Allot Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2025

Key Takeaways

  • Positive Sentiment: CCaaS ARR was up 73% year-over-year to $25.2 million, comprising 27% of total revenue, and full-year ARR growth guidance was raised to 55–60%.
  • Positive Sentiment: Q2 revenue reached $24.1 million, up 9% year-over-year, with non-GAAP gross margin improving to 73.4%, non-GAAP net profit of $1.5 million versus a prior-year loss, and $4.4 million of positive operating cash flow.
  • Positive Sentiment: Completed a $46 million follow-on equity offering and repaid convertible debt, ending the quarter with over $72 million in net cash and no debt.
  • Positive Sentiment: Announced a landmark multi-million-dollar deal with a tier-one EMEA telecom for integrated network intelligence and cybersecurity to be executed in 2026–27, and secured additional CCaaS contracts with Play in Poland and Mass Mobile in Panama.
  • Neutral Sentiment: Enterprise-scale telco deployments typically involve 12–24-month sales cycles, and CCaaS attach rates on carrier plans may take 2–3 years to reach full penetration.
AI Generated. May Contain Errors.
Earnings Conference Call
Allot Q2 2025
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good day to all of you, and welcome to Allot's conference call to discuss its financial results for the 2025. I'd like to thank Allot's management for hosting this conference call. All participants are at present in a 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.

Operator

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 mister Eyal Harari, CEO and miss Gliath Nathom, CFO. Following Eyal's prepared remarks, we

Speaker 1

will open the call for

Operator

the question and answer session, and both Eyal and Liath 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 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 early predictions, and cannot guarantee that they will, in fact, occur.

Operator

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 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.

Operator

And with that, I would now like to hand the call over to Eyal Harari, CEO. Eyal, please go ahead.

Speaker 1

Thank you, Kenny. We are exceptionally pleased with our second quarter twenty twenty five results from both the financial and strategic perspective. Most notable was the accelerated and very strong performance of our CCaaS growth engine. CCaaS ARR was up 73% year over year. We ended the quarter at 25,200,000.0 This has 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.

Speaker 1

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 Verizon business new mobile offering, MyDisPlan, contributed meaningfully to our results. Toward the 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 72,000,000 in net cash and equivalents and no debt. We have a strong balance sheet and expect to continue generating positive operating cash flow.

Speaker 1

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 biggest growth 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 fruits of our long term investment in this solution. As you may remember, in February, we signed our largest CCaaS deal to date with Verizon Business, a division of one of the largest and most prestigious wireless provider in The United States and in the world.

Speaker 1

In April, Verizon launched its new service called MyDisPlan, a customizable wireless plan geared 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 are automatically opt in to the service at the start and a lot gets paid by Verizon for each account that is connected to the MyBiz plan service. This new service is being actively market to Verizon business mobile customers, which is over 30,000,000 subscribers. It is also an attractive flexible package for new potential business subscribers.

Speaker 1

This exciting land and expand win represent a significant targeted addressable market and long term growth opportunity for Allot. Verizon business reported as a new offering are resonating well with customers and driving strong sales momentum. We believe the long term potential for a loss from this bill is substantial. A few weeks ago, we announced that Play, a leading converged operator in Poland, selected our DNS secure solution to provide cyber security protection services to its fixed broadband customers. This win brings additional services to our existing network based solution that Play deployed back in 2021 for their mobile customers.

Speaker 1

Play's fixed broadband customers and mobile customers now have a unified converged user experience using the low fiber security protection. We also announced earlier this week that Mass Mobile, a telecom operator in Panama, selected the lot network secure to provide its mobile and fixed customer with network native cybersecurity protection. Our secret strategy is built on the following four growth drivers. First, increasing the number of CSPs that we work with to launch cyber security services. Strong existing relationship include Verizon Business, Vodafone, Mio, o two, and Telefonica, just to name a few.

Speaker 1

We continue to see the potential to add new secret telco and CSC customers such as MacMobin, which we just announced, and we have a solid pipeline of opportunities. After launch, we aim to expand our services to new end user segments at the CSP. For example, expanding for mobile to broaden 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 telecom 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.

Speaker 1

And finally, we look to upsell and cross sell new applications and products to the CSPs. Our off net solution is an example of a new product, which has a significant value added to the CSPs because it ensures that the end users 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 Telco, the sales cycle for these 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, give us an improved visibility and make us increasingly comfortable that we will exceed our regional CCaaS growth estimates. As such, this quarter, we increased our CCaaS growth outlook.

