATCA platform, which is obviously much easier task than if they were doing some kind of a proprietary solution.

With Oversi, it's a little bit different, if you may. The caching solution has two elements. One is big chunk of storage, and that's going to stay external. No point of putting that into a service gateway, but the control functions and redirecting video traffic and video control messages will be integrated very quickly alongside management. So that's on the platform integration.

Moving onto DPI and analytics. If we break analytics into two fundamental functions, there is sheer real time challenge to extract raw data out of their real-time end traffic, and that's something you need to do by an in-line, high scalable and network element like ours. The task is not a trivial one, although it's only monitoring.

It's not a trivial one given the enormous amount of data one needs to explore, especially if you have DPI functions, where you actually are able to export more insightful and more deeper data which can save a lot of application. So all the great things with DPI in terms of privacy are relevant for analytics.

You can do analytics based on the Layer 3 and Layer 4, but you can do even better and more insightful analytics if you have Layer 7 knowledge. But again having said so, in analytics there are two functions and we play in both.

One is in organic, our ability to export an huge amount of analytical information out of the real time traffic. The second element is an external analytics tool which really is more about data, big data, database extracting of and reporting of information, and we announced our proactive analytic tools several months ago.

Matt Robison - Wunderlich

When you talk about the ease-of-use in the mobile networks, I didn't quite catch what you said there on the Oversi.

Rami Hadar

Mobile networks are like video optimization, because it saves the bandwidth across the network all the way to the handsets and over the air. Caching solutions usually saves the bandwidth upwards from the caching point and up towards the network and up until now not in the back-haul and not over the air. So we expect mobile in order to increase payers in caching we need to push the caching element deeper and close as much as possible to the base station.

There's advantages and disadvantages to do that, and one of the engineering compromise is to do a centralized controlling function, but through the caching and distributed manner. The Oversi solution is a natural fit to do that.

Operator

We will now take our next question from Kiera Kilkowski from Bank of America Merrill Lynch. Please go ahead.

Kiera Kilkowski - Bank of America Merrill Lynch

Hi, guys. This is Kiera on behalf of Tal Liani. Thanks for taking my questions. I just have a few quick ones for you.

First, is there any additional color you could provide on the activities you are seeing in the U.S. market and Europe?

Second, I may have missed it, but could you provide the percent of value-added services of revenue in the quarter?

Third, some of your customers have had some weak results and other have announced new competitive solutions, and I am just wondering if you are seeing any changes in the competitive environment. Thanks.

Rami Hadar

Right, so regarding the U.S.A., no new news today. As we said on the last quarterly call, we had won national mobile operator win in the past quarters and we hope to expect to have another one before the end of the year.

Regarding value added services on a high level. This is still early days in the fluctuations, but I would say that in the first half of this year, value-added services sales on a booking basis were about 10% of our bookings.

In terms of our competition, we haven't seen anything as a game changer here or there. Competition is doing a good job improving their products and most of the features they announced that do not surprise us.

We feel that we are past being a DPI company and really executing on a service gateway strategy and the announcements we made are actually unique and a common task and not an expense of our very high scalable and with deepen feature base of our service gateways of DPI functions as well.

Operator

We will now take our next question from Daniel Meron from RBC Capital Markets.

Daniel Meron - RBC Capital Markets

Hi, Rami and Nachum congrats on the strong execution. Another good deal as a team. Rami, can you give us a sense based on where you guys are heading with these acquisitions and how do you see Allot in next several years, and what do you think that the market opportunity is with these acquisitions?

You already mentioned that the value-add services is already above 10% in bookings so far in the year. With these acquisitions, where do you think it's going to head to next say in 2013 or beyond and also what's the impact on the overall journey for the company? Thank you.

Rami Hadar

Thank you, Daniel. Starting from the last, in terms of value-added services, so it's now we are reaching a point of about 10% of our new bookings. I believe as we are moving to our next year, I would expect to see them with 20% and above.

Remember that this kind of good range between and getting new comps, which usually day zero and not necessarily into value-added services, but most of the fundamental propositions and later on expand versus more of the install base get comfortable with our products and then go on to buy whatever value-added services they believe in, if it fits their business model.

