Allot Ltd. Price & Performance (ALLT)

Our security first strategy and renewed go to market focus gaining strong traction and momentum. A recent highlight was securing significant new contracts which included major telecom operators, in key markets. I'm especially excited with our recent win with Verizon which I will elaborate on, in a few minutes. A lot continues to gain strong traction and telcos and CSPs. As we work closely with them, to market our cybersecurity solution and help their end customers adopt our solutions. The continued success of CECAS demonstrates that consumers and small businesses appreciate the importance of being seamlessly and fully protected by their service provider. As we move through 2025, and continue to successfully advance our security first strategy Allot is well positioned and very much at an inflection point of a new long term trend of growth and profitability. Today, our smart product line is sold as part of our unified security first business structure. It is a solid product Allot on a lot of excellent technology and use of innovation and it continues to provide significant revenue Looking ahead, we expect a stable level of revenue from our smart product line during the coming year. While this product line long term visibility is less predictable than our Seqrest product line we have a solid pipeline into 2025, and we believe there is a potential for upside.

Now moving over to our growth engine, our CECUS offering. Our CCAS revenue continued to grow contributing an increasing share of our business as each quarter passes. Looking ahead to 2025, we expect another year of strong double digit CCAS revenue and ARR growth and improved profitability. Growth will be driven largely by our extensive growing list of top tier customers launching our solution as well as the increased [indiscernible] of our security solution among the subscriber bases of those customers. We have a strong pipeline of opportunities that we are working on some of which we hope to convert in the coming quarters. To demonstrate our growing momentum and strong traction, I want to highlight a few examples of recent service providers' launches in our Lucidus business. We were very happy to announce the signing of a new agreement between Allot and Verizon business in which Allot will support them [indiscernible] for their mobile phone business customers, We are proud to partner with Verizon one of the largest and most prestigious wireless provider in The United States and the world. Since late twenty twenty two, we have partnered with Horizon to provide our network base cybersecurity protection to Verizon Business Fixed Wireless Access customers giving 1,500,000 subscriber the option to use our service.

This service has experienced strong adoption over the past year and continue to grow among the Verizon business [indiscernible] This new agreement makes our solution potentially available to the extended Verizon Business mobile customer base. As of 2024, year end, Verizon business reported over 30,000,000 subscribers representing significant targeted addressable market and long term growth opportunity for Our network secure product will support Verizon business expand security capabilities offering the customers zero touch protection from a wide range of cyber threats. We have built a solid strong work relationship with Verizon business and we hope to extend our collaboration with them further over the coming years. In November, we announced a new contract with Vodafone UK and our relationship with them continues to grow Together, we launched a protection service to fix broadband [indiscernible] complementing the cybersecurity protection they already provide to mobile customers, all builds on a lot of services. Our solution enhances stress protection across both Vodafone UK broadband networks across all customer devices on the home network In only few banks since launch, our solution has gained strong traction and notably increased customer satisfaction at Vodafone UK. Last month, O2 Czech Republic part of Group, launched a cybersecurity solution for both mobile and fixed broadband customers. [indiscernible] O2 is now the fifth operator of BPS Group to deploy our security solution further strengthening our footprint Last quarter, I discussed Alok's new organizational structure and strategy for renewed growth.

I will recap our strategy, especially for our new investors. A Lot is becoming security first company. Operating under one unified business unit. Our foundation is deep expertise improving capabilities combining two key areas: [indiscernible] and Network Intelligence, We have been working hard to leverage synergies between our existing network intelligent assets and our security offering including integrated cloud based solution focused on network visibility, traffic management and cybersecurity for the five gs era. The combination creates a compelling value proposition enabling us to deliver a highly differentiated fully integrated solution that only handful of companies worldwide can match. For example, we see strong value in our traditionally network intelligence customers a combined offering that enhance our ability to protect networks while maintaining the feasibility into traffic. Cyber threats are constantly expanding and finding new ways to take advantage of the consumer We are looking to stay ahead of those threats by broadening our security offering to offer a three sixty degree cybersecurity protection both on and off net. Today, telco customers can seamlessly provide cybersecurity to end users while connected to their networks. Our vision is that our customers will be able to provide consumer with the protection at all times, whatever network they choose to use.

