Conference Transcript - ALLT 2026-05-28

Shaul Eyal, Analyst — TD Securities

good morning everybody thank you for for those joining us for the second day of td securities tmt conference my name is shaul real i cover the cyber security universe here at td it is my pleasure to kick off our second date with eyal harari the ceo of of a lot this session will be conducted in a fireside chat mode but any questions feel free to raise your hands and keep it as interactive as possible with that they all thank you so much for joining us this morning thank you so happy to be here um maybe for the benefit of the audience slightly less familiar with uh with a lot with the a lot story can you briefly outline what is it that the company does

Eyal Harari, CEO

for a living? So a lot is focused on cyber security with communication service providers. The company's core competence is how to make networks smarter and more protected. So we have today two product lines. One is security as a service that aimed to protect the customers of the service providers. So we are a B2B2C kind of company. And from the other end, we have our network intelligence solutions that help the service provider to manage and protect their own networks. Eventually, we are primarily focused on the CSP market. About 10% to 15% we work directly with enterprises. And in the recent years, our main focus is into the cybersecurity, where this is our main growth driver today. And this is where it starts to become a very significant part of our business.

Shaul Eyal, Analyst — TD Securities

So maybe on that front, the company has gone through an impressive turnaround and restructuring process over the course of the past few years. Can we talk about maybe the drivers that are propelling the CCAS, the CCAS side of the equation, as well as the network security?

Eyal Harari, CEO

So a couple of years ago, we did a strategic process to identify where is really the opportunity and where we want to head. And we laid a strategy. We call it internally cybersecurity-first company. What we realized is that we have a unique value proposition when we take the network assets and the cybersecurity as we have networking capabilities that only a handful of companies has to work with larger companies in the world like the Verizons, the Vodafons, the Telefonicas with millions of customers, with a huge amount of data, huge volumes in a very efficient and reliable way. And we have the cyber protection, which is what everyone is looking to have today with the increased level of threats. So what we realized is that we really need to focus on where those two converge. and we decided to turn our previous customers, the CSPs, to be our partners and to take the networking technology and change it from managing the actual network, optimize it and protect it, to use it as a distribution engine to go to the millions of customers of our partners. And this is what we call in short the SIGA, Security as a Service. What we saw and identified is that while the cyber security space is very concentrated about the larger enterprises, tons of money is invested by many of the organizations, we identified that the lower market stays underprotected. So all of us as consumers, with our families, at our homes, with our kids, and also very small businesses, what we call SOHOs, or companies that do not have the means to have their own cyber security team. Most of the businesses are smaller, and they cannot afford it like larger enterprises. And we saw that there is an untapped opportunity there. For one, the cyber awareness of these people is increasing, and for the other, they don't have good solutions to protect themselves. This was where we took and focused the company, and this drove our security as a service product line to grow over 50% year over year for the last two years, and we are adding to more than 40% growth also this year. So it's really high growth rate, which became, this year, we cost one-third of our revenue coming from this new product line. And this starts to drive double-digit growth into the total revenue of the company. On the networking side, this is the area where we still offer solutions for the networking. These solutions are well-received by the carriers. that they really like the fact we have a platform that can offer them not only network optimization, analytics, but also cyber security protection for themselves and for their customers. And we see some stabilization and some modest growth, single-digit growth in this product line as well, which gives a more tailwind for our overall performance.

Shaul Eyal, Analyst — TD Securities

And maybe that very successful restructuring, and given everything you just outlined, kind, manifested itself into a very solid start to 2026. Can you maybe outline some of the metrics, and I know you started talking about 2026, but maybe even if we're double-clicking back on 1Q, some of the metrics you shared with us and investors back two weeks ago.

Eyal Harari, CEO

Yes, so we had a very strong first quarter where we, for the third quarter in a row, we managed to show double-digit growth on our total revenues. We scored 40% growth, and this was not only improving the growth rate, but also in the profitability. We managed to improve in all of our profitability KPIs from gross margin to operating profit and also free cash flow. we chose that the model works the model works because the growth engine on the CECAS is starting to make a bigger impact on the total performance on the company it shows that we are able to gain profitability as we grow we in the last 12 months or so we demonstrated about 50 cents on the dollar goes into the bottom line so if we were about break even about four quarters ago we got to a range of 7% to 10% EBIT, which is driven by the growth, but also we do it in a very responsible and profitable way. One of the strong KPIs we showed is we start to generate a lot of cash. This is coming both from, obviously, profitability, as we are a very efficient organization, but it also comes by some of the large projects we announced last year, that we won some several multi-million dollar and specifically won, as we indicate, tens of millions of dollars a project that starts to progress and mature and we start to hit milestones. And we scored over 10 million of free cash flow this quarter, which is way above expectation. And this is due to good progress with our customers in meeting the milestones.

