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.

Okay, we will now take questions. If you have a question, please press star 1 on your phone. If you want to be removed from the queue, please press star 2.

And we will now call for questions. Our first question is going to be from Shaw Ayal of TD Town. Shaw, you may go ahead.

Thank you. Hi. Good afternoon. Good morning. Ayal and Liat, congrats on the results and outlook. Ayal, wondering what has been driving the strong ARR growth metrics and maybe for Liat, healthy performance on the growth margins front, what has been driving that improved performance across the board? Thank you.

Thank you, Shaul. We are happy with the results of the quarter and definitely the CCAS ARR growth is exceptionally high this quarter. As mentioned in the previous remark, the growth in the ARR is driven both by new customers, new services we launch with existing customers, increased adoption within the services already launched and actual of new applications. In the recent couple of quarters we announced about Vodafone extension and in specific Verizon MyBiz new service plan they are starting to contribute to ARR and with other increased penetration with other accounts we see a very significant growth this quarter. Yash maybe you want to comment on the growth margin side?

Yes, sure. So, in general, we've seen improvement in our growth margin in the last few quarters. And because it's becoming a higher percentage of our revenue, it is driving a higher growth margin. But also, in addition, the revenue mix which we had in product this quarter in Q2 was in favor of more software extension deals, which contributed to a higher growth 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.

Thanks. Thanks.

Next question. will be from Jonathan Ho of William Brass. Jonathan, you may go ahead and ask your questions.

Hi, good morning and congratulations on the strong results. Can you give us a little bit more color on the MyBiz opportunity and how you expect that to potentially ramp over time?

Thank you, Jonathan. So with the shared net quota, Verizon decided to launch a new flagship MyBiz 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 a lot of 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 as default. Verizon are now promoting their MyBiz plan in a lot of focus and capacity. They were mentioning this success launch in their early call. and we are actually getting subscriber fees for any new subscriber that is joining the plan. From past experience with other carriers, we know that it takes between two to three years to get into the peak. We are just now in one quarter to the penetration of this service, so obviously now it moved from zero to start to share ARR, so growth is affecting a lot, but we expect the growth to continue in the next two to three years as more carriers, more customers are moving to this MyDZ 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 carriers in similar cases. So now we have one quarter to go, but we expect two to three years' growth from this service launch.

Excellent. And maybe this is a follow-up. Can you talk a little bit about the large European telecom deal that you signed or a CFP deal that you signed? And is this mostly CTAS or is there sort of a networking component as well? Any color would be helpful. Thank you.

Cool. So what we call the length of deal of tens of millions of dollars we issued the PR a few weeks ago is a... a deal around our network intelligence product line, the SMART. It's not part of our CFS. And this win is for a leading CFP in EMEA, which decided to purchase our Terra 3 platform to cover both mobile and fixed network with our solutions. 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 CACEC deals, it should be then providing additional services, mainly supported maintenance, during the following years.

Great. Thank you.

My next question will be from Nehal Chokshi of Northland Capital Markets. Nehal, please go ahead.

Thank you. Congrats on an excellent quarter. Really, really strong CTAS 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 June quarter, sounds like that is being driven by a full quarter of Verizon's business model being available, or is that due to increased attach rates as Verizon pushes the MyBiz plan harder.

So it's 10 years now. The growth is coming mainly from full quarter of promotion of the MyBiz. This is the service was launched around mid-April. So it's the first time we see the contribution of the MyBiz 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 contributes the ARR. As you recall, Vodafone was a security customer but was not using the SICA service. And during the last few quarters, we migrated them to the new solution. And now they are contributing into fuller extent the ARR. So the mix of the two is what helps us to drive this exceptional growth with water.

It kind of sounds like both of them are kind of equal contributors to the increase in the incremental ARR.

Both of them are significantly contributing to the ARR, yes.

Okay, fantastic. 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 potential device renewal, which is often the opportunity to attach to CCAT service? Are you seeing any sort of change in those attach rates?

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 MyBiz, as this is offered by default, for everyone that is moving to, is joining the MyBiz plan, obviously the attack 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 cost. So very few are choosing that. So it's really very, very high attack rates, close to 100%, something in the 90s. And it's mainly now about how many Verizon customers are joining to the MyBiz. 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 market. Obviously, changing devices, new customers that are joining in are opportunities for touch points for them with the end customer and offer the service. And as I answered before, we expect it to be a process of two to three years in order to grow to the maximum penetration of this service as these processes take time. For example, devices, you change every two to three years, and then you conclude the cycle of migrations. But those that don't mind this, we see very, very high rates of reduction because it's added by default.

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 physically, you know, 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 the pipeline has actually increased for the last quarter, despite the landmark deal exiting the pipeline successfully?

Yes, we see this on the 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 multi-million dollar opportunities, some of them even eight-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.

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?

So, 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 five-year deal, so overall, of course, not everything is in person going to defer, but over time, as all deals that are project-based, we'll see some increase around the deferred revenue, and then you think the into the revenue. So, overall, during 26, 27, this is the trend that you receive.

What about remaining performance obligations? Is that a method that you've been reporting in your time series and will it show up in that time?

Yes. So, as I 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 may, of course, execute this whole project.

Okay, great. Thank you. Thank you.

Our next question is going to be from Matt Kalitri of Needham. Matt, you may go ahead.

Great. Hey, this is Matt Fisher over at Neven. Thank you for taking our questions. I'll echo how it was 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 pipelines?

Thank you, Matt.

So working with our existing customers for SICAS 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 share this success story with Verizon for the US, and if we see something works well for Verizon for the US, we might share it with a player in Poland, and they really appreciate, as they always like to see more ideas and innovation to drive their services. Mostly, they are relying on their own teams. We are working with large carriers. We want 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 leveraged in the campaigns and, as mentioned before, some success stories from other carriers. And for the new customers, this is a working on business development in order to create new partnerships. We have dedicated health executives that are working around targeted accounts. We identify countries and carriers that we feel appreciate private security and they have a need for solutions like ours. They have large enough install rates and ability to charge for this service. And we have targeted a go-to-market approach, and this is the reason we are expanding our sales team to further engage with additional carriers and bring more partnerships. Once we create new partnerships with the carrier, we're 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 extensions and working on best practices for their go-to-market. And with new customers, it's more of a hunting, going after accounts and dedicating sales team.

That's great to hear. It makes a ton of sense. And then are you seeing any macro impact on sales cycles? And more specifically, how are the multi-million dollar deals at the European telco progressing through the pipe compared to expectations?

So telco deals and specifically loud deals in the tens of million size are taking always time. Sales cycle in telco can be varied 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 orbit with 5G, which drives more effort by carriers. And in specific, we see that the demand will increase. Receiving is coming from the new platform we launched, Terra 3, which is unparalleled 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 traffic cycles are long, and this is why the good side is we see the pulse and building up and we can track the progress with that and there is still always the with large deals it's 0-1 you mean 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 a good execution both with existing customers and new customers we mentioned about multiple bids of multiple million dollars and this land hold deal that was we were very happy to win and we have many more opportunities in the pipeline we hope to access it well and come with additional good news awesome thank you so much thanks man 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 the LOPS Industrial Relations website. I'd like to thank everyone for joining this call today, and especially for LOPS Management for hosting this call. And with that, we end our call. Thank you very much.