Allot Ltd.

Good day to all of you and welcome to Allot's conference call to discuss its results for the fourth quarter and full year 2025. I would like to thank Allot's management for hosting this conference call. All participants are present in testimony 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 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'd like to point out the following safe harbour statements. This conference call may contain projections or other forward listening 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, the Security and Exchange Commission. Also, the financial results in this score will be presented mainly on a non-GAAP basis. A lot believes that these non-GAAP financial measures... 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 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 AL. Eyal, please go ahead.

Thank you, Kenny. We delivered a strong fourth quarter, concluding a year of accelerated revenue growth significant expansion in cybersecurity ARR and solid improvements in profitability and operating cash flow. In 2025, we returned to double-digit year-over-year revenue growth, reaching 102 million, up 11% versus 2024. We reported our highest level of profit and cash flow in over a decade, reflecting a significant step up in operating leverage and demonstrating the scalability of our business model. Our primary driver of growth, our cybersecurity as a service offering, continues to scale rapidly and is increasingly driving the quality and predictability of our revenue base. As of year-end 2025, the ARR was up 69% year-over-year, and we continue to experience very strong traction. Recurring revenue continued to grow as a share of total revenue and increased to 28 of revenues for the fourth quarter, underlying our transition towards a structurally recurring and more resilient revenue model. For the full year, recurring revenue representing 62% of total revenue, significantly enhancing our revenue visibility. We ended the year with a strong and balanced sheet in many years, with over $88 million in cash and no debt, providing strategic flexibility to invest in growth initiatives while maintaining financial discipline. Overall, our results illustrate the success of our go-to-market focus and the power of our cybersecurity first strategy. At the start of 2025, I laid out a lot of strategy for renewed growth. We are focused on being the cybersecurity-first company operating globally under a unified business unit with the proven synergetic capabilities of cybersecurity and network intelligence. Our success in 2025 demonstrates that this strategy is working. We believe our integrated cybersecurity and network intelligence solutions uniquely position us within the service provider's ecosystem. Our subscription-based cybersecurity offering as a service generates recurring monthly revenue and provides us with good visibility. The pipeline of new potential business continues to be strong, and our offering is gaining bond traction. The growth from cybersecurity as a service offering is built on four pillars. First, we constantly are working to expand the number of CSPs and telcos that we work with to launch cybersecurity protection. Every new CSP we partner with immediately expands our addressable market as it brings us a large new customer base. We recently reported the Compax Venture selected us as its cybersecurity partner, enabling its brands and community-based MVNO customers to differentiate their services with built-in cybersecurity powered by our solution. This partnership significantly enhanced the value proposition that these MVNOs offer to their customers and opens for us another scalable avenue of recurring revenue extending our reach into new customer segments and use cases. The second pillar, after launch, we expand our services to new end user segments at the CSP or Telco, for example, from broadband to mobile customers. Third, we focus on growing penetration of our cybersecurity protection services among our end users by partnering with the customer to market a solution and ensure those subscribers understand the significant added protection they will get at the marginal increase to the monthly bill. And finally, four, we look to upsell new applications and products to customers. As part of this strategy, we recently released our off-net solution, an example of a product with significant value added because it ensures that the end user can remain connected and protected to the CSPs or telcos even when the end user is not on their network. These innovations enable our customer to introduce high-tier security plans to their subscribers, increasing output and driving incremental recurring revenue for both the operator and a lot. We have already upsold this product to both existing and new customers. Looking ahead to 2026, as cybersecurity threats continue to intensify, we remain focused in protecting the consumer and SMB markets, segments that we believe remain underserved by traditional security solutions. Our ambition is to evolve from providing 360 degrees protection of data to delivering 360 degrees protection of the digital life of the consumer. This expands security beyond networks and devices to the individual, encompassing identity protection, scam prevention, and AI-driven security services. This vision reflects how we see consumer cybersecurity evolving over time. and is supported by a pipeline of new AI-enabled products that we have been developing for over a year, strengthening our competitiveness and long-term differentiation. AI is fundamentally reshaping the cybersecurity landscape. Attackers are increasingly using AI to operate at greater scale, speed, precision, and personalization. At the same time, enterprises and consumers are rapidly adopting the AI-driven application, introducing new and often unmanaged tech services. This shift requires rethinking of traditional security approach. The AI-enabled world must be proactive, seamless, embedded into the everyday digital usage, and require minimal to no end-user configuration. Our cybersecurity as a service platform already delivers real-time zero-effort protection, providing scalable, always-on security that evolves in step with rapidly advancing AI-driven threats. In parallel, we are actively leveraging the latest AI technology to further enhance our solutions, addressing current risk while anticipating emerging AI power threats. The significant global investment in AI infrastructure is creating an ongoing need for advanced cybersecurity protections and it is a meaningful opportunity for a lot. Within the SMB segment, we are executing aggressively to deliver more competitive end-to-end security solutions. We believe the small and mid-sized business market remains underserved in the cybersecurity landscape, and that delivering protection via the network is the most effective approach. We now offer immense protection beyond the business network with the off-net secure, have launched firewall as a service, which is already live and deployed, and we introduced DDoS protection for SMBs, enabling protection of inbound traffic, not just outbound. In addition, we expanded into identity with domain-level identity test monitoring, helping SMP protect the digital identity of all the users across the organization. Together, these capabilities bring enterprise-grade security to SMB through a simple cloud-delivered model. Today, our smart product is sold as part of our unified cybersecurity-first platform. With its best-in-class technology, continue to drive strong demand. We are executing on recently won projects, including SGTerra's redeployments and upgrades, while continue to invest to maintain our technology leadership. Interest in the SGTerrain3 platform remains strong, supported by the healthy pipeline from both existing customers upgrading and new customer wins. We were recently selected by a Tier 1 telecom provider in Asia in a multi-year deal worth high single-digit millions to deploy our network intelligence solution. This deployment will enable the operator to gain detailed application-level visibility into network traffic and extract actionable insights. This follows our largest customer win in over five years, a tens of millions of dollar agreement signed last year with a Tier 1 operator in the EMEA region. The deal includes a long-term recurring maintenance and support component, underscoring the strength of our cybersecurity first strategy. Together, these two deals provide increased revenue visibility with smart product revenues expected to be recognized in 2026 and 2027. Looking ahead, we have a pipeline of solid opportunities for smart. While SICAS is our primary goals engine, these recent multi-million dollar project wins reinforce smart's role in providing multi-year revenue visibility and supporting the overall profitability with potential upside, depending on the project conversion timing. We continue to invest in marketing and sales. These investments are focused on strengthening our go-to-market capabilities, supporting new product launches and driving demand across both service providers and enterprise segments. As part of this effort, we will be participating in major industry events in the coming months. In a few weeks, we will attend Mobile World Congress in Barcelona, where we plan to meet with many of our existing and new potential customers and partners and showcase our latest products and services. We will also participate in the RSA conference in March, one of the leading global cybersecurity conferences. At RSA, we will demonstrate our cybersecurity solution and capabilities. Our goal is to generate increased traction with new potential customers interested in our cybersecurity as a service offering. In summary, we are pleased with our 2025 performance, highlighted by the strong fourth quarter, double-digit revenue growth, improved profitability and cash flow, and it significantly strengthens balance sheet. We believe 2025 marks for a lot a structural transition to a more scalable and profitable growth model, driven by our differentiated security first strategy and expanding the current revenue base. During the continued growth in our cybersecurity business, strong visibility and solid backlog, our momentum is set to continue in 2026. We expect SICAS to continue delivering strong double-digit ARR growth, increasing its contribution to the total revenue and driving overall revenue growth in 2026 to between $113 and $117 million, alongside continued profitability improvements. Overall, I'm increasingly optimistic about Salot's future and excited to continue executing on our cybersecurity first strategy. And now, I would like to hand it over to our CFO, Liat Nakhon, for the financial summary.