Shaul Eyal, Analyst — TD Securities

And I think also one of the, at least from where we sit, what we really liked is that improved level of visibility as 2026 unfolds. What's driving that?

Eyal Harari, CEO

Yeah, so we start at 26. We've given a guidance on about 13% at the midpoint of revenue growth. And when we went and execute Q1, we actually did quite well on many of the fronts. And we overachieved on our security as a service solution. When we offer our cyber security solution, it's a multi-step process. First, we need to engage with those partners that want to offer this service to their customers. Second, they need to launch those services, and then they have a process of go-to-market to their customers. So if we are working with companies like Verizon, they implement the service, and then they start to offer to their millions of customers security protection. It's a marketing process that is not in our direct control. The benefit is not on our dime. they are doing it on their expense and what we saw in Q1 that most of our larger accounts were driving good performance of adoption of the service I believe that I'm sure we'll talk about it later that awareness of the need for cybersecurity by consumers and small businesses is increasing due to the threats of AI the awareness is getting higher and we see CSPs are putting more marketing budgets on campaigns to make their customers aware and we see good performance in the field by higher attach rates and better conversion of our services. This added with good execution on the networking side as we mentioned we call it the smart product line. We did good execution there. We managed to score another significant multi-million dollar deal of customers that decided to upgrade to our latest platform which called Terra3 which allow us to already indicate that we have better visibility for the year we cost 67% of recurring revenue this is really something big for the company one of the challenges for the company a few years back was it was very it was fluctuating a lot because most of the revenue were not recurring so all the revenue or almost all of the revenue from our security as a service is ar based which is more than one-third we have about one-third coming from the smart recurring revenue side and we see this continue to increase quarter over quarter which obviously improve the visibility so good execution on the ccas good progress with the networking and getting to the level of very high level of recurring revenue allow us to already guide that we will be on the upper level of our guidance for

Shaul Eyal, Analyst — TD Securities

the year so maybe you just um you just hinted on hinted can you you've mentioned that uh ccast strong performance uh maybe also seeing some uh early indications of ai tailwinds that's on the one hand but the other side of that you also mentioned you know customers awareness um my question too in that respect is um the ai implication so maybe think about it another way around are we are we at some sort of an inflection point that you're seeing on that front

Eyal Harari, CEO

so our biggest uh constraint today is how to make how to increase the demand of as you said the end customer all of us as consumers small businesses what we see today that vast majority of the people and you can ask yourself and your friends and your colleagues are unprotected people believe it will be okay they don't need to be protected what everyone realized on the larger organization this is already clear that you need to be very protected with many tools in the in the consumer market we are still in the naive face what happened and what we see and we all read the news there is enormous amount of fraud that is AI driven and the ability to attack organizations and people is becoming commoditized attackers are always faster and smarter and as they have bigger motivation and we see that impersonation smart phishing attempts social engineering as well as smart targeted attacks are becoming more and more aware and and we see it in the media and all of us are fed from the media and we see a trend that of increased awareness and in latest service we did, and some of our customers, cybersecurity protection becomes in the top requirements and priority of the consumer. This is something new. It's not something that was years ago. More specifically, people are aware that all the automation and AI that is added to our environment create a very large risk, because in order to really utilize the value of AI, you share a lot of your personal information. You share your email, you share your credentials, you share your bank account in some cases, you share a lot about yourself. And this must be protected. So we are looking and continue to evolve our products to see how we can better have automated ways to help people be more safe in this environment. Because we all want to adopt this new technology. I'm calling it, we are now in the naive phase. We use it uncarefully, but we start to hear about people losing a lot of their life-saving, their credential, and this becomes a bigger issue. One of the most, I was surprised, but it makes sense, new threat that we see, people are being hijacked for their tokens. So you go and you do a, I don't know, a Claude Pro for 20 bucks or 200 bucks account. And suddenly you don't realize that someone is abusing you and using all your tokens. When you do it in a large scale with, I don't know, 10,000, 100,000 people, you start to have lots of value. And in a way, it's like in the days of the Bitcoin. People hijack your PC in order to mine Bitcoins and use your electricity. So those are evolving, and we believe that the only way to protect from that, you need something that is always on from the network that is allowing you to do it in a seamless way, which is exactly where we come into play.

Shaul Eyal, Analyst — TD Securities

And still sticking with the AI topic, are you at a lot, are you using AI tools internally, and maybe what's the productivity levels or productivity gains that you have been seeing over the course of the past few quarters?

