Q3 2025 Allot Communications Ltd Earnings Call

Speaker #1: Ladies and gentlemen, thank you for standing by. Welcome to Allot's third quarter 2025 results conference call. All participants are currently in listen-only mode.

Speaker #1: 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.

Speaker #1: If you have not received it, please contact Allot's Investor Relations team at ekglobalinvestorrelations@12123788040 or view it in the news section of the company's website at www.allot.com.

Speaker #1: I would like now to hand over the call to Mr. Kenny Green, of ekglobalinvestorrelations. Mr. Green, would you like to begin

Speaker #1: please? Good

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: You can all find the highlights of the quarter, including the financial highlights and metrics that we typically discuss in the conference call, in today's earnings press release.

Speaker #2: Before we start, I'd 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Also, the financial 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.

Speaker #2: For all the data, please refer to the financial tables published in the results press release issued earlier today, which also include the GAAP to non-GAAP reconciliation tables.

Speaker #2: And with that, I would now like to hand the call over to Eyal Harari, CEO of Allot. Eyal, please go

Speaker #2: And with that, I would now like to hand the call over to Eyal Harari, CEO of Allot. Eyal, please go ahead. Thank you,

Speaker #3: 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 seekers' momentum and our highest level of operating profitability in over a decade.

Speaker #3: 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.

Speaker #3: Our profitability has likewise expanded strongly and we reported a solid operating profit in the quarter versus a loss last year. Our cyber security as a service growth engine continued with its excellent performance.

Speaker #3: As of September 2025, our seekers' ARR was up 60% year over year which demonstrates very strong traction for our service among end customers. As each quarter passes, seekers is becoming an ever more important part of the revenue pie and it's made up 28% of our revenues in the quarter.

Speaker #3: We ended the quarter with over 80 million in cash at no debt. And Allot is back to a very strong financial position with the resource to further execute on our growth strategy.

Speaker #3: Overall, our result demonstrates that we are executing exceptionally well on our cyber security-first strategy and reviewed go-to-market focus. Looking at some of the trends within the business, I first want to discuss our seekers' growth engine.

Speaker #3: We are seeing increased traction among major telco for cyber security as a service solutions. As we progress, we are starting to see the fruits of our long-term investments in these solutions.

Speaker #3: The recent customer launches of our cyber security service are going very well. We are actively supporting our customer launches and offering a gaining traction with our end customers driving our strong sales momentum.

Speaker #3: During the quarter, we gained our first customer for our newly released off-net secure solution. Off-net secure will allow the extending of network-based cyber security protection beyond the operator's infrastructure.

Speaker #3: To subscribe or using any network or Wi-Fi connection. It allows operators to better seamless always-on security experience that travels with the user without requiring complex installations or device-level configuration.

Speaker #3: For the operator, off-net secure strengthens customer loyalty, increases subscription-based revenue opportunities, and reinforces their role as a trusted provider of digital security backed by Allot technology.

Speaker #3: The pipeline of new potential business continues to increase. Our seekers' offering is gaining traction not only with new CSPs and telcos but also among the end customers of our existing partners.

Speaker #3: The positive momentum is allowing us to show accelerated growth and is providing us with strong forward visibility. As you can see, we are working hard to successfully bring new seekers and customers to Allot.

Speaker #3: Our smart product for network intelligence continues 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 robust pipelines.

Speaker #3: Today, our smart product is being sold as part of our unified cybersecurity-first platform. This integrated solution, with best-in-class technology and innovation, is enabling us to generate increased demand.

Speaker #3: We are actively executing on the various projects we have recently won including new Terra3 deployments and upgrades where we are walking closely with the customers to roll out the platform.

Speaker #3: 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.

Speaker #3: Overall, our efforts to grow the smart business and product line continue to progress well and the backlog that we have built over the past few months provides us with solid visibility adding into next year.

Speaker #3: In summary, we are very pleased with our third quarter 2025 result. Driven by strong performance across all parts of our business, namely accelerating seekers' traction and increased network intelligence solution sales.

Speaker #3: 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 cyber security-first strategy.

Speaker #3: Given the continued accelerated seekers' growth, our solid visibility and high level of backlog, we are increasing our guidance. We expect 2025 year-end seekers' ARR to show an exceptionally strong year-over-year growth surpassing 60%.

Speaker #3: We are also rising our full year 2025 revenue guidance to between 100 and 103 million dollars. As we move into 2026, Allot is exceptionally well positioned for the year ahead and we see ourselves at the inflection point of a longer-term trend of ongoing profitable growth.

Speaker #3: And now, I would like to hand it over to our CFO, Liat Nahum, for the financial summary. Liat, please go ahead.

Speaker #2: Thanks, Eyal. Revenue in the third quarter was 26.4 million. Up 14% year-over-year. Revenue from our growth engine seekers was 7.3 million in the quarter, up 60% year-over-year, and comprising 28% of our revenue in the quarter.

Speaker #2: Our seekers' annual recurring revenue, ARR, as of September 2025, was 27.6 million. Our revenue increase was driven by growth in both our seekers and our smart businesses.