Speaker 1

We expect twenty twenty five year end CCaaS ARR to show an exceptionally strong year over year growth in the 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 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 multimillion dollar agreements with new customers, as well as a very significant agreement with the tier one telco, all of which will contribute significantly to our overall future growth.

Speaker 1

Our new integrated solution is enabling us to generate increased demand in 2025, and we are seeing 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 one telco operator in EMEA. It is pivotal 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 dollar.

Speaker 1

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 solution for this customer converged four g and five g mobile network and fixed fiber network. This solution will be delivered via unified service gateway based on our recently launched s g Terra three platform.

Speaker 1

We launched this new service gateway at the end of last year. It is geared towards top tier telco operators because it offer 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 large subscriber base. It also allow 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 s g TerraFree platform, and it is another contributing factor to our current strong pipeline.

Speaker 1

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 June, we successfully completed a follow on equity offering, receiving strong support from the capital markets and our largest shareholder, Linro Flake. The proceeds 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 institution investor to our shareholder base.

Speaker 1

We also gained support from a number of leading Wall Street investment bank that we continue to work with to bring additional interest to our company. In particular, I want to thank Lingrock team for their ongoing and meaningful long term support of our company. Given our strong performance in the 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 fixed and growth expectation. For 2025, we expect overall revenues of between 98 to 102,000,000, position us for a year of profitable growth. And as I mentioned earlier, we increased our 2025 CCAS ARR growth expectations to between 5550%.

Speaker 1

In summary, we are exceptionally happy with our second quarter twenty twenty five performance and continued strong momentum into the second half of the year. We showed significant success with the new contract with a major telco player was tens of millions of dollar, which will be executed over 2026 and 2027. We are especially excited about the increasing traction and the very strong growth of our CCaaS solution. Looking ahead, our visibility has improved, our backlog is strong, and our pipeline continues to be broad with many opportunities. I'm increasingly optimistic about our long term future and looking to continue progressing on our security first strategy.

Speaker 1

And now, I would like to hand over our CFO, Liat Nakum, for the financial summary. Liat, please go ahead.

Speaker 2

Thanks, Fayal. We reported revenue of $24,100,000 in the quarter, up 9% year over year. Revenue from our growth engine, CCaaS, was 6,400,000.0 in the quarter, in line with our expectations and up 73 year over year, comprising 27% of our revenue in the quarter. Our Secap's annual recurring revenue, ARR, as of June 2025 were $25,200,000. I will now discuss the non GAAP financial measures.

Speaker 2

For all financial results, including the GAAP financial measures and other various breakdown of our revenue, please refer to the table in our results press release. Our non GAAP gross margin in the quarter was 73.4% compared with the 70.6% in the second quarter of last year. Non GAAP operating expenses for the quarter were $16,400,000, 2% below $16,700,000 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 by year end.

Speaker 2

We reported a non GAAP operating income of $1,200,000 compared with the non GAAP operating loss of $1,000,000 in the second quarter of last year. In term of non GAAP net profit, we posted 1,500,000 in the quarter or profit of 3¢ per diluted share as compared with the non GAAP net loss of $800,000 or a loss of 2¢ per share in the second quarter of last year. During the quarter, we completed a 46,000,000 follow on share offering, of which 40,000,000 in gross proceeds were received before the end of the quarter, and the remaining 6,000,000 in gross proceeds were received after the close of the quarter. We used 31,400,000.0 to repay back the convertible notes that our larger investor, Linwood Lake, had, and they converted the remaining $8,600,000 of debt to 1,250,000.00 allot shares. Our shares outstanding following the offering and the conversion of the convertible notes were 47,200,000.0 shares outstanding.

Speaker 2

We reported positive operating cash flow in the second quarter of $4,400,000. Cash, bank deposit, and investments as of 06/30/2025 totaled $72,000,000 versus $59,000,000 as of 12/31/2024. As part of the follow on share offering, we repaid the 40,000,000 convertible notes. And as of 06/30/2025, the company has no debt. That ends my summary.

Speaker 2

Eyal and I are now happy to take your questions.

Operator

Okay. We will now take questions. If you have a question, please press 1 on your phone. If you wanna be removed from the queue, please press 2, and we will now call for questions. Our first question is gonna be from Shaul Eyal of TD Town.