Our product and R and D teams are constantly working to broaden our security as a service offering looking to add ever growing value to our customers, to ensure our solution maintain its unique value proposition. With our strong market presence expanding portfolio of innovative solutions, and agility in meeting customer needs we are well positioned to win new customers while also continue to expand within our existing customer base. This brings me to our customer centric go to market approach. We have structured the organization to better support evolving customer demands. Our marketing and sales team now have a regional focus on sales and customer success. Empowering them to function more effectively while enabling a more personalized approach We believe this new structure is already creating opportunities for us expanding our installed base and attracting new customers. In summary, we are pleased with our performance in 2024 culminating in a strong fourth quarter with double digit CCAS revenue and ARR growth and a positive profit It is clear that a lot is at key inflection point of profitable growth following our first profitable year on an on GAAP basis, in a very long time. Our security offering continued to gain momentum as is demonstrated by recent new contract wins and service launches, achieving customers.

Our unified security first strategy integrating cybersecurity and network intelligence differentiates us in the market delivering fully integrated solution that widely enhanced value for both existing and new customers Looking ahead to 2025, we remain focused on advancing our strategy and executing on another year of double digit CCAS revenue and ARR growth, and improved profitability. I'm increasingly optimistic about the expanding opportunities [indiscernible] And now I would like to hand it over our CFO, Yatna Hoom, for the financial summary. Giat Please go ahead. Thanks, Eyaz.

We reported revenue of $24,900,000 in the quarter, up 2% year over year. For 2024, we reported revenues of $92,200,000 just 1% below those of 2023. Revenue from our gross engine, CCAS, were $4,800,000 in the quarter. In line with our expectations. And up 49% year over year. Comprising 19% of our revenue in the quarter. Our sickest annual recurring revenues as of December 2024 were $18,200,000 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 revenue please refer to the table in our results Our non GAAP gross margin in the quarter was 69.7% The full year, gross margin dramatically improved to 70.6% versus 59.6% last year. While the non GAAP gross margin product mix sold in the quarter our expectation for gross margin in the coming year in the range of 70%. [indiscernible] We reduced expenses considerably over the past year. With the non GAAP OpEx at $15,600,000 47% below those of fourth quarter of last year. Full year 2024 OpEx was $64,400,000 versus $111,000,000 in 2023. Allot had five zero four full time employees as of December 2024. We reported a non GAAP operating income of $1,800,000 which is a significant improvement compared with the non GAAP operating loss of $17,000,000 in Q4 last year.

For 2024, we reported a non GAAP operating [indiscernible] of $600,000 versus $55,000,000 non GAAP operating loss in 2020 In terms of non GAAP we reported $2,000,000 in the quarter. Or a profit of 0.05 as compared with the non GAAP net loss of $16,500,000 or a loss of $0.43 per basic share in the fourth quarter of last year. For 2024, we reported a non GAAP net income of $1,600,000 or $0.04 per diluted share, versus a non GAAP net loss of $53,300,000 or a loss of $1.41 per share in 2023. We reported positive operating cash flow in of $4,100,000 and a positive operating cash flow of $4,800,000 in 2024. Cash short term bank deposits and investment as of 12/31/2024 totaled $58,800,000 versus $64,800,000 as of year end twenty twenty three. That ends my summary. Eyal and myself would now be happy to take your questions. Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Is from Nehal Chokshi of Northland Capital Markets. Please go [indiscernible] All right. Thank you, Hey, congrats on the strong free cash flow generation for the quarter. Thank you, Niall. We did see continuous growth on the Ficus and it's mainly based [indiscernible] growth with the existing TICAS customer base as well as the new announcement of new services launched that we mentioned with customers like Vodafone, Mio and O2.

Obviously, some of the One of the most exciting announcement about Horizon is something that we contribute reviewing and seek us goals in the future, but in not yet contributing to this quarter [indiscernible] So we see that the growth engine is producing the goals we expect. As we need new accounts, we need new services within the existing accounts and expanding the adoption of the end customers within the existing services at the existing home. So all of them are working towards additional growth and this would yield overall very nice growth this year. Okay. So I did notice within the revenue segmentation provided, Support and maintenance was up almost $4,000,000 Q over Q. One of the biggest amounts, I think, in a long time. What was the driver of that increase? Was this basically the new customers that were being onboarded So support and maintenance is mainly based on our SmartPorter client as the CCAS is a SaaS model and does not support does not provide any support and maintenance revenue Reason is that due to Q4, catch up, on support and maintenance agreement typically end of the year, we have a strong Strong results there and this is similar level to what we had last year.