Speaker #2: 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.

Speaker #2: Specifically, we recognized revenue on a relatively large smart orders and on the seekers' front, we experienced a growing contribution from the US. Finally, I want to point out that recurring revenue continued to grow as a percentage of our overall revenues, standing at 63% in Q3 2025 versus 58% in Q3 2024.

Speaker #2: I will now discuss the non-GAAP financial measures. For all our financial results, including the GAAP financial measures, and the various other breakdowns of our revenues, please refer to the table in our results press release.

Speaker #2: Non-GAAP gross margin in the quarter was 72.2%, compared with 71.7% in the third quarter of last year. Non-GAAP operating expenses were $15.4 million, compared with $15.6 million in the third quarter of last year.

Speaker #2: During the quarter, we received a grant of approximately 1 million dollars for research and development funding. This grant was also received in the third quarter of last year.

Speaker #2: 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.

Speaker #2: Allot had 497 full-time employees as of September 30th, 2025. In terms of non-GAAP net income, we reported 4.6 million in the quarter, or a profit of 10 cents per diluted share, as compared with 1.3 million or 3 cents per diluted share in the third quarter of last year.

Speaker #2: During the quarter, we completed 46,400 share offering, of which 40 million in gross profits were received during the second quarter and the remaining 6 million in gross profits received this quarter.

Speaker #2: Our shares 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.

Speaker #2: Representing the third quarter in a row that we are generating positive operating cash flow. We added over 10 million dollars to our cash balance, and we are well positioned to drive profitable growth.

Speaker #2: Cash, bank deposit, and investments as of September 30th, 2025, totaled 81 million, versus 59 million as of December 31st, 2024. Allot has no debt.

Speaker #2: That ends my summary. Eyal and I are now happy to take your

Speaker #3: Thank you, ladies and gentlemen. At this time, we will begin the question-and-answer session. If you have a question, please press star one.

Speaker #3: 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.

Speaker #3: Your questions will be polled in the order they are received. Please stand by while we poll for your questions.

Speaker #1: The The first question is from Nihal Chokshi, from Northland Capital Markets. Please go ahead.

Speaker #4: Good morning. Congratulations on a good quarter. Eyal, you mentioned that you're seeing increased traction with the major telecom customer. Can you outline whether or not that's coming from higher tax rates?

Speaker #4: Or is that coming from more at-bats because potentially you've now bundled at the default at the base premium bundle

Speaker #4: here? Thank

Speaker #5: you, Nihal. So overall, we are seeing good progress with all of our new customer launches. I think we are seeing positive trends both on the tax rates as well as we have good progress with the new services we launched with our customers.

Speaker #5: This quarter, we updated on a mass mobile in Panama that launched our seeker service, and expanded our customer base. And overall, we are seeing good results with all of our customers.

Speaker #5: They drove this very significant growth on both seekers' revenue and ARR. And supported our highest revenue growth for the company in a

Speaker #4: Okay. Great. while. 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?

Speaker #5: So we have the offnet secure is a product we launched a few quarters ago. With an aim to enhance our security protection for our end customers not only when they are connected to the operational network, but also when they are leaving the network and using other ways to connect to their services.

Speaker #5: With the new product starting to build pipeline, and we are in a multiple sales opportunities with both new and existing customers that are looking to enhance their service with this option.

Speaker #5: 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. They wanted to combine our unique network security with the offnet.

Speaker #5: So no matter where the customer is connected, they are always using our cyber security services and they don't have any and they mitigate the risk or minimize the risk to be under security threats.

Speaker #4: Is it fair to say that this is a customer of materiality to

Speaker #4: Allot? We appreciate

Speaker #5: the customer and it's very important. I don't want to go into a specific. As I said, the first customer that we already added this service, but we have additional multiple opportunities with both new and existing customers.

Speaker #5: That are looking to further enhance our cyber security service with the

Speaker #5: offnet. Okay.

Speaker #4: Great. Thanks. My final question is, is that in the past quarters you've commented on a strong smart pipeline? Do you continue to see that?

Speaker #5: Yes, we announced earlier in the year that we want several multi-million dollar deals, as well as very large deals we announced, I believe, in July or August.

Speaker #5: And we still see strong pipeline with opportunities. Both with existing customers looking to further expand their platforms. We see good demand for the Terra 3 new product, which is very high capacity service gateway solution.

Speaker #5: And we have a good mix of new and existing customers in the pipeline. So overall, as commented earlier by Liat, we see in this quarter strong results not only from the seekers, but also from the smart product line.

Speaker #5: And we are hoping for this trend to

Speaker #5: continue. Great.

Speaker #4: Thank you very

Speaker #4: much. Thank you,

Speaker #5: Nihal. The next

Speaker #1: question is from Jonathan Ho from William Blair. Please go

Speaker #1: ahead. Hi.

Speaker #6: Good morning, and congratulations on the strong results. Starting with seekers, can you maybe unpack for us a little bit more what the drivers of the growth were?

Speaker #6: How much of this growth is maybe coming from newer contracts that are now coming online versus adoption and growth in existing contracts?

