Allot Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Allot's third quarter 2025 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Allot's investor relations team at EK Global Investor Relations at 1212-378-8040 or view it in the news section of the company's website at www.allot.com. I would like now to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Good day to all of you and welcome to Allot's conference call to discuss its financial results for the quarter. I would like to thank Allot's management for hosting this conference call. All participants are present in listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. 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. Both Eyal and Liat will be available to answer those questions. You can all find the highlights of the course, including discussed in the conference call in today's earnings press release. Before we start, I'd like to point out the following safe harbor statement. This conference call may contain projections or other forward-listing 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 a lot of 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 exchanges. For all the data, please refer to the financial tables published in the results press release issued earlier today, which also include the gap to non-gap reconciliation table. And with that, I would now like to hand the call over to Eyal Harari, CEO of Allot. Eyal, please go ahead. Thank you, Ken.

We are pleased with our excellent third quarter 2025 results. We reported double-digit year-over-year revenue growth for the first time in multiple years. continued strong CICAS momentum and our highest level of operating profitability in over a decade. We saw strength across all parts of our business, both in cyber security as well as network intelligence solutions. Revenue for the quarter was $26.4 million, up 14% year over year. Our profitability has likewise expanded strongly, and we reported a solid operating profit in the quarter versus a loss last year. Our cybersecurity as a service growth engine continues with its excellent performance. our SICAS ARR was up 60% year-over-year, which demonstrates very strong traction for our service among end customers. As each quarter passes, SICAS is becoming an ever more important part of the revenue pie, and it made up 28% of our revenues in the quarter. We ended the quarter with over $80 million in cash and no debt. and the lot is back to a very strong financial position with the resource to further execute on our growth strategy. Overall, our results demonstrate that we are executing exceptionally well on our cybersecurity first strategy and renewed go-to-market focus. Looking at some of the trends within the business, I first want to discuss our thickest growth engine. We are seeing increased traction among major telco for cybersecurity as a service solutions. As we progress, we are starting to see the fruits of our long-term investments in this solution. The recent customer launches of our cybersecurity service are going very well. We are actively supporting our customer launches and the offering are gaining traction with their end customers, driving our strong sales momentum. During the quarter, we gain our first customer for our newly released Off-Net Secure solution. Off-Net Secure will allow the extending of network-based cybersecurity protection beyond the operator's infrastructure to subscribe using any network or Wi-Fi connection. It allows operators to better seamless always-on security experience For the operator, OffNet Secure strengthens their customer loyalty, increases subscription-based revenue opportunities, and reinforces their role as a trusted provider of digital security backed by a lot of technology. The pipeline of new potential business continues to increase. not only with new CSPs and telcos, but also among the end customers of our existing partners. The positive momentum is allowing us to show accelerated growth and is providing us with a strong forward visibility. As you can see, we are working hard to successfully bring new CCAS customers to a lot. Our smart product for network intelligence continued to perform well and was also a contributor to our growth in the quarter. We are winning new customers, which are driving higher revenues, stronger backlog, improved visibility, and we have a robust pipeline. Today, our smart product is being sold as part of our unified cybersecurity first platform. And this integrated solution, based in class technology, We are actively executing on the various projects we have recently won, including new Terra 3 deployments and upgrades, where we are working closely with the customers to roll out the platform. We are investing to bring new capabilities and functionality to maintain our technology leadership, and our recent enhancement around visibility is creating new opportunities for us. Overall, our efforts to grow the smart business and product line continues to progress well and the backlog that we have built over the past few months provide us with solid visibility heading into next year. In summary, we are very pleased with our third quarter 2025 result. Driven by strong performance across all parts of our business, Looking ahead, we have good visibility, our backlog is strong, and our pipeline continues to be broad with many opportunities. I am increasingly optimistic about our long-term future, and I am excited to continue progressing on our cybersecurity first strategy. Given the continued accelerated sickle scopes, our solid visibility, and high level of backlog, we are increasing our guidance. We expect 2025 year-end CCAS ARR to show an exceptionally strong year-over-year growth, surpassing 60%. We are also rising our full year 2025 revenue guidance to between $100 and $103 million. As we move into 2026, exceptionally well positioned for the year ahead, and we see ourselves at the inflection point of a longer-term trend of ongoing profitable growth. And now, I would like to hand it over to our CFO, Liat Nahoum, for the financial summary. Liat, please go ahead.