I see. Okay. And for renewal, of agreement that we managed to do leveraging the end of the year to doing that.

I see. So in terms of like this [indiscernible] It was actually a positive cash flow contributor though. It wasn't just simply an accounting reflection.

No, no, it's orders with the field that increased our business on supported maintenance. Both cash and revenue. Got it.

Okay.

Then product revenue, that was down 55% year over year. Why is that? Enrique, can you repeat the question?

Product revenue was $4,800,000 for the December. I believe that was down 55% year over year. Why is it down so much Yes, can you take it?

Yes. So as we stated also in previous quarters, our product revenue, which is mainly the DTI base, is can fluctuate between quarters. And it really depends on specific deals in each quarter. In general, we can say that, of course, as you can see, each quarter, the CCAS revenue Percentage out of the total leads increasing and therefore, it impacts the rest of the percentages. But overall, it really depends on the specific quarter, the seasonality, and if we have specific CPI large deals.

Okay.

All right. And so Certainly, we'd be thinking looking at a December quarter year over year trajectory as an indicator as how You're going to go for calendar '25 in terms of the product revenue or is that more a reflection of the lumpiness and how would you suggest to give out product revenue starting in calendar 2025 then? Then?

So I believe that as I mentioned in my [indiscernible] the smart product line, as you know, it's harder to predict and it can fluctuate between quarters. I think that the current quarter is is a good baseline. What we see is where we are more consistent and growing is around the CCAS. So this should continues to grow in high top and we expect similar level of smart business to to continue with less visibility, which means that there could be an upside due to some Current pipeline issues we have But on a quarterly level, this would still fluctuate.

This is non recurring revenue Yes.

Understood. And then when you say CCaaS continue to grow and high double digit rates, I mean, the high double digit mean 11% or do you mean like more like This year we were doing 40%, 50% and we our goal is to maintain this success. It's a lot depends on the adoption of the service around those new wins we had and continue to execute well and win new accounts. If we look on on the recent the announcement we made around Verizon earlier, This could be amazing opportunity for us to rescale our security service offering to millions of customers The pace is very hard to predict as it always depends not only on us, but on the service provider and the channel. But definitely we have all the with all the recent wins, we are very well positioned to similar growth rates and we are targeting to continue to work and execute well to maintain it in the next years to come.

Got it. And then when you talk about this [indiscernible] Internet security, offering and that there's 30,000,000 customers Is that based there and then B, Do you have a gross adds For that, portion of Verizon business, [indiscernible] fixed wireless access that I believe has been [indiscernible] largely your $1,000,000 per quarter incremental ARR and CCaaS Yes. So the mobile industry as a whole doesn't blow matches the opposed to the FWA, which is a niche service that is growing. I believe we can look on this as a stable installed base. But 10 of three thirty million customers is [indiscernible] Have the option to join our cyber And I think this is definitely a very significant opportunity for us.

We just [indiscernible] on this new service we don't have yet statistics on the tax rates and of course, it's a lot depends on how the horizon will market it to their customers. They are working on different go to market strategies. But fixed wireless access today is only 1,500,000,000 lines. And then we are talking about 30,000,000 devices. And I think it's not only about this new service, it's also very important it's cement our relationship with Verizon and shows their satisfaction from Fund of the solution that they want to expand our cyber protection to more of their customers. And we are going to work closely with them to assure they are delighted from our solution and hopefully we have more services we can potentially tap and protect more of their customers and more of their services.

So this is really exciting opportunity for us.

Okay.

Do you have a sense as far as what is the rate of gross adds for that $30,000,000 base? I mean, there's a churn rate and so to the single base, there's usually some churn out.

I think it's a good for for the sake of exercising You can assume €30,000,000 is a fair [indiscernible] Verizon share information on their financials you can view, but it's quite stable base. And the question is now how to market this new add on service to their customer and there are Allot necessarily just on assuming growth within this base. Of replacement with Okay.

