Allot Ltd. (NASDAQ:ALLT) Q2 2025 Earnings Call Transcript

Allot Ltd. (NASDAQ:ALLT) Q2 2025 Earnings Call Transcript August 14, 2025

Kenny Green: Good day to all of you and welcome to Allot’s conference call to discuss its financial results for the second quarter of 2025. I would like to thank Allot’s management for hosting this conference call. [Operator Instructions] As a reminder this conference call is being recorded. If you have not received the company’s press release please check the company’s website at www.allot.com. With me today on the line are Mr. Eyal Harari CEO; and Ms. Liat Nahum CFO. Following Eyal’s prepared remarks we will open the call for the question-and-answer session and both Eyal and Liat will be available to answer those questions. You can all find the highlights of the quarter including the financial highlights and metrics including those we typically discuss on the conference call in today’s earnings press release.

Before we start I would like to point out the following safe harbor statement. This conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. Those statements are early predictions and Allot cannot guarantee that they will in fact occur. Allot does not assume any obligation to update that information. Actual events or results may differ materially from those projected including as a result of changing market trends delays in the launch of services by Allot customers reduced demands and the competitive nature of the security services industry as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. Also the financial tables and results in this call will be presented mainly on a non-GAAP basis.

Allot believes that these non-GAAP financial measures provide more consistent and comparable measures to help investors understand Allot’s operating performance in the quarter. For all the data please refer to the financial tables published in the results press release issued earlier today which also includes the GAAP to non-GAAP reconciliation tables. And with that I would now like to hand the call over to Eyal Harari CEO. Eyal please go ahead.

Eyal David Harari: Thank you Kenny. We are exceptionally pleased with our second quarter 2025 results from both a financial and strategic perspective. Most notable was the accelerated and very strong performance of our SECaaS growth engine. SECaaS ARR was up 73% year-over- year. We ended the quarter at $25.2 million ARR. SECaaS contributed over 1/4 of our revenues for the first time and in line with our strategy is becoming a sizable and increasing portion of our overall revenue with each passing quarter. We also reported a 9% year-over-year overall revenue growth with improved margins growth and profitability and solid operating cash generation. In the quarter the highly successful launch of Verizon Business’s new mobile offering My Biz Plan contributed meaningfully to our results.

Toward the end of June we significantly strengthened our balance sheet. We completed a share offering and combined with our positive operating cash flow we ended the quarter with over $72 million in net cash and equivalents and no debt. We have a strong balance sheet and expect to continue generating positive operating cash flow. We are executing well on our strategy and are driving sustainable profitable growth. Focusing on some of the trends within the business I first want to discuss our SECaaS growth engine the Cybersecurity as a Service business. We continue to see strong momentum and growing traction among major telcos for our Security as a Service solution. We are increasingly seeing the fruits of our long-term investment in this solution.

Q&A Session

As you may remember in February we signed our largest SECaaS deal to date with Verizon Business, a division of one of the largest and most prestigious wireless provider in the United States and in the world. In April, Verizon launched its new service called My Biz Plan, a customizable wireless plan geared towards small and midsized businesses. The service includes as a default option, mobile Internet security, which is built on Allot’s cybersecurity protection. Importantly, customers are automatically opt in to service at the start and Allot gets paid by Verizon for each account that is connected to the My Biz Plan service. This new service is being actively marketed to Verizon Business mobile customers, which is over 30 million subscribers.

It is also an attractive flexible package for new potential business subscribers. This exciting land-and-expand win represent a significant targeted addressable market and long-term growth opportunity for Allot. The Verizon Business reported that the new offering are resonating well with customers and driving strong sales momentum. We believe the long-term potential for Allot from this deal is substantial. A few weeks ago, we announced that Play, a leading converged operator in Poland, selected our DNS Secure solution to provide cybersecurity protection services to its fixed broadband customers. This win brings additional services to our existing network-based solution that Play deployed back in 2021 for their mobile customers. Play’s fixed broadband customers and mobile customers now have a unified, converged user experience using Allot cybersecurity protection.

We also announced earlier this week that Más Móvil, a telecom operator in Panama, selected Allot NetworkSecure to provide its mobile and fixed customer with network-native cybersecurity protection. Our SECaaS strategy is built on the following 4 growth drivers: first, increasing the number of CSPs that we work with to launch cybersecurity services. Strong existing relationship include Verizon Business, Vodafone, MEO, O2 and Telefonica, just to name a few. We continue to see the potential to add new SECaaS telco and CSP customers such as Más Móvil, which we just announced, and we have a solid pipeline of opportunities. After launch, we aim to expand our services to new end user segments at the CSP, for example, expanding for mobile to broadband customers with Play being the most recent example.

We also aim to increase the penetration of our cybersecurity protection services among our customers, end users. We have a strong group of telecom customers, and we are working closely with them to ensure that their customers, the end users, know about the solution and understand the significant added benefit they will get at only a marginal increase to their monthly bill. And finally, we look to upsell and cross-sell new applications and products to the CSPs. Our OffNet solution is an example of a new product, which is a significant value added to the CSPs because it ensures that the end user can remain connected and protected by the CSP even when the end user is not under a network. Because we already have a strong working relationship with CSPs and telcos, the sales cycle for this type of new add-on services is significantly reduced.

The strong launch at Verizon, together with the growing traction among our customers that have recently launched our SECaaS offering gives us an improved visibility and make us increasingly comfortable that we will exceed our regional SECaaS growth estimates. As such, this quarter, we increased our SECaaS growth outlook. We expect 2025 year-end SECaaS ARR to show an exceptionally strong year-over-year growth in a range of 55% to 60%. Our Smart product for network intelligence remains an important part of the overall Allot business. Built on decades of Allot experience, offering best-in-class technology and innovation, this solution continues to be market-leading offering. Today, our Smart product is being sold as part of our unified, security-first platform.

In the past few months, we have signed several multimillion dollar agreements with new customers as well as a very significant agreement with a Tier 1 telco, all of which will contribute significantly to our overall future growth. Our new integrated solution is enabling us to generate increased demand in 2025, and we are seeing a higher backlog and improved visibility. I wanted to discuss the landmark deal that we announced a few weeks ago. This new business win was with a Tier 1 telco operator in EMEA. It is pivotal win for Allot, the largest in 5 years, and it validates our ability to expand our security and network intelligence footprint. The agreement is valued in the range of tens of millions of dollars. The project will be executed over 2026 and 2027.

It includes a long-term recurring revenue tail of maintenance and support revenues. We see additional growth potential for further projects at this customer over the coming years. The integrated solution will offer both our network intelligence and cybersecurity solution for this customer converged 4G and 5G mobile network and fixed fiber network. This solution will be delivered via unified service gateway based on our recently launched SG-Tera III platform. We launched this new service gateway at the end of last year. It is geared toward top-tier telco operators because it offers unparalleled visibility into network traffic under one unified platform. This partnership is highly valuable for Allot, not only from a financial perspective, but also because it brings us a major new telco customer with large subscriber base.

It also allow us to demonstrate the value of our unique technological advantages and core expertise for major telco players in both cybersecurity and network intelligence. We continue to see further interest in the SG-Tera III platform, and it is another contributing factor to our current strong pipeline. We see interest from both existing customers that we want to upgrade to our new platform as well as new customers that appreciate the value added that this new product can bring them. Towards the end of June, we successfully completed a follow-on equity offering, receiving strong support from the capital markets and our largest shareholder, Lynrock Lake. The proceeds were used to pay down our convertible debt as well as for general corporate purposes and to strengthen our balance sheet.

We are very happy with the strong vote of confidence we have received from the capital markets. The offering added multiple new supportive and long-term focused institutional investor to our shareholder base. We also gained support from a number of leading Wall Street investment bank that we continue to work with to bring additional interest to our company. In particular, I want to thank Lynrock team for their ongoing and meaningful long-term support of our company. Given our strong performance in the first half of 2025 as well as our improved visibility and solid backlog into the second half, we are introducing revenue guidance for the full year and we are also increasing our SECaaS growth expectation. For 2025, we expect overall revenues of between $98 million to $102 million, positioning us for a year of profitable growth.

And as I mentioned earlier, we increased our 2025 SECaaS ARR growth expectations to between 55% and 60%. In summary, we are exceptionally happy with our second quarter 2025 performance and continued strong momentum into the second half of the year. We showed significant success with a new contract with a major telco player worth tens of millions of dollars, which will be executed over 2026 and 2027. We are especially excited about the increasing traction and the very strong growth of our SECaaS solution. Looking ahead, our visibility has improved. Our backlog is strong, and our pipeline continues to be broad with many opportunities. I’m increasingly optimistic about our long-term future and looking to continue progressing on our security-first strategy.

And now I would like to hand over to our CFO, Liat Nahum, for the financial summary. Liat, please go ahead.

Liat Nahum: Thanks, Eyal. We reported revenue of $24.1 million in the quarter, up 9% year-over-year. Revenue from our growth engine, SECaaS were $6.4 million in the quarter, in line with our expectations and up 73% year-over-year, comprising 27% of our revenue in the quarter. Our SECaaS annual recurring revenue, ARR, as of June 2025, was $25.2 million. I will now discuss the non-GAAP financial measures. For all financial results, including the GAAP financial measures and other various breakdown of our revenue, please refer to the table in our results press release. Our non-GAAP gross margin in the quarter was 73.4% compared with 70.6% in the second quarter of last year. Non-GAAP operating expenses for the quarter were $16.4 million, 2% below $16.7 million in the second quarter of last year.

Allot had 487 full-time employees as of June 2025. We expect this to gradually increase towards the 500 full-time employees by year- end. We reported a non-GAAP operating income of $1.2 million compared with a non-GAAP operating loss of $1 million in the second quarter of last year. In terms of non-GAAP net profit, we reported $1.5 million in the quarter or a profit of $0.03 per diluted share as compared with a non- GAAP net loss of $0.8 million or a loss of $0.02 per share in the second quarter of last year. During the quarter, we completed a $46 million follow-on share offering, of which $40 million in gross proceeds were received before the end of the quarter and the remaining $6 million in gross proceeds were received after the close of the quarter.

We used $31.4 million to repay back the convertible notes that our larger investor, Lynrock Lake held and they converted the remaining $8.6 million of debt to 1.25 million Allot shares. Our shares outstanding following the offering and the conversion of the convertible notes were 47.2 million shares outstanding. We reported positive operating cash flow in the second quarter of $4.4 million. Cash, bank deposits and investments as of June 30, 2025, totaled $72 million versus $59 million as of December 31, 2024. As part of the follow-on share offering, we repaid the $40 million convertible notes. And as of June 30, 2025, the company has no debt. That ends my summary. Eyal and I are now happy to take your questions.

Kenny Green: [Operator Instructions] Our first question is going to be from Shaul Eyal of TD Cowen.

Shaul Eyal: Congrats on the results and outlook. Eyal, wondering what has been driving the strong ARR growth metrics? And maybe for Liat, healthy performance on the gross margin’s front. What has been driving that improved performance across the board?

Eyal David Harari: Thank you, Shaul. We are happy with the results of the quarter. And definitely, the SECaaS ARR growth is exceptionally high this quarter. As mentioned in the prepared remarks, the growth in the ARR is driven both by new customers, new services we launched with existing customers, increased adoption within the services already launched and upsell of new applications. In the recent couple of quarters, we announced about Vodafone expansion and in specific Verizon… [Technical Difficulty]

Liat Nahum: Gross margin in the last few quarters. As SECaaS is becoming a higher percentage of our revenue, it is driving the higher gross margin. But also, in addition, the revenue mix which we had in product this quarter in Q2 was in favor of more software expansion deals, which contributed to a higher gross margin. As we stated before, our gross margin is dependent on the revenue mix. And going forward, we do expect to remain in the range of 71% to 73% gross margin.

Kenny Green: Our next question will be from Jonathan Ho of William Blair.

Jonathan Frank Ho: Congratulations on the strong results. Can you give us a little bit more color on the My Biz opportunity and how you expect that to potentially ramp over time?

Eyal David Harari: Thank you, Jonathan. So as shared last quarter, Verizon decided to launch a new flagship My Biz business plan. This is their main service offering for their business customers, focused on the SMB customers, mobile business phones. As part of the launch of this program, they decided to offer Allot cybersecurity protection as a default add-on to the package as part of — they see cybersecurity as very important for business customers. And as part of a value added to customers to move to this new plan, they decided to bundle our solution with it by — as default. Verizon are now promoting their My Biz Plan in a lot of their focus and capacity. They were mentioning this success launch in their earnings call. And we are actually getting subscriber fee for any new subscriber that is joining the plan.

From past experience with other carriers, we know that it takes between 2 to 3 years to get into the peak. We are just now in 1 quarter to the penetration of this service. So obviously, now it’s moved from 0 to start to share ARR. So growth is affecting a lot. But we expect the growth to continue in the next 2 to 3 years as more carriers, more customers are moving to this My Biz plan. This is what we expect, again, and it depends on the Verizon go-to-market approach. It’s not something they are committing to us. It’s not something we have full visibility, but based on what we see from other carrier in similar cases. So now we are 1 quarter to go, but we expect 2 to 3 years growth from this service launch.

Jonathan Frank Ho: Excellent. And maybe just as a follow-up, can you talk a little bit about the large European telecom deal that you signed or a CSP deal that you signed. And is this mostly SECaaS or is there sort of a networking component as well? Any color would be helpful.

Eyal David Harari: So the — what we call the landmark deal of tens of millions of dollars, we issued a PR a few weeks ago, is a deal around our network intelligence product line, the Smart. It’s not part of our SECaaS. And this win is for a leading CSP in EMEA, which decided to purchase our Tera III platform to cover both mobile and fixed network with our solution. The Smart product line includes both our traffic management capabilities, which allow them to better manage the performance of their network. But it also includes some of our cybersecurity engines to protect their network. This is a CapEx deal, that, as mentioned before, is expected to be executed in the coming years, and we expect most of the revenue to come in ’26 and ’27. And as CapEx deal, this should be then providing additional services, mainly supported maintenance during the following years.

Kenny Green: Our next question will be from Nehal Chokshi of Northland Capital Markets.

Nehal Sushil Chokshi: Congrats on an excellent quarter, really, really strong SECaaS ARR. That’s fantastic to see. And just to point out that second quarter in a row of record incremental ARR, this quarter being $4 million versus $3 million in the March quarter. So that’s fantastic. Just to be clear, that increase in the record incremental ARR for the June quarter, it sounds like that is being driven by a full quarter of Verizon Business mobile being available? Or is that due to increased attach rates as Verizon pushes the My Biz Plan harder?

Eyal David Harari: So it’s — thank you, Nehal. The growth is coming mainly from full quarter of promotion of the My Biz. This is — the service was launched around mid-April. So it’s the first time we see the contribution of the My Biz to our ARR growth. The growth is also coming from the Vodafone launch. We announced a few quarters ago that now is coming to full capacity and contribute the ARR. As you’ll recall, Vodafone was a security customer, but was not using the SECaaS service. And during the last few quarters, we migrated them to the new solution. And now they are contributing into fuller extent to the ARR. So the mix of the 2 is what helps us to drive this exceptional growth this quarter.

Nehal Sushil Chokshi: Got it. And it kind of sounds like both of them are kind of equal contributors to the increase in the incremental ARR. Is that correct?

Eyal David Harari: Both of them are significantly contributing to the ARR. Yes.

Nehal Sushil Chokshi: Okay. Fantastic. And then can you comment on what has been the profile of attach rates as users within the Verizon Business mobile and users within Vodafone come up for potentially device renewal, which is often the opportunity to attach the SECaaS service. Are you seeing any sort of change in those attach rates?

Eyal David Harari: So with Vodafone, it’s a mature customer. For them, it’s not a new service. They were offering network security based on our previous platform for years. So this is a more stable customer. For the My Biz, as this is offered by default for everyone that is moving to — is joining the My Biz Plan, obviously, the attach rates are exceptionally high. You can decide to opt out if you really want to, but it’s included in the bundle. It’s not going to save you any costs. So a very few to — are choosing that. So it’s really very, very high attach rates, close to 100%, something in the 90s. And it’s mainly now about how many Verizon customers are joining to the My Biz. They have their own marketing campaigns in order to move their business customers.

They have more than 30 million business customers. And they have their campaigns, how and when to migrate them to the My Biz. Obviously, changing devices, new customers that are joining in are opportunities for touch point with — for them with the end customer and offer this service. And we — as I answered before, we expect it to be a process of 2 to 3 years in order to grow to the maximum penetration of this service as these processes take time. For example, devices, you change every 2 to 3 years. And then you conclude the cycle of migration. But those that join My Biz, we see very, very high rates of attachment because it’s added by default.

Nehal Sushil Chokshi: Okay. Fantastic. Moving to the landmark deal that you announced this quarter here. You characterized the pipeline, I think, as very strong, I think. Can you — presumably, that landmark deal was in the pipeline a quarter ago. And so that must have represented a significant portion of the pipeline a quarter ago. Are you saying that your pipeline has actually increased relative to the quarter despite this landmark deal exiting the pipeline successfully?

Eyal David Harari: Yes. We still see strong pipeline despite the orders that were very high this quarter, obviously, with these tens of millions of dollar deals. As mentioned also before, we have additional multimillion-dollar opportunities, some of them even 8-digit opportunities with a good mix of existing and new customers. And we still feel that we have good visibility to continue to execute well on the Smart product line.

