Allot Ltd.

Thank you all of you and welcome to Allot's conference call to discuss its financial results for the second quarter of 2026. I would like to thank Allot's management for hosting this conference call. All participants are present in listen-only mode. Following management's formal presentation, instruction will begin for the question and answer session. As a reminder, this conference call is being recorded. If you have all received by now, the company is press released. If you have not, please share the company website at www.allot.com. All the highlights of the quarter are in today's earnings precedence. Before we start, I would like to point out that the following is a public 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 only predictions and AROT cannot guarantee that they will, in fact, occur. AROT does not assume any obligation to update that information. Actual rental results may differ materially from those protected, including other results of changing market trends, delaying the launch of services by AROT customers, reduced demand, and the competitive nature of security service industry, as well as other risks identified in the documents filed by the company with securities and exchange publishers. Also, the financial results of 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. We should also include the GAAP to non-GAAP reconciliation table. And with that, I would now like to hand over the call to Eyal Harari, Allot's CEO. Eyal, please go ahead.

Thank you. We are pleased to report another strong quarter with growth in revenue, profitability and cash flow. Our fourth consecutive quarter of double-digit year-over-year growth and an acceleration over recent quarters. We were particularly pleased with North America, with strong execution from a solid increase in sales and backlog, underpinning our confidence in the goals we expect in the second half. Our cybersecurity as a service business, SICAS, continues to power our goals with SICAS revenue going 47% year-over-year to account for over a third of our revenues and SICAS ARR up 44%. This continues to scale our recurring revenue base which represented two-thirds of total revenue in the quarter Giving us greater visibility into the quarters ahead and improving the predictability of our revenues. Overall, our business is executing well and performing ahead of our expectations. Let me focus on North America, one of the highlights of the quarter. The region made up 31% of the revenues, well above 17% in the second quarter of last year, and 14% last quarter. This was driven by very solid product sales, with particularly strong interest in our new Terra3 platform, and by continued demand for our smart product line, reflecting the value operators see in the network visibility and control our platform delivers. In addition, our major USC customer continues to perform very well, in line with our strong expectations. Beyond that, we entered the second half with a strong backlog and healthy demand, giving us added confidence for the rest of the year. North America is a strategic priority for us and it is very encouraging to see the focus translating into revenue backlog and pipeline. Turning to our cybersecurity as a service business. This continues to perform strongly and in line with our expectations. We had several wins during the quarter, each demonstrating a different way in which we are running the business, and all classic examples of our L&E strategy. We secured four new CCAS deals in the quarter, all of them in the EMEA region. First, we won an upsell deal in Europe, selling a new service to an existing CCAS customer, the fair sale of our identity monitoring service. This telco will be offering our identity monitoring service to its SMB customers. This is a domain-level identity test monitoring service. It continues monitoring for exposure of the business digital identities, and it's designed to alert the customers when credential or other identity data has been compromised, so that they can act before that expose is exploited. And it is designed to do so for every user across the organization. It is a good example of how are we extending our SMB security suite beyond the network, alongside off-net secure, firewall as a service, and DDoS protection. Second, we want an expansion to the SMB segment within an existing European-based customer. Third, we secured a new win within one of our large global telco groups, adding our home secure service in another country. The home secure solution Enhanced Threat Protection across the Telco's mobile and broadband networks. It integrates into the existing home hardware and provides zero-touch home network visibility, cybersecurity, and palatal controls. Finally, we won a new SICAS deal in Africa with a Telco that is already a smart customer. Together these wins reflect the breadth of our SICAS goals, new customers, geographies, end-user segments, and applications all on the same platform. We expect these deals to contribute to our future CCAS revenue goal in 2027. Our smart product line remains a highly complementary part of our unified cybersecurity-first platform, built on decades of a lot of innovation and delivering best-in-class network intelligence. We continue to execute well on the multi-million dollar projects One in recent quarters, including deployments and upgrades of our Terra 3 platform with Tier 1 operators. As a reminder, Terra 3 is our next generation ultra-high capacity multi-service gateway. It is among the highest capacity platforms of its kind in the market, and it consolidates deep network visibility, traffic management, and cybersecurity services onto a single platform. Customer feedback has been excellent. Operators are running both cybersecurity and traffic intelligence workloads on the same gateways and they value its carrier-grade stability and reliability. Its ability to scale cost-efficiently with 5G and fiber traffic growth without expanding their footprint. We also provide a smooth upgrade path from our earlier service gateway generations which protects the investment that they have already made. This order, the mentor of a smart product, was particularly strong in North America. As part of the smart product innovation, we recently ran a case study with T1 Operator to demonstrate Allot's new zero-rating fraud detection and mitigation service. Zero-rated applications and app-based charging plans create value for subscribers, but they also open the door to fraud. Attackers are increasingly exploiting vulnerable Our solution helps ESP identify fraud and a case study showed that we reduced fraud and traffic by 87%. This shows our operators can recover lost revenue while protecting the integrity of their zero rating offers. We are already building our backlog for 2027. with an additional win of an important Terra3 upgrade project with a customer for a new site expansion. Our pipeline remained healthy with existing customers planning their Terra3 platform upgrade and new engagement advancing through our sales process and these multi-year projects are expected to provide good revenue visibility into 2027 and beyond. During the second quarter, we presented and met customers at a number of key industry conferences. This included DTW in Copenhagen, FutureNetWorld in London, Interop in Tokyo, NetworkX America in Dallas, and Comsday in Sydney. Feedback was very positive, with customers and prospects continuing to respond well to our converged cybersecurity and network intelligence positioning. Events like these continue to build our pipeline, and it is clear that our cybersecurity first strategy resonates well with the operators globally. At the end of the second quarter, our board of directors approved a share purchase program of up to $40 million. This reflects our confidence in a lot of strategy and financial strength. With more than $100 million in cash and no debts, We are well positioned to increase value to shareholders while continue to invest in the long-term growth of the business. In summary, we are very pleased with our second quarter performance, our fourth consecutive quarter of solid improvements with accelerating growth, continued momentum in CCAS, standard performance in North America, and further gains in margin, profitability, and cash flow. As we are performing ahead of our expectations, we are raising and narrowing our 2026 revenue guidance to between $115 million and $118 million from the previous range of $113 million to $117 million with ongoing improvement in profitability. This is driven by accelerating order momentum. from our North American customers, our backlog and the continued high growth of CCAS. Allot is in its strongest position in over a decade and it is well positioned to build on its profitable 10th generation recurring revenue led growth in the quarters and years ahead. And now I would like to hand it over to our CFO Liat Nahum for the financial summary. Liat, please go ahead.