On top of it many of these we are saying that even if they don't buy specific value-added services that they want, it is a differentiator against solutions and again solutions out there. Long-term, my vision is truly that broadband networks are conceived of routers who do routing just like Class IV, Class V switches did switching 10 or 20 years ago. So let routers be routers, but let or intelligently above the functions be done in the service gateways.

As you can see, we have been telling about the strategy and now we are executing and building exactly this function. The value added services we choose are a combination of trends and fundamentals we see in the market, but we also keep a very open dialogue with our key customers who contribute to how we go about prioritizing which value-added services and which acquisitions we do and we do not.

Daniel Meron - RBC Capital Markets

Okay. Is there a way to quantify the expansion in the marketplace through these value added services or compared to the DPI segment that you have served so far, and how it should track in the next, say, several years as you integrate these offerings into your solution suite.

Rami Hadar

Today actually, again Ortiva and Oversi are value-added service offering really makes a huge leap which will be interesting to know. So far it's mainly organic one acquisition and in the video space and some home grown, but we reached 10% and I believe it grow even further.

I believe that with the expectations Nachum is giving on revenue from Ortiva and Oversi and their contribution. That 10% would jump significantly in next year. It is 20% or 30% of our revenues, yet to be seen. It's also a function of what we grow organically versus what they contribute to us.

Daniel Meron - RBC Capital Markets

Okay. Thanks, Rami. Then just a follow on, you guys mentioned that so far you have not seen any slowdown. Can you provide us some granularity on the trends both, in the carrier segment between mobile, fixed line and also what's going on in enterprise, and even if there is regional color, Asia-Pacific, Latin-America, or Europe and the Americas in general, how you see it differentiated across these two segments?

Rami Hadar

Nothing much. As I said on the script, we are watching the business very carefully trying to not be the only optimistic player in town. We are pleased with what we have done so far, so nothing drastic. I guess, enterprise Europe is a little bit more under pressure versus others.

We are seeing operators spend more time doing the negotiation side of our fees, making sure they optimize CapEx, but so far we haven't seen anything major driven by the fundamentals though we talked about on the call. We hope these continue and drive our customers to make CapEx decision.

So I would continue to watch the fundamentals between that push our customers to spend their valuable CapEx dollars, and if they continue then I hope that we can continue alongside them, but it's certainly time to watch very carefully our market fundamentals.

Daniel Meron - RBC Capital Markets

Okay. Thanks, Rami. Then just to clarify that. Is there a way to quantify the return on investment that your products provide albeit be it the mobile carrier or a fixed-line provider on the equipment. Is there a way to quantify how much savings you provide on the equipment side versus deploying more routers or any other solutions, or just providing more services on top of it?

Rami Hadar

Yes, absolutely and we have marketing tools that we use. Obviously, it’s the end result and it defends that we are right about many assumptions that are specific to a given operator. How he is paying for access the bandwidth versus how much he is paying for backhaul or long distance bandwidth. Are they Tier 1 or Tier 2? How will they be using their extra efficiency we give to their network?

Will they push out LTE deployments by year or just save 20% on an increasing cell capacity. So we really are comparing to alternative cost but I can share with you that in many cases, our right duration is well under a year and quite compelling. Now, that’s on the savings piece.

If you talk revenue generating, then you can imagine that even the smallest improvements in outlook provides a very immediate and huger return on investment.

Operator

We will take our next question from Peter Misek from Jefferies. Please go ahead.

Peter Misek - Jefferies

Two quick questions. Firstly, on pipeline. You mentioned book-to-bill greater than 1. Can you give us any sense for the size of the pipeline conversion rates? Have you some sort of feel for what the market is, RFP activity?

Then secondly, competitively, you have a handful of your competitors that seem to be struggling a little bit. Would consolidation in the industry make some sense in terms of use of the cash? Thank you.

Rami Hadar

Regarding the funnel in our fee activity. This is very subjective measure. Nevertheless, our pipeline remains healthy as it was last quarter. As I mentioned on the script, the need is definitely there. Maybe service a lot of zone, a little bit more cautious than we are anxious to optimize the CapEx spending but the fundamentals remains as they are and the outcome to the healthy flow of funnel and our speed in our field.

Can you repeat that second part of your question, please?