And then then your incremental ARR for the December was $1,000,000 versus the September being 2,600,000.0 So and I realized that the September was a record quarter, unusual quarter, But can you just go over drivers of that down in the incremental ARR So as I mentioned, incremental ARR comes by winning new accounts and launching new services and adoption within the services. Some of the it's not linear growth because once we introduce new service, that creates some higher growth. And for example, last quarter, we announced on Vodafone and this creates some time accelerated growth for the quarter. So nothing specific that more that I can share. We don't expect to see steady growth We still work with large channels telcos as a channel. And Opportunities are relatively big. So In some quarter, we could see accelerated growth and in some more modest. But overall, we are looking to keep strong double digit growth rate. And just to be clear, that means that December did not have any material new customer launches or segments launched within those customers? Some launches happen and they will contribute only in Q1.

For example? There is always the timing when you launch the service, there are no customers, then you need to add the customers. Now it Allot depends on campaigns. If the customer is offering different campaigns to increase the tax rate [indiscernible] [indiscernible] So there are a lot of moving parts here.

And because we are working with large channels, sometimes if have a promotion with a significant customer, it creates [indiscernible] [indiscernible] increase in the quarter and if you are And it's not that you can expect it to be quarter over quarter.

Okay. All right. I realize the vast bulk question here. I do have more questions, but I want to give others a chance to ask questions. So I'll just get back in the queue here. Thank you. [indiscernible] There are The next question The next question is a follow-up question [indiscernible] please go ahead.

All right, guys. Thanks. So just a few more cleanups here. Gross margin did tick down 200 basis points Q3 to 69.7%. I presume that that's product revenue driven that correct?

Yes.

Correct.

Our gross margin is dependent on the product mix and is driven from the product in the quarter.

Okay. And what do you think caused us that it was [indiscernible] No, I think that you saw the improvement year over year. We had a tremendous turnaround and we go to the 70% range. It can still change slightly between the quarters, but this is on the year S. Level, the numbers that we are expecting to be in the 70ish and Long term we expect this to further improve with scale and with more customer [indiscernible] coming from the Zika that in general it's higher gross margin by nature. Because this is a service as opposed to the smart product line that is sometimes has higher cost components So I would say that on the yearly level, we expect to see similar gross margin with some improvement over time. We growth and move of revenue between The product revenues into the Seacrest revenue.

Okay.

So are you seeing sandbine coming back into the market [indiscernible] What are you seeing on the competitive front from the smart product line then?

We don't refer to [indiscernible] comment on competition. Obviously, we are We believe we have good product and we have strong pipeline for our products. We continue to work with multiple existing new customers and potential expansions, we are not trying to go into low margin deals or price wars. As we are focusing on the high tier customers and customers that can be attractive to our business Salesline has a good solution and I wish them to Beth. And we are continuing to make our most focus on the security first strategy which is anyhow We are facing new competitors in new markets. And this is where most of our efforts are. [indiscernible] Great. And then OpEx for the quarter, dollars 15,600,000.0 on a non GAAP basis, flat Q over Q. Does it make sense for a lot to start to now invest in OpEx as the securities and service is driving the growth here. Actually, this is important question as I believe that what we did this year is mainly focused on the internal transformation I believe now we have the good fundamental model to allow us to be well positioned for the next year growth We changed we focused on some area And we are looking to further grow over time.

The growth is going to be mainly in driving more investment towards our [indiscernible] both on the go to market side and R and D, On the coming few quarters, I believe you can still see some of the savings in parallel to some of the new investments. So I would say that overall on the numbers, it should be flattish with some increase towards the last part of the year.

Okay.

Great.

I think that's everything I wanted.

Actually, no, one other thing.

You mentioned that your looking to broaden your security offering. Can you detail a little bit more on how you're going to do that?

So we are working in Investing R and D around innovative ideas I mentioned in my previous comment one of the most important part for us is to see how we can make sure that the customer is always secured. As providing security from the network side we are providing excellent protection for the customer while he is on its network, was we identified that some of the operators are looking to see how they can expand their security niche also to win the customers off the network. And this is an area we are trying to bring new innovation [indiscernible] This is an area we envision that we can provide more value How we can still connect the customer to the network for security protection while the customer is now on his WiFi or other network that is not the service provider ones, This is critical for the CSPs to improve their customer retention and satisfaction, and we are working on some ideas on this direction, which we will share later in the year, once we are getting closer to product launch.