Thanks, Eyal. Revenue in the third quarter were $26.4 million, up 14% year-over-year. Revenue from our gross engine, CCAS, was $7.3 million in the quarter, up 60% year-over-year, and comprising 28% of our revenue in the quarter. Our CCAS annual recurring revenue, ARR, as of September 2025, was $27.6 million. Our revenue increase was driven by growth in both our CCAS and our smart businesses. From a geographic perspective, I want to point out that in the third quarter, we had an increased level of America sales in line with our strategy to increase business in this region. Specifically, we recognized revenue on a relatively large smart order, and on the CICAS front, we experienced a growing contribution from the US. Finally, I want to point out that recurring revenue continue to grow as a percentage of our overall revenue, standing at 63% in Q3 2025 versus 58% in Q3 2024. I will now discuss the non-GAAP financial measures. For all our financial results, including the gap financial measures and the various other breakdowns of our revenues, please refer to the table in our results press release. Non-gap gross margin in the quarter was 72.2% compared with the 71.7% in the third quarter of last year. Non-GAAP operating expenses were $15.4 million, compared with the $15.6 million in the third quarter of last year. During the quarter, we received a grant of approximately $1 million for research and development funding. This grant was also received in the third quarter of last year. We reported non-GAAP operating income of $3.7 million compared with $1.1 million in Q3 2024. The growth in revenue and improved gross margin on a similar operating expense base led to significant growth in our operating income. Allot had 497 full-time employees as of September 30, 2025. In terms of non-GAAP net income, we reported $4.6 million in the quarter, or a profit of $0.10 per diluted share, as compared with $1.3 million or $0.03 per diluted share in the third quarter of last year. During the quarter, we completed 46 million follow-on share offerings, of which 40 million in gross proceeds were received during the second quarter, and the remaining 6 million in gross proceeds received this quarter. Our share issued and outstanding as of the end of September were 48.4 million shares. We reported $4 million positive operating cash flow in the third quarter, representing the third quarter in a row that we are generating positive operating cash flow. We added over $10 million to our cash balance, and we are well positioned to drive profitable growth. Cash, bank deposits, and investments. As of September 30th, 2025, totaled 81 million versus 59 million as of December 31st, 2024. A lot has no debt. That ends my summary. Eyal and I are now happy to take your questions.

Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Nihal Chokshi from Northland Capital Markets. Please go ahead.

morning congratulations on a good quarter um oh you mentioned that you're seeing increased traction with a major telecom customer can you uh outline whether or not that's coming from higher tax rates or is that coming from more at bats uh because potentially now bundled at the default at the base premium bundle here

Thank you, Neil. So, overall, we are seeing good progress with all of our new customer launches. I think we are seeing positive trend both on the touch rates as well as we have good progress with new services we launch with our customers. This quarter, we updated on a MassMobile in Panama that launched our CCAS service and expanded our customer base. And overall, we are seeing good results with all of our customers that drove this very significant growth on both the CCAS revenue and ARR and supported our highest revenue goals for the company in a while.

Okay, great. You also mentioned that you secured your first customer for OffNet Secure. Can you give a little bit more detail of what is the customer profile of this first customer here?

So we have the OffNet Secure is a product we launched a few quarters ago. We did a new to enhance our security protection sales opportunities with both new and existing customers that are looking to enhance their service with this option. I don't want to go too much into the specifics of this first launch, but I would say that the main value for this specific customer is that they really want their customers to be protected 24-7, and they wanted to combine our unique network security where the customer is connected, they are always using our cybersecurity services and they don't have any, and they mitigate the risk or minimize the risk to be under security threats.

Is it fair to say that this is a customer materiality to a lot?

We appreciate the customer, and it's very important. I don't want to go into specifics. As I said, it's the first customer that we already added to the service, but we have additional multiple opportunities with both new and existing customers that are looking to further enhance our cybersecurity service with offline.

Okay, great, thanks. My final question is that in the past quarters you've commented on a strong smart pipeline. Do you continue to see that?

Yes, we announced earlier in the year that we want several and we still see strong pipeline with opportunities both with existing customers looking to further expand their platforms. We see good And we are hoping for this trend to continue. Great. Thank you very much. Thank you, Neal.

The next question is from Jonathan Ho from William Blair. Please go ahead.

Hi. Good morning and congratulations on the strong results. Starting with CCAS, can you maybe unpack for us a little bit more what the drivers of the growth were How much of this growth is maybe coming from newer contracts that are now coming online versus, you know, adoption and growth in existing contracts?

Thank you, Jonathan. So our main goal is coming from the last few ones, contracts we announced in the last few quarters that onboarded, launched our service, and continue to onboard mobile in Panama, and some of the new projects and activities are going to support our longer-term growth, but when we look on short-term quarterly changes, this is mainly by

Got it. And then in terms of your network intelligence offerings, can you talk a little bit about the competitive landscape and pricing environment? It looks like this is inflected back to growth, but just want to understand sort of the sustainability of that growth opportunity.

So our networking technology is part of our core assets. We have a very large and significant install base of customers. Overall, the competitive landscape is less, I would say, easier these days due to some of the changes in the dynamics. We see that overall telco capex spend is still tight and the telco industry is still challenging, but we believe we have unique technology and with the Terra 3 product that is very unique, we are able to get get really competitive edge. I believe that in the next few quarters there is definitely a potential to continue to grow well with this product and this still continues to be a significant part of our plans. While in parallel as you could also see that the SICA starts to be very meaningful. We passed more than 25% of our business from the cyber security and If we continue with this pace, we are going to about 30% of our business with the cyber security super service. So this positions us very well to continue the growth next year.

Got it. And maybe one last one for me. Can you talk a little bit about the drivers of growth in some of your larger CCAS contracts and whether some of the ad campaigns that were launched that were pretty public have had an impact in terms of adoption? Is there any way to measure that or anything that you've taken away from a learning perspective? Thank you.

So we are seeing four drivers for our CKAS goals. One is obviously when we add new customers that are expanding our TAM into new subscriber base. the fixed security. In some areas, we are doing the business customers. We are looking into the consumers and vice versa. So every account definitely goes to once. It has a lot of potential to do more. For the services that are already launched, we are working closely. Our marketing team and our consultants that are bring best practices on what is the best way to go to market for our partners to reach to their customers. We're trying to help them with marketing materials, marketing campaigns, and really more on a consultancy supporting mode, and we are really relying on their go-to-market efforts. Typically, new We continue to work on additional innovations and bring more value to our customers to further help them to protect their customers. So all of those are working together. Some are more longer-term growth. Some of them are more shorter-term growth. And because we are investing in all those in parallel, Excellent. Thank you. Thank you, Jonathan.

The next question is from Matt Calitri of Needham and Company. Please go ahead.

Hey, guys. This is Matt Calitri over at Needham. Thanks for taking our questions. On the CCAS side, how is Verizon my business? Are you seeing fairly linear scaling here, or is it more of an exponential path?

So we cannot refer to specific customers, but as commented before, we are overall very pleased with our progress with all of our customer base. We see the results in the quarterly numbers, and as you saw, we raised our expectations to suppress 60% on the yearly level. So overall, we are very happy with that progress.

Okay, that makes sense. And then clean up here, when you said CCAST revenue is going to about 30% of the business, was that expectation like by the end of the year?

Yes, so if we will continue the current trend, then as we gave already guidelines for the remaining of the year to reach 60% in about year over year, then this is indeed the expectation, yes.

Okay, great. And then last one for me. On the product revenue strength you're seeing, how is Terra 3 playing a role in customer conversations? And what kind of color can you give there as far as new opportunities that's opening up and how conversations are changing there? Thank you.

So we do see a good mix in our pipeline of new opportunities as well as discussion with our existing customers. Overall, we are putting a lot of focus on our customer success and making sure we are helping to support our customer business goals. And a lot of the growth and a lot of the potential we see is already with a very impressive install base. We have some of the best carriers in the world that are working with us, both on the smart and secure product lines. Every quarter, additional new customers that are adding to the potential, as we mentioned in the previous comments. We saw part of the quarters, new logos joining in, both on both product lines, and we are trying to keep the investment. Great, thank you. Thank you, Matt.

There are no further questions at this time, so that ends our question and answer session. In the next few hours, this call will be made available on Allot's IR 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. Have a good day.