Thanks, Eyal. Revenue in the fourth quarter were $28.4 million, up 14% year-over-year. Revenue from our GOS engine cybersecurity as a service were 8.1 million in the quarter, up 70% year-over-year, and comprising 28% of our revenue in the quarter. Cybersecurity as a service ARR as of December 2025 was 30.8 million, up 69% year-over-year. For the year, total revenue was 102 million, up 11%, versus 92.2 million last year, with cybersecurity as a service up to 26.8 million, representing 26% of our overall revenue. We finished 2025 with more than 60% of our total revenue being recurring revenue. I will now discuss the non-GAAP financial measures. For all our financial results, including the GAAP financial measures, and the other various breakdowns of our revenue, please refer to the table in our results press release. Non-GAAP gross margin in the quarter was 71.9% compared with 69.7% in the fourth quarter of last year. Non-GAAP gross margin for the full year 2025 was 72% compared with 70.6% for the full year of 2024. Non-GAAP operating expenses were 16.8 million compared with the 15.6 million in the fourth quarter of last year. Non-GAAP operating expense for the full year of 2025 were 64.5 million, similar to 64.4 million for the full year of 2024. We reported Q4 non-GAAP operating income of 3.6 million, up 101% compared with 1.8 million in Q4 2024. Non-GAAP operating income for the full year 2025 were 8.9 million, a significant improvement compared with the 0.6 million for the full year of 2024. Allotted 490 full-time employees as of December 31st, 2025. Non-GAAP net income was $4.1 million in the quarter or a profit of $0.08 per diluted share up 105% compared with $2 million in Q4 2024 or a profit of $0.05 per diluted share. Non-GAAP net income for the full year 2025 was $10.9 million or a profit of $0.23 per diluted share compared with the 1.6 million in 2024 or 4 cents per diluted share. We reported 8.1 million in positive operating cash flow in the fourth quarter and 17.8 million positive operating cash flow for the fully of 2025, significantly improving our liquidity position and demonstrating the cash-generating nature and potential of our business model. Cash, bank deposits, and investments as of December 31, 2025, totaled $88 million versus $59 million as of December 31, 2024. As of year-end 2025, a lot has no debt. Looking ahead to 2026. As mentioned in previous quarters, our non-GAAP gross margin depends on the specific product mix sold in the quarter. Our expectations for gross margin in the coming year is in the range of 70%, as it has been in the previous years. Significant spending on AI data centers has created a sharp increase in demand and supply constraints for key components such as memory and servers. While we are actively managing our supply chain and cost structure, we expect this industry-wide trend to contribute to cost of good pressure in the near term. As for operating expenses, we expect an increase in our sales and marketing expenses as we invest in sales and building our pipeline for the next three years. We also expect a modest increase in R&D expenses as we continue to invest in developing our products In addition, since the beginning of Q3, the U.S. dollar weakened significantly versus the Israeli shekel. Given the fact that our headquarters are in Israel, we have significant operating expenses in shekels. Although we are hedging part of that expense exposure for 2026, the negative effect of this weaker dollar has been included in our profitability projections for 2026. Despite these effects and cost of hardware challenges, as Eyal noted, we are seeing strong traction with our security-first strategy that integrates cybersecurity and network intelligence. And we are forecasting double-digit revenue growth in 2026, driving revenues to between $113 and $117 million. We also expect to drive continued profitability improvement, That ends my summary. Eyal and I are now happy to take your questions.