Speaker #5: Thank you, Jonathan. So our main growth is coming from the large tier ones contract we announced in the last two quarters that onboarded, launched their service, and continue to onboard new and additional customers.

Speaker #5: Overall, we are very pleased with the results of most of our strategic accounts that are continuing to add new subscriptions and support the service.

Speaker #5: We announced this quarter about one new launch, mass mobile in Panama. And some of the new projects and activities are going to support our longer-term growth.

Speaker #5: But when we look on a short-term quarterly changes, this is mainly by new customers joining on the services we already

Speaker #5: launched. Got it.

Speaker #6: 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 I just wanted to understand sort of the sustainability of that growth opportunity.

Speaker #5: So our networking technologies are 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 those some of the changes in the dynamics.

Speaker #5: We see that overall telco CAPEX spend is still tight, and the telecom industry is still challenging. However, we believe we have unique technology, and with the Terra 3 product, which is very unique, we are able to achieve the best price performance in the market. By doing so, we gain a really competitive edge.

Speaker #5: I believe that in the next few quarters, there is definitely a potential to continue to grow well with this product and this still continue to be a significant part of our plans.

Speaker #5: While in parallel, as you could also see, the seekers have started to be very meaningful. We passed more than 25% of our business from cybersecurity, and if we continue at this pace, we are going to reach about 30% of our business with the cybersecurity seeker service.

Speaker #5: So this positions us very well to continue the growth next.

Speaker #6: 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 seeker contracts and whether some of the ad campaigns that were launched, which were pretty public, have had an impact in terms of adoption?

Speaker #6: Is there any way to measure that or anything that you've taken away from a learning perspective? Thank you.

Speaker #5: So we are seeing four drivers for our seekers growth. One is obviously when we add new customers that are expanding our time into new subscriber base.

Speaker #5: This is what we are busy with: our expanded go-to-market team that is going after new accounts. On accounts that we already work with, we usually start with certain services.

Speaker #5: But we are continuing with our customer success teams to further offer additional services. For example, if we start with a mobile network, we are offering fixed security in some areas.

Speaker #5: We are doing the business customers. We are looking into the consumer and vice versa. So every account is definitely to those tier ones has a lot of potential to do more.

Speaker #5: For the services that have already launched, we are working closely. Our marketing team and our consultants bring best practices on what is the best way to go to market for our partners to reach their customers.

Speaker #5: We are trying to help them with marketing materials, marketing campaigns, and really more in a consultancy-supporting mode. We are really reliant on their go-to-market efforts.

Speaker #5: Typically, new services, once launched, they are picking after two to three years and we see strong double-digit attach rates in many of our customers.

Speaker #5: And this is why this growth is usually sustainable along this time. And last is we are looking to further upsell and cross-sell. So new innovation, new products.

Speaker #5: We are very pleased that our latest release of the offnet is now part of the portfolio. And this is helping us to get more revenue from the same customers that already attached to the cyber security service.

Speaker #5: We are continuing 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.

Speaker #5: Some are more longer-term growth. Some of them are more shorter-term growth. And because we are investing in all those in parallel, we are seeing very good results in the 60% range 60% range of range year over year which we are very pleased of.

Speaker #6: Excellent. Thank you.

Speaker #5: Thank you,

Speaker #5: Jonathan. The next question is

Speaker #7: from Matt Kalitri of Needham and Company. Please go ahead.

Speaker #7: ahead. Hey, guys.

Speaker #8: This is Matt Kalitri over at Needham. Thanks for taking our questions. On the seekers side, how is Verizon MyBiz penetration trending versus expectations? Is it are you seeing fairly linear scaling here, or is it more of an exponential path?

Speaker #5: 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.

Speaker #5: We see the results in the quarterly numbers. And as you saw, we raised our expectations to suppress 60% on a yearly level. So overall, we are very happy with the progress.

Speaker #8: Okay. That makes sense. And then clean up here. When you said seekers revenue is going to about 30% of the business, was that expectation by the end of the

Speaker #8: year? Yeah.

Speaker #7: So if we will continue the current trend, then as we gave already guidelines for the remaining of the year to reach 60% and above, year over year, then this is indeed the expectations.

Speaker #8: Okay. Great. And then last one for me. On the product revenue strength, you're seeing how is Terra3 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?

Speaker #8: Thank you.

Speaker #5: So we do see 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.

Speaker #5: And a lot of the growth and a lot of the potential we see is already with the 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 line.

Speaker #5: We are trying to continue to improve and delight our customers to maximize the business value they get from our solution. Overall, in the telco industry, this is the best way to provide longer-term sustainable growth.

Speaker #5: We also see every quarter additional new customers that are adding to the potential, as we mentioned in the previous comments. We saw part of the quarter new logos joining in, both on both product lines, and we are trying to keep the investment on hunting and going after new accounts, while maintaining a healthy mix in our pipeline.

Speaker #5: two. Great.

Speaker #8: Thank you.

Speaker #5: Thank you,

Speaker #5: Matt. There are no further

Speaker #7: 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 IR website.

Speaker #7: 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.