Eyal Harari, CEO

So I assume like many companies, we are bothered how we can leverage the AI. AI has a lot of potential and threat, but we want to be on the potential side. We as a company decided to run three different tracks of AI transformation. The first one is how we should change our products as we are in the cybersecurity, how we can better protect our customers and introduce new products leveraging the AI in order to better protect them. Either protect them from the new threat dimension that they are facing now, but also how to leverage AI for that. So this is one area we are investing. The second one is in the development. Obviously, we are in a process of high adoption of, we use specifically Cloud Code, that accelerates our software development process. Now, what we are mainly focused these days is how we can make much more with the team we have. As a company and as evolving demands, we have a lot of ideas and a lot of things we want to introduce, and we want to get from our team 10x, 5x of productivity. It's still not there. We are progressing to this direction but we already have most of our teams in the day-to-day coding with AI. Some of them shared they stopped coding at all. It's all AI code and we take it and push it very aggressively. The third area is more the operational efficiency internal operational efficiency The areas like customer support, that we are building autonomous processes, sales pipeline management, forecasting, even finance and legal. So we have a third track that is how we can evolve and improve our organization to have AI help us internally. So both development, new products, and AI efficiency. I still believe we have a lot to improve and a lot to evolve. We are not a startup. we are an established company with processes so it's a day-to-day progress and i think that there is still a lot to improve ahead of us but heading in the right direction nevertheless

Shaul Eyal, Analyst — TD Securities

from time to time we'll get this question about the linearity between revenue and arr and i know you mentioned arr in the ccas example can you maybe outline to us kind of how those dynamics

Eyal Harari, CEO

into wine so so overall we we see very high correlation in between ARR and revenue we are very strict in our calculation of ARR I know some companies have different methods but for us ARR is only if we have commitment for this revenue to reoccur and or very high visibility so we don't take we in general we take the monthly revenue the last month we are now reported the q1 so much revenue from the specific services and the portion of those services that are committed and we have the very high visibility they will reoccur for the next 12 months this is what we considered as ARR if we have one-time revenue or in some cases we have catch-ups as people are renewing in delay or they have some updates on the numbers, maybe just as a side comment, we are relied on our customer reporting to know our ARR because if I'm selling to a CSP and he's selling to his consumers, so my recurring revenue is based on how many consumers are on the service. So we need the consolidation of the data and then we can report it in some area. They have delays or they have they update us more than they initially foresee all of these we don't take as recurring so we are very strict what is in the last months of the quarter of the year and so on that we have very high visibility that it will continue for the next 12 months and in general what we see in our case there is very very high correlation between the two obviously one of the things that if we grow within the quarter, sometimes the ARR is higher because and we do see when we sometimes have like step function when we have a large customer that is doing a campaign or a large customer that is launching a service with some minimum commitment, this might increase their revenue within the quarter and because the last month is what we take for the ARR this gives good indication for the investor what to expect.

Shaul Eyal, Analyst — TD Securities

Got it. let's maybe switch gears talk about some of the product and you know product introductions and maybe thinking out loud the entire product roadmap for the next several years can you kind of discuss that and maybe double click on

Eyal Harari, CEO

some of the recent announcements yes so if we go to the basics first of all we we build an ecosystem of partners the CSPs that ever reach to the end customers and we have a platform that based on the network is enabling the distribution of the cyber security engines so on top of that we want to now offer more value to the end customers so we are classifying our customer into two categories one is the consumers and the second is the small businesses consumers are more about how I can and what we see and as we discussed with AI more about fraud prevention. They are not so worried about an attack of intruders. They are more afraid to keep their personal data safe, their credentials, their bank account, their social security. On the business side, it's a bit more sophisticated because even if you're a small business, you have more to lose. You might be targeted. Usually it's still bigger pockets So the attackers start to go after those organizations, and they have usually multiple employees that require a different level of access, and one of their issues is that they need the reputation of the business to remain, and they want business continuity, because if the business is not working, they're losing money, which is a bit different from the consumer environment. So what we are now building is a robust enhancement of our cyber protection. Now, we don't need to reinvent many of the things. What we are looking at is what is the trends that are happening in the enterprise space. Areas like network firewalls evolving to ZTNA and SASE, which is a commodity now in the enterprise, they are still not available for smaller businesses. So we are taking concepts that are invented into the enterprise space and make them autonomous and simple and affordable into the small business area. On the consumer side, we are mainly focused today on how to help prevent fraud. Fraud, we started from the network protection, like viruses, malwares, botnets. We evolved into phishing, family protection, like child protection. We are working now on protection elderly population. This is something new that becomes very important for our end customers. If in the past people were worried how I can make sure my child will not be exposed to unwanted content or I want to create a safe environment, this is becoming very popular these days. You want to limit the hours of the day people are on the phone. You don't want them to be on the TikTok every time and so on. So this is a known solution for quite a while. but what we see lately that we want to take care of our parents a lot of our parents or grandparents are exposed to the technology for them it's sometimes more complicated they have more to lose and they are very much prone to fraud there are a lot of attempts phishing impersonation and both on the deep in the digital side and the voice calling and with the deep fake that is available today, they need tools to help them to protect themselves. So these are the area we are investing today in consumer, and our idea is to add more and more value added cybersecurity engines that will allow us to be competitive, first of all, in the space, but also it's an absolute cross-sell opportunity because if we have a CSP that is already offering for millions of subscribers our service today, if we have now a new application, this is usually an easy upsell. So either they are updating their package price and increasing their price and in this case our portion, our revenue or they are enabling new value that helps them to sell into more customers and this is driving us to have growth already from our existing customers even without going into a new partnership and new parts of the network. So this is what we are focusing, and there is, I believe, a lot more will come, as we said, as AI is creating more and more threats on all of us.