Peter Misek - Jefferies

Just on the competitive front. A couple of your competitors are struggling. Wondering whether a good use of your cash or love your thoughts on whether a good use of your cash would be consolidation up some of these weaker players for new customers, client list? Thus far your acquisitions have been complimentary add-on type acquisitions. Do you feel like there is a need to consolidate in the service gateway DPI market?

Rami Hadar

I get your question now. I would say, carefully, that a lot of has been written and said about merging between two players in the existing market through its frozen time to obviously to create a merger that one plus one would be greater than two and that could be very tricky. I would not rule out anything at this point. I think there is some interest to consolidation. It does make sense and I think it can create shareholder value but in many cases, it has to be done, at least my belief is that it has to be done in a cooperative manner with both teams and both sides excited about such a proposition versus something hostile which I would never consider.

Operator

We will now take our next question from Brent Bracelin with Pacific Crest. Please go ahead.

Brent Bracelin - Pacific Crest

I have a couple, if I could. First, on the America's contribution. Obviously, you signaled last quarter you had a big win there in the Latin America. Clearly that showed up in the numbers here with that region tripling sequentially and more than doubling year-over-year. My question is, really, is the sustainability of the Americas region currently very strong this quarter, you expect that region to be lumpy or is there anything there that could suggest that that strength you saw this quarter could continue going forward.

Rami Hadar

I think that obviously if you are looking on a quarterly basis, every region can be lumpy in general. The Americas was strongest during the second quarter. So we mentioned that in terms of booking earnings. So we mentioned Americas strong in the first quarter on bookings. So it was in the second quarter and obviously it becomes more and more of an important geography for us.

Brent Bracelin - Pacific Crest

Okay, fair enough. Then, the second question is one the RFP process taking longer. I believe you said that in the script. Could you just talk a little bit more about what you are seeing on the RFP? Is this isolated to APAC and EMEA or is this generally in most areas and in most product segments that you have. Just that RFP preprocess is taking longer and is it a lot longer, is it a couple of extra steps they have to go through. Just trying to understand when you mentioned that in the script. Any more color there on the lengthening of the RFP process would be helpful.

Rami Hadar

So I think it’s a multilateral description. Its not like RFP process is doubling. We are just seeing, especially, in EMEA operators spending a little bit more fits during the negotiation and closing phase. I would say, maybe getting closer to the APAC accounting process, which always spends time optimizing pricing when it comes down to the closing time.

Again, I was trying to be more sensitive to any changes in our landscape. The two or three drastic create a line and sometimes yes, sometimes no. So again, it's more a cycle during the closing stage. It's not anything like doubling or what not. Just being a little bit more pricing sensitive.

Brent Bracelin - Pacific Crest

Perfect. That’s certainly understandable given the environment. My last question is really around this concept around how people are deploying your technology. Is there any way to slice up just bucket what percentage of your business is driven by customers that are deploying the technology for monetization versus deploying the technology for capital cost avoidance?

I am just trying to understand that the change in the business and obviously we know that your technology is being used more and more for monetization but where we are at, if you had a kind of ballpark that mix of the business? How much is driven by monetization versus capital cost avoidance?

Rami Hadar

This is a good question but a very tough one to provide a quantifiable answer. I can say that cell optimization is the majority of the deals as the monetization grows. I can't give you that number because in many deals, those who do one monetization always do optimization as well.

It is kind of like advance class. So optimization is 101 and monetization would be 102. Rarely will they go directly to monetization. So all of the monetization due to the mixed deals.

Sometimes it's an existing customer who did only bandwidth saving measures with us and then launched tier service or what not moving into monetization. So both propositions, monetization being new and growing.

Operator

We will now take our next question from Catharine Trebnic from Northland Securities. Please ahead.

Catharine Trebnic - Northland Securities

Congratulations. Thanks for taking my question. I have couple. On the state wins that you announced, were they competitive bids and did you compete against one or two competitors? That’s the first question. More color around the wins and the application or the use cases of these wins. Thank you.

Rami Hadar

Thanks for reminder. I think that some of the six new wins, at least there is two that comes to my mind in APAC. These were two competitive bid processes against two competitors where have been chosen. Also I mentioned in the past, this big Latin American win which was a very visible account was a very lengthy competitive bid process against pure play competitors and we prevailed there.

So that’s a partial list but not all of the six new wins were competitor. I would say maybe half of them were and ended up with us winning.