Thanks Eyal. We reported revenue of 27.7 million in the quarter, up 15% year-over-year. Revenue from our growth engine, Security as a Service, were 9.4 million in the quarter, up 47% year-over-year, comprising 34% of our total revenue. Our Security as a Service annual recurring revenue as of June 30, 2026, were 36.1 million, Up 44% year-over-year. Deferred revenue, which includes recurring maintenance and support, continued to grow both year-over-year and quarter-over-quarter, increasing the strong visibility we have into remaining 2026 and 2027 revenue. 67% of our overall revenue this quarter was recurring in nature. I will now discuss the non-GAAP financial measures. For all our financial results, including the gap financial measure and the other various breakdowns of our revenue, please refer to the table in our results press release. Our non-gap gross margin in the quarter was 71.8% compared with the 73.4% in the second quarter of last year. The year-over-year decline mainly reflects the product mix in the quarter. That said, gross margin remains strong and consistent with our expectation of around 70% for 2026. Non-GAAP operating expense for the quarter was 17.2 million, compared with the 16.4 million in the second quarter of last year. The increase reflects our continuing investment in sales and marketing to support our pipeline build. General and administrative expenses in the quarter increased compared with the second quarter of last year, mainly due to one-time costs associated with the modification of one of our office list agreements following change we made in this office.