Got To be clear, at this point in time, the telecom customers provide the off network security protection through a third party security product is not necessarily as well integrated as what you're Thanks, Lee. Envisioning here.

Yes. Got it. [indiscernible] Very good. Thanks, Ilya.

The next question David Kanan of Kanan Wells Management.

Please go ahead.

Hi, guys. Thanks for taking my questions and congratulations.

I know that In the last [indiscernible] [indiscernible] [indiscernible] And you kind of took a pass on that. But could you address it a different way possibly like with Verizon Based on turning on other carriers in the [indiscernible] what kind of attachment did you get? And then is this done primarily At the [indiscernible] of activation. When somebody upgrades their phone or they subscribe for new service and they are turning it on or activating it, is that typically when they would uptake for security? Thank you.

Thank you, David. So it really depends on the goal market of the of the CSP and there are many considerations. It depends if they offer it as an opt in or opt out of definitely affect tax rates Different operators choose the different ways. Some of them are trying to combine it with the selling of new service. And typically, you do need a compelling event to make the customer join new services, etcetera. Changing his plan or device joining the service. I would say that based on past experience with operator, we see that at peak we get close to 50% the tax rate. Typically, if the operator is doing a decent job, and take it strategically 15% to 20% are definitely Our average attachments of customers And it's then Maybe based on how their position is, if Internet a paid add on in opt in, it's usually slower uptake. If it's an opt out, it's much faster. If it's bundled with a package, [indiscernible] we grow with the package that it is attached and so on and so on. So different methods to see, but some of the statistics we shared in the past [indiscernible] [indiscernible] close to 50% and average of deliveries around 15%, 20%, 25% very achievable goal Okay.

Thank you for explaining that.

And then question about your DPI legacy business with the troubles that [indiscernible] experience late. And then you have some up and integration with your new new offerings Do you expect for 2025 that this is a business that could actually start growing albeit modestly, or it's something that will continue to contract [indiscernible] previous in my prepared remarks, I mentioned we are looking to best estimate is to have similar level If you ask me whether there would be an upside definitely there could be an upside It really depends on winning new projects and the timing of the revenue. We do see more opportunities in the pipeline based on our engagement with different customers, we do invest in And part of the change to move into regional structure [indiscernible] market focus and more engagement with customers that we see that generate us some [indiscernible] nice opportunities in the but this being said, predictability of this business is is much lower [indiscernible] is different because we it's non recurring business and it really depends if we win the project or not. So currently, we estimate sooner level, but there could be an upside based on some customer success. [indiscernible] depends on the scale of the I hope this Okay. [indiscernible] [indiscernible] said something like that we expect to convert And I believe you were referring to CCAS.

So are you Are you indicating that you have a strong pipeline of CCaaS prospective CCaaS customers similar to MEO and Verizon and the large Japanese carrier, recently landed. Is this incremental? And could you give us a little more color on that and quantify it and maybe what the TAM is there?

So just the comment was generic and we have a mix of opportunities both on the CCATs new services within our existing customers. We have [indiscernible] potential customers, we have also new small potential customers.

And I think we are starting the year very well positioned strong to address those opportunities. And nothing more than I can [indiscernible] Okay. Thank you. We wish you well. Thank you. Thank you, David.

There are no further questions at this time. This concludes the question and answer session. Thank you for joining us. The recording will be available on the website. May go ahead and disconnect.

As a kid, I spent hours in my backyard Practicing, dreaming of one day becoming a profession.

The amount of time me and my brother's been playing in the garden, have you asked me a moment it was nonstop.

When you are a kid, you know, you just try to enjoy the moment to play with your friends and just to to laugh.

Before the big stadiums, the winning goals and the trophies, all football journeys start in a backyard. At Husk Fourna, we've been pioneering robotic mowing and supporting backyard dreams. Since 1995. [indiscernible] Nine [indiscernible] [indiscernible] [indiscernible] [indiscernible]