Nehal Sushil Chokshi: Okay. And does this landmark deal show up in deferred revenue immediately? Or how is that going to show up in the balance sheet, if at all?

Liat Nahum: In general, as Eyal stated, this is a deal that will be recognized in the CapEx part during ’26, ’27. And therefore, there will be some deferred revenue, but of course, not all. It’s a 5-year deal. So overall, of course, not everything is invoiced and going to deferred. But over time, as all deals that are project-based, we’ll see some increase around the deferred revenue and then shifting it into the revenue. So overall, during ’26, ’27, this is the trend that you we will see.

Nehal Sushil Chokshi: What about remaining performance obligations? Is that a metric that you’ve been reporting in your 10-Qs and will it show up in that then?

Liat Nahum: Yes. So as Eyal stated, there is also recurring revenue from this deal. As any network intelligence deal, there is a maintenance and support part, which is also committed. And going forward, you will see that after we will, of course, execute the full project.

Kenny Green: Our next question is going to be from Matt Calitri of Needham.

Matthew Ryan Calitri: Great. This is Matt Calitri over at Needham. I’ll echo how it’s great to see the continued momentum at this quarter and the raise to your ARR growth expectations. From a go-to-market perspective, can you provide some color on how you’re working with providers to ensure effective marketing? And what are you doing internally to convert pipeline?

Eyal David Harari: Thank you, Matt. So working with our existing customers for SECaaS is mainly about sharing with them best practices from other carriers we work with. We are trying to work closely with our customers and see what works for them and what doesn’t work for them. And when we see in other countries, for example, if we see something that works well in the U.K., we share this success story with Verizon for the U.S. And if we see something works well for Verizon in the U.S., we might share it with Play in Poland. And they really appreciate as they always like to see more ideas and innovation to drive their services. Mostly, we — they are relying on their own teams. We are working with large carriers, Tier 1 carriers that usually have a lot of resources and a lot of knowledge and a lot of know-how.

So they know how to promote their services. We are mainly there to support them and provide our expertise and any materials that can be leveraging the campaigns. And as mentioned before, some success stories from other carriers. As for new customers, this is working on business development in order to create new partnerships. We have dedicated sales executives that are working around targeted accounts. We identify countries and carriers that we feel appreciate cybersecurity, and they have a need for a solution like ours. They have large enough installed base and ability to charge for this service. And we have targeted go-to-market approach. And this is the reason we are expanding our sales team to further engage with additional carrier and build more partnerships.

Once we create new partnership with the carrier, we are actually expanding our addressable market to their end customers. So we have a mix of teams that are doing more of the customer success, which are making sure that the current customers are happy, working on expansions and working on best practices for their go-to-market. And with new customers, it’s more of a hunting going after account we dedicated sales team.

Matthew Ryan Calitri: That’s great to hear and makes a ton of sense. And then are you seeing any macro impact on sales cycles? And more specifically, how are the multimillion dollar deals like the European telco progressing through the pipe compared to expectations?

Eyal David Harari: So telco deals and specifically large deals in the tens of million size are taking always time. Sales cycle in telco can be varying between 12 months to 24 and sometimes even longer, and this is expected. Overall, we don’t see any macro influence. The telco market in the last few years is quite stable. We see overall good progress with 5G, which drives more efforts by carriers. And in specific, we see that the demand we are receiving is coming from the new platform we launched, the Tera III, which is unparallel in its capacity and capabilities and the combined feature set of traffic management with cybersecurity as part of our security-first strategy that we offer something customers really like. So this is really what’s driving the demand.

But sales cycles are long, and this is why we — the good side is we see the pipeline building up, and we can track the progress with that. And there is still always — with large deals, it’s 0-1. You need — either you win the deal or lose the deal, and this could be influencing the performance over time. But since the beginning of the year, we see good execution, both with existing customers and new customers. We mentioned about multiple deals of multiple million dollars and this landmark deal that was — we were very happy to win. And we have many more opportunities in the pipeline. We hope to access in well and come with additional good news.

Kenny Green: Thanks, Matt. So it looks like there are no more questions in the queue. So that will end our question-and-answer session. In the next few hours, this call will be made available on Allot’s Investor Relations website. I would like to thank everyone for joining this call today and especially to Allot’s management for hosting this call. And with that, we end our call. Thank you very much.