Shaul Eyal, Analyst — TD Securities

Understood. Questions from the audience? Hugh.

Eyal Harari, CEO

Okay. First, a lot has been around for a while, and we started our journey with our networking products. As a company that headquartered in Israel, there was more focus and it was easier to win in Europe. And we have a lot of the European larger customers as our customers for over a decade in many of the areas. This allows us to be successful because when we come into the cybersecurity offering and we actually take our customers and turn them into our partners. And obviously, we can go and build new partnership, but it's easier. And this is our advantage as a company that is known in the CSP space. if we can create partnerships with our former customers or existing customers that they already know us, they trust us, and they understand the technology from on end, and they understand the ability to execute of the company. When we look into growth, we have four drivers. So one is going after new customers, as you mentioned, which is, I call it, it's like hunting elephants. Eventually, we are targeting mostly the tier ones, the larger organizations, as every customer we win is exposing us to a new addressable market. So, if we win a customer with many millions of customers, the potential is larger, and therefore, we try to create those partnerships. Second is where the cyber awareness is higher. So we know today that in North America and west of Europe, the awareness for cybersecurity is higher. But we start to see that the awareness is getting into other parts, more even to developing countries. And in the last call I mentioned, we start to see some demand also for cyber protection in countries in Africa and developing countries in the Far East. So cybersecurity become a thing globally. And it's part of showing that the market is evolving. Part of the change we did for the company is we created a regional go-to-market approach. So we used to have separate teams going into separate products. Today, we are very regionally focused. And our sales director are offering all of our products. When you work with CSP globally, you have few customers in every country. And our approach, my approach, and I think it's created a very good effect on the results, is that most important is the relationship that we build locally, and less the technology and the sales skills. We are very talented and high-end sales directors. We are dealing with very large organizations, with very large customers. and therefore we are, by this change, we managed to increase the number of people that are engaged on those campaigns and those obviously are long processes as you need to build the business case, the ROI, the trust and we have more people today working to build more partnerships like that. A lot of our growth is coming from already the partnerships that we have. We have three drivers for growth. One is, as mentioned, which is not directly in our control, which is the go-to market that they go to their customers. But we have a team that they are like train-the-trainers. We are working with them, bringing the best practices from around the globe. What worked for one carrier in Europe maybe will be helping a carrier in Asia, and what helped for a carrier in Asia might help a carrier in the U.S. And we give them a lot of supporting materials. And by that, we are trying to indirectly influence, and we are there to support them because their success is our success. And last is, as you also pointed, we are working to expand with more products that will help us both go into more customers. If we are, for example, we worked with Verizon on the FWA, which is a niche service that serves about, I don't know, two, three million customers. We went into the mobile business customer that is like 30, 35 million customers. So once we introduce new services, services, we are expanding our addressable market with this specific partner. And then we add more innovation as we spoke about the product roadmap. So we launched a new product that is off-net protection. We launched a new autonomous firewall. We are launching now DDoS protection. All of those are ways for us to influence and drive the growth. So all of those four verticals, new partnerships new security secure more parts of the network more services increase the attach rates and create more value to the same customers are working in parallel and this is the beauty of that and this is what's driving us to see already very high growth in the last few years and potential to continue to grow in the same pace in the next years with that eyal thank you so much

Shaul Eyal, Analyst — TD Securities

We're at time. Thank you, everybody, for joining us. Appreciate it.