Operator

Shaul, you may go ahead. Thank you. Hi. Good afternoon. Good morning.

Operator

Eyal and Liat, congrats on results and outlook. Eyal, wondering what has been driving the strong ARR growth metrics? And maybe for Liat, healthy performance on the gross margin front, what has been driving that improved performance across the board? Thank you.

Speaker 1

Thank you, Charles. We are happy with the results of the quarter, and definitely, the CCaaS ARR growth is exceptionally high this quarter. As mentioned in the prepared remarks, the growth in the ARR is driven both by new customers, new services we launched with existing customers, increased adoption within the services already launched and upsell of new applications. In the recent couple of quarters, we announced about Vodafone expansion and in specific Verizon might be a new service plan. They are starting to contribute to ARR and with the other increased penetration with other accounts, we see a very significant growth this quarter.

Speaker 1

Yes. Maybe you wanna comment on the gross margin side?

Speaker 2

Yes. Sure. So in general, see improvement in our gross margin in the last few quarters. As you can see, it's becoming a higher percentage of our revenue. It is driving higher gross margin.

Speaker 2

But also in addition, the revenue mix which we had in product this quarter in q two was in favor of more software expansion deals, which contributed to a higher gross margin. As we stated before, our gross margin is dependent on the revenue mix. And going forward, we do expect remaining in the range of 71 to 73% gross margin.

Operator

Makes sense. Thanks, Charles. Our next question will be from Jonathan Ho of William Blair. Jonathan, you may go ahead and ask your questions. Hi.

Operator

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?

Speaker 1

Thank you, Jonathan. So as shared last quarter, 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 evaluating to customers to move to this new plan, they decided to bundle our solution with it by default. Verizon are now promoting their my business plan in a lot of focus and capacity.

Speaker 1

They were mentioning this success launch in their earning call, and we are actually getting subscriber fee 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.

Speaker 1

But we expect the growth to continue in the next two to three years. As more carriers, more customers are moving to this might be the 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 carrier in similar cases.

Speaker 1

So now we have one quarter to go, but we expect two to three year growth from this service launch.

Operator

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

Speaker 1

Sure. So the what we call the last month deal of tens of millions of dollar we issued at PR a few weeks ago is a deal around our network intelligence for the client, the smart. It's not part of our CCAP. And this win is for a leading leading CSP in EMEA, which decided to purchase our TerraFree platform to cover in both mobile and fixed network with our solution. 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 cyber security engines to protect their network.

Speaker 1

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 CapEx bill, this should be then providing additional services, mainly supported maintenance during the following years.

Speaker 3

Great. Thank you. Thank you, Dan. Thanks, Jonathan.

Operator

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

Speaker 3

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 4,000,000 versus 3,000,000 in the March.

Speaker 3

So that's fantastic. Just to be clear, that increase in the record incremental ARR for June, sounds like that is being driven by a full quarter of Verizon's business mobile being available, or is that due to increased attach rates as Verizon pushes the My Business Plan harder?

Speaker 1

So it's thank you, Neil. 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 MyBees to our AML growth. The growth is also coming from the Vodafone launch we announced few quarters ago that now is coming to full capacity and contribute with the ARR.

Speaker 1

As you recall, Vodafone was a security customer, but was not using the secret service. And during the last few quarters, we migrated them to the new solution. And now they are contributing into fuller extent they are out. So the mix of the two is what help us to drive this exceptional growth this quarter.

Speaker 3

Got it. And it kinda sounds like both of them are kind of equal contributors to the increase in the incremental ARR.

Speaker 1

That Both of them are significantly contributing to the ARR. Yes.

Speaker 3

Okay. Fantastic. And then 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 the potentially device renewal, which is often the opportunity to attach the CCaaS service. Are you seeing any sort of change in those attach rates?

Speaker 1

So with Vodafone, it's a mature customer. They 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 factor. For the might be, as this is offered by default for everyone that is moving to is joining the marketing plan.

Speaker 1

Obviously, the tax 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 to I'm choosing that. So it's really very, very high attach rates close to, you know, 100%.

Speaker 1

It's something in the nineties. 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 30,000,000 business customers. And they have their campaigns how and when to integrate them to the market.

Speaker 1

Obviously, changing devices, new customers that are joining in our opportunities for touch points with the for them with the end customer and offer the service. And we 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 the service as these processes take time. For example, devices, change every two to three years and then you conclude the cycle of migration. But those that you join myDeep, we see very, very high rate of adjustment because it's added by default.

Speaker 3

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 can you presumably, you know, that landmark deal was in the pipeline a quarter ago.

Speaker 3

And so that must have represented a significant portion of the pipeline a quarter ago. Are you saying that your pipeline has actually increased relative to quarter despite this landmark deal exiting the pipeline successfully?

Speaker 1

Yes. We we still see strong 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 multimillion dollar opportunities, some of them even eight digit opportunities with a good mix of existing and new customers. And we still be seeing that we have good visibility to continue to execute well on the small product line.

Speaker 3

Okay. And does this landmark deal show up in deferred revenue immediately, or how how is that going to show up in the balance sheet, if at all?

Speaker 2

So in general yeah. It's okay. In general, as I have stated, this is a deal that will be recognized in the CapEx part during 2627. And therefore, there will be some deferred revenue, but, of course, not all. It's a five year deal.

Speaker 2

So overall, of course, not everything is in person going to be paid. But over time, as all deals that are project based, we'll see some increase around the deferred revenue and then shifting it into the revenue. So overall, during 2627, this is the trend that you receive.

Speaker 3

What about remaining performance obligations? Is that the metric that you've been reporting in your time choosing? Will it show up in that then?

Speaker 2

Yes. So as we have stated, there is also recurring revenue from this deal. As any network intelligence team, there is a maintenance and support part, which is also committed. And going forward, you will see that after we will, course, execute this whole project.

Speaker 3

Okay. Great. Thank you.

Operator

Thanks, Niall. Our next question is gonna be from Matt Calitri of Needham. Matt, you may go ahead.

Speaker 3

Great. Hey. This is Matt Calitri over at Needham. Thank you for taking our questions. I'll echo how it's great to see the continued momentum at this quarter and and the raise to your ARR growth expectations.

Speaker 3

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 pipeline?

Speaker 1

Thank you, Matt. So working with our existing customers for CCaaS is mainly about sharing with the best practices from other carriers we work with. We are trying to work closely with our customer 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 UK, we share this successfully with Verizon from The US. And if we see something works well for Verizon in The US, we might share it with the playing Poland.

Speaker 1

And and they really appreciate as they always like like to see more ideas and innovation to drive their services. Mostly, we they are relying on their own teams. We are working with large carriers, c one 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 leveraging the campaigns.

Speaker 1

And as mentioned before, some success stories from other carriers. And for the new customer, this is working on business development in order to create new partnerships. We have dedicated sales executives that are working around target targeted accounts. We identify countries and carriers that we feel appreciate cybersecurity, and they have a need for solution like ours. They have large enough installed base and ability to charge for this service.

Speaker 1

And we have targeted go to market approach, and this is the reason we are expanding our sales team to further engage with additional carriers and build more partnerships. Once we get new partnership with the carrier, we actually expanding our addressable market to their end customers. So we have a mix of teams that are doing all of the customer success, which are making sure that the current customers are happy, working on expansions, and working on best practices for the their go to market. And with new customers, it's more of a hunting go going after account with dedicated sales team.

Speaker 3

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

Speaker 1

So telco deals and specifically loud deals in the tens of millions size are are taking always time. Sales cycle in telco can be vary between twelve months to twenty four and sometimes even longer, and this is expected. Overall, we don't see any macro influence with, you know, the telco market in the last few years quite stable. We see overall good progress with five g, which drive more efforts by by carrier. And in specific, we see that the demand we are receiving is coming from the new platform we launched, the Terra three, which is unparalleled to in its capacity and capabilities.

Speaker 1

And the combined feature set of traffic management with cyber security as part of our security first strategy that we offer something customers really like. So this is really what's driving the demand. But sales cycles are long and this is why we the the good side is we we see the parts and building up, and we we can track the the progress with that. And then you still always with large deals, it's zero one. You need either you win the deal or lose the deal, this could be influencing the performance over time.

Speaker 1

But since the beginning of the year, we see a good execution both with existing customers and new customers. We mentioned about multiple deals of multiple million dollars and these landhold deals that was we were very happy to win. And we have many more opportunities in the pipeline. We hope to execute well and come with additional good news.

Speaker 3

Awesome. Thank you so much.

Operator

Thanks, Matt. 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 Allot Investor Relations website. I would like to thank everyone for joining this call today and especially for Allot management for hosting this call.

Operator

And with that, we end our call. Thank you very much.

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