Allot Ltd.

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.alots.com. With me today on the line are Mr. Eyal Harari, CEO, and Ms. Giliad Nahum, CFO. Following Eyal's prepared remarks, we will open the call for the question and answer session, and both Eyal and the app 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 in the conference call, in today's earnings press release. Before we start, I would like to point out the following safe harbor statements. 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 demand, 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.

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 CITAS Gold Extension. CITAS ARR was up 73% year-over-year. We ended the quarter at 25.2 million ARR. CITAS contributed over a quarter 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 in profitability, and solid operating cash generation. In the quarter, the highly successful launch of Horizon Business' new mobile offering, MyBizPlan, contributed meaningfully to our results. Towards 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 Efficace Goals 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 push of our long-term investment in this solution. As you may remember, in February, we signed our largest CCAS deal to date with Verizon Business, a division of one of the largest and most prestigious wireless providers in the United States and in the world. In April, Verizon launched its new service called MyDiskPlan, a customizable wireless plan yield towards small and mid-sized businesses. The service includes, as a default option, mobile internet security, which is built on a lot of cybersecurity protection. Importantly, customers automatically opt-in to this service at the start, and a lot gets paid by Verizon for each account that is connected to the MyBizPlan 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 represents a significant targeted addressable market and long-term growth opportunity for a lot. recalls that the new offerings are resonating well with customers and driving strong sales momentum. We believe the long-term potential for a loss 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. 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 a lot of cybersecurity protection. We also announced earlier this week that MassMobile, a telecom operator in Panama, selected a lot NetworkSecure to provide its mobile and fixed customer with network-native cyber security protection. Our EFICA strategy is built on the following four growth drivers. First, increasing the number of CSPs that we work with to launch cyber security services. Some existing relationships include Verizon Business, Vodafone, Mio, O2, and Telefonica, just to name a few. We continue to see the potential to add new speakers to Elko and CSP customers, such as MacMobile, which we just announced, and we have a solid pipeline of opportunities. After launch, we aim to extend our services to new end-user segments at the CSP, For example, expanding from mobile to board and customers with Play being the most recent example. We also aim to increase the penetration of our cybersecurity protection services among our customers and users. We have a strong group of telephone 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 off-net pollution is an example of a new product which has 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 on their network. Because we already have a strong working relationship with CSPs and telcos, the sell 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 CCaaS offering, gives us an improved visibility and makes us increasingly comfortable that we will exceed our original CCaaS growth estimates. As such, this quarter we increase our CCaaS growth outlook. We expect 2025 year-end CCAS 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 a 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 multi-million dollar agreements with new customers, as well as a very significant agreement with the T1 Telco, all of which will contribute significantly to our overall future goals. Our new integrated solution is enabling us to generate increasing land 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 TerraCore operator in EMEA. It is people's win for a lot, the largest in five 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 solutions 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-TERRA3 platform. We launched this new service gateway at the end of last year. It is geared towards top tier telco operators because it offers unparalleled visibility into network traffic under one unified platform. This partnership is highly valuable for a lot, not only from a financial perspective, but also because it brings us a major new telco customer with lots of cyber base. It also allows 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 FG Terra 3 platform and it is another contributing factor to our current strong pipeline. We see interest from both existing customers that may 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, Lean Rock Lake. The profits 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 investors to our showholder base. We also gained support from a number of leading Wall Street investment banks that we continue to work with to bring additional interest to our company. In particular, I want to thank LeanRock 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 CTAF growth expectations. For 2025, we expect overall revenues of between 98 to 102 million, position up for a year of profitable growth. And as I mentioned earlier, we increase our 2025 CKCR 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 pickup solution. Looking ahead, our visibility has improved, our backlog is strong, and our pipeline continues to be broad with many opportunities. I am 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 our CFO, Liat Mahoum, for the financial summary. Liat, please go ahead.

And so on. We reported revenue of $24.1 million in the quarter, up 9% year-over-year. Revenue from our growth engine, CCOS, was $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 CCOS annual recurring revenue, ARR, as of June 2025, were $25.2 million. I will now discuss the non-GAAP financial measures. For all financial results, including the GAAP financial measures and other various breakdowns of our revenue, please refer to the table in our results spreadsheet. Our non-GAAP gross margin in the quarter was 73.4%, compared with a 70.6% in the second quarter of last year. Non-job 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 a year end. We reported a non-GAAP operating income of $1.2 million, compared with the 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 the non-GAAP net loss of $0.8 million, or a loss of 2 cents 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, Leroy Blake, had, 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 30th, 2025, the company has no debt. That ends my summary. Eyal and I are now happy to take your questions.