Catherine?

Operator

Your line is open, please go ahead. It appears that the caller may have muted her line. Shall we move on to the next question?

Nachum Falek

Let's go to the next question and we will pick her up when she comes back on.

Rami Hadar

Please.

Operator

We will now take our next question from Jay Srivatsa from Chardan Capital. Please go ahead.

Jay Srivatsa - Chardan Capital Markets

This is Jay Srivatsa. Rami, I wanted to ask you, at a higher level, there seems to be a lot of discussion and talk about how service provider spending in terms of CapEx is slowing down and yet you seem to be seeing pretty good traction for your products. Can you set the stage on what's happening at the macro level and what that means for your own products and your own outlook going forward?

Rami Hadar

So, as we said in the past and on today's script very carefully. Obviously, with certain operators, CapEx spending is under pressure but it is not like it is going to zero but it is under a pressure. I would say, first thing, mobile service providers are less affected, they are in under less pressure than their fixed counterpart.

That’s one. The second is, what we are seeing is there are really, when an operator needs to do budget cuts or relay CapEx spending, they really prioritize and allocate the budgets in a most optimized manner. The good news so far is that we make the cut. The value we bring, the cost saving that included, that we spoke about, our (inaudible) earlier are things that helps the CapEx decisions our way to continue to be taken in a favorable manner.

We are seeing some service providers that would be a little bit more aggressive and negotiations. Not anything historic but they are being a little bit more price sensitive than, let's say, a year ago. That’s pretty much it. There is not really much to say beyond that.

Jay Srivatsa - Chardan Capital Markets

All right. In terms of competitiveness, how do you see the landscape going forward? Do you believe some of these acquisitions you are making are imperative to being competitive and building some (inaudible) going forward or there other dynamics that are going on that could change the way the landscape looks as you look ahead, maybe six or a year down the road?

Rami Hadar

And you are referring to the DPI standalone marketplace?

Jay Srivatsa - Chardan Capital Markets

That’s correct.

Rami Hadar

Okay, so, I guess you can analyze that’s from two different directions. One is, we maintain our leadership in the pure play DPI market space. In terms of revenues, we are number one in terms of the market share and growing faster than the market and we believe this is based on both the good product execution and sales execution.

In terms of beyond that, in a way we are kind of maybe starting our own new broad based building a service gateway which is DPI based but are really attempting to become a service gateway to service providers and bringing in functions like security, like video and so on is quite unique to Allot.

I don’t see similar players out there which have built a service gateway based on a DPI platform. We are seeing some newcomers that are coming from different spaces that are trying to move into this from different directions, whether it's from the mix space or the service delivery space but so far we haven’t seen a platform like ours really make a move. Certainly not to consolidate with video optimization to video caching solution.

So we have got two product for us. We maintain our leadership in the pure play DPI space which is still good, healthy and growing but we move beyond that into a category volume which is service gateway space.

Operator

We will now take our next question from Catharine Trebnic from Northland Securities. Please go ahead.

Catharine Trebnic - Northland Securities

Hi, sorry about that, you guys. I am not sure what happened. My final line of question was with the customer count. Do you have a total number of mobile operators that you have? Then also, the last two acquisitions between Ortiva and Oversi, do you have their customer count. Thank you.

Rami Hadar

So in terms of the number of mobile operators, that we have, I think the number, a very ballpark, rough number is around 70 mobile service play providers worldwide. That would be a good rough estimate. In terms of newer positions, Ortiva with video optimization is still in the early days of penetration.

Their number one customer which they brought to us is Hutchison and we announced both the deployments and the execution of a very massive purchase agreement with Hutchison Global. So they literally brought very few mobile service providers to the game.

Oversi is a little bit more advanced. I guess they brought to us a new install base of about 20 medium-size and some large-size service providers mainly on the fixed side.

Catharine Trebnic - Northland Securities

Okay. Thank you very much. Appreciate it, and keep up the good work. Thank you, Catherine.

Operator

We will now take our next question from Sanjit Singh from Wedbush Securities. Please go ahead.

Sanjit Singh - Wedbush Securities

Thanks, Rami. Thanks, Nachum for taking my question. Regarding Ortiva Wireless, is there any way to describe what the revenue contribution was this quarter, I know it closed in the middle of the quarter?

Nachum Falek

Less than $0.5 million this quarter.

Sanjit Singh - Wedbush Securities

Okay, less than $0.5 million, great. Looking forward, is there anything unique about the Q3 quarter in term of seasonality, should it be perhaps more seasonal given we have the Olympics and the macro that's going on in Europe. How you are viewing seasonality going into the September quarter?

Rami Hadar

Yes. Q3 is traditionally a tough quarter given the July, August traditional slowdown. Olympics is affecting mainly U.K. service providers, less anybody else out there. So just a regular July, August slowdown and then pick-up in September.

Sanjit Singh - Wedbush Securities

Thank you. My final question, if we were able to bifurcate the market into some of the integrated players and the pure play players, do you feel more comfortable competing against one versus the other?

You have been competing against all of these guys for a number of years, but do see yourself gaining any competitive advantages versus one type of player versus the other.

Rami Hadar

Well, regarding pure play like ours, most of them are public companies. So they publish their numbers and you can see how we are faring and actually gaining our market share. I believe the market is big enough to sustain two or three players long-term. So I am pleased with our traction so far.

Regarding the integrated group. There, the name of the game is really to continue executing on product roadmap and maintain a feature and function and scalability advantages are far beyond the integrated option, so we can justify a standalone solution. So to compete against another standalone, one maybe can win by showing that it is good enough, but to compete integrated solutions, you really need to win by knockout.

So far despite us being always a major concern and a point to watch for us, we managed to maintain our business and expect that Ortiva and Oversi acquisition leaving increased distance between us and these players. Nevertheless, they are now keeping up and they are very constantly improving their goal in solutions and we plan to do the same on our side.

I think the winds are moving towards our direction. Once when an operator felt any mobile converts from an integrated as kind of a decent compromise to standalone, they typically never go back, and the flow of our feet has made us more and more operators are gaining realization that there is up-sale merits and benefits in a standalone to do a bit of re-decision, even if it means another box in the network.

Operator

We will now take our next question from Daniel Cummins from ThinkEquity. Please go ahead.

Daniel Cummins - ThinkEquity

Thank you very much. I am sorry, I got on late. I missed any comments you may have made about deferred revenue, and I believe you said your book-to-bill was greater than 1. I am curious, with respect to the deferred revenue, how much related to the $9.5 million order you booked in the quarter?

The second question relates to AT&T and Verizon. In the second quarter, both carriers are out with (inaudible) share family plans with (inaudible) service, so my question is, are they using your technology or those of your competitors, they seem to be facing ahead here with some sort of platform. Is there room for the standalone DPI, assuming that they are pressing ahead with something that's good enough for now. Thanks.

Nachum Falek

Dan, you were breaking out a little bit, we will try to answer to what we heard. In terms of the deferred revenues and the book-to-bill, so as Rami mentioned book-to-bill was above 1, also in the second quarter and therefore obviously we are continuing and building the backlog, and I think that's almost the important factor looking at the business.

In terms of the deferred revenue, it's a cash flow issue as we are always saying and deferred revenues went down by $1 million getting back to the level that we had in the fourth quarter of 2011.

Rami Hadar

To your second question, Daniel, obviously we like the statements coming out of operators like Verizon Wireless and AT&T. Having said so, I apologize, but I cannot comment specifically on who has what and what they are doing with it as a general statement.

Daniel Cummins - ThinkEquity

Okay. Thank you. Nachum, I'm sorry. I thought that what I saw this morning you indicated the deferred declined $2.8 million quarter-on-quarter, is that not correct?

Nachum Falek

Taking into account that we have in the long-term abilities as well.

Daniel Cummins - ThinkEquity

Okay. Was any of that adjustment with respect to currency?

Nachum Falek

No. Once it shows on the balance sheet, it's in dollars and that's it.

Operator

We will now take our last question today from Matt Robison from Wunderlich Securities. Please go ahead.

Matt Robison - Wunderlich Securities

It's okay. My questions got answered. Thanks.

Operator

As there are no further questions in the queue, I would now like to turn the call back over to your host for any additional or closing remarks.

Jay Kalish

We thank you for joining us today. We look forward to meeting with you and speaking with you during the coming quarter.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Allot Communications CEO Discusses Q2 2012 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts