Allot Ltd. (ALLT) May 2026 Conference Transcript

Thank you, everyone, for joining our Needham Tech Media and Consumer Conference. I'm Matt Colichri. I'm on the Infrastructure and Cybersecurity Software Equity Research team here at Needham. And it's a pleasure to be joined by a lot, CEO, Eyal Harari, and CFO, Liat Nahum. Thank you guys so much for being here.

Thank you, Matt. Thank you all for joining us in person and online. Happy to be here.

Maybe just to start here, for anyone that might be new to the story or revisiting it, can you provide a quick overview of a lot and the value proposition?

Sure. So a lot has been around for a while, and we started our business focusing on network intelligence, making sure that we add products and solutions that help you monetize and make the most out of your network assets. Over the years, we identified that with the same technology, we can leverage it into cybersecurity and start not only to optimize the network and monetize it, but protect it, focusing on relationship with CSPs, communication service providers. Working with this industry, we realized there is a gap that is underserved population that today are not protected by any cybersecurity solutions in a proper way, which is consumer and small businesses. And we pivoted the company a few years back from being a network infrastructure focus to becoming a cybersecurity expert, leveraging our networking and cybersecurity to create a distribution product that, with zero touch, protects millions of subscribers, leveraging our CSPs as distribution partners and creating a value-added service for them. So today, as a company, we have those two product lines, the networking infrastructure asset we call network intelligence or smart product, and the security as a service, SICAS in short, which is today our very fast-growing growth engine, growing over more than 50% year-over-year for the last three years. And we are looking to see how we can provide more value for those underserved populations to make sure they are protected in the new digital life, digital environment, ever-growing cyber concerns.

That's great. And we've talked in the past about the different growth pillars that you guys are executing about. Can you help us outline those?

Sure. So most of our growth is coming from the Sikas product line. And again, what's driving us to grow more than 50% year over year is the fact that four pillars are working in parallel to drive these product growth. So first is that we work and we have teams that are looking for new partnerships with new CSPs. each CSP that we partner with expand our time into its own subscriber base so if we close the new deals with CSP with 30 million subs, suddenly those 30 million subs are potentially to sell our cyber solutions on the second level those that we already work with we usually start in a certain part of the network, like we start on the mobile network but then we can expand into the fixed. We start with a consumer domain and we move into the business domain. So carriers are usually multiple services we can expand to. Third is what we call organic growth. After we launch a service with a certain CSP, we start with the first subscribers and we have sustainable growth of like three, four, five, sometimes we see even seven and eight years that we capture more and more share out of the customer base. It's related to the sell cycle of the carriers to the customers. And this allows us to grow with the customers we already have, with the services we already offer. And last is we continue to innovate, create new cyber protection engines, new products that we can upsell and cross-sell to the same customers, to the same end customers. One example is the off-net product we launched last year. if we protected mobile devices when they are connected to the network, we introduced a new product that keeps them protected even if they are moving to a Wi-Fi, whether it's a Starbucks or at home. This product brings more value to the same end user and therefore creates an opportunity to capture more revenues. All of them, what's nice about it, they are working in parallel. So we have hunter sales team going after new carriers. We have our customer success working closely with our customers to make sure we have new projects and new products and new customers joining to the service. Our marketing team working on churn and adoption of new end customers. And last, our R&Ds and product works to create new product offerings. And if we are successful in most of them, this is what translates to the very high growth year over year.

Yeah, a lot of different avenues to get there, which always makes our job a little bit easier. But today's fireside is very timely with you guys just releasing earnings results yesterday. Strong results too, might I add. So awesome to see. Can you help us with some of the key takeaways from the quarter?

So we had, as you say, a very strong first quarter, a good start for the year. Our revenue was 26.4, up 14% year over year. And that makes the third consecutive quarter we are growing double-digit growth. Our SICAS ARR, which basically represents this growth pillar of the security service, was $33.7 million for the quarter, up 59% year over year. And we had a very good operating margin of 9.9%. So overall, very good results. We also indicated our guidelines for the year. We indicated, as last quarter, reiterating our guidelines for revenue of $113 to $117. And we added that we feel increasingly optimistic about reaching the higher end of this range. And in addition, we introduced some more color around the SICAS growth, and we indicated that we will grow the SICAS revenue, the security as a service revenue, this year by 40% or more year over year. So overall, very strong Q1 and looking ahead to a very good year.

Awesome, yeah. And so the CECUS revenue guide, that previously you had mentioned you expect CECUS ARR to grow robust double digits, and now we've got a more specific 40% plus revenue target, I guess. What did you see driving strength there to start the year? and what gave you the confidence to give that sort of updated guide?

So we saw Q1 was landed with very high ARR goals, which is reflecting the potential for the year. We saw very good attach rates with our current launch services, and this gave us the visibility and confidence that already now in this early stage of the year, we see a 40% growth potential or even more with the current project, with the current customers. We are obviously working to continue to engage with more customers and upsell into more products with our existing ones. This would be starting to support growth towards end of the year and mainly support 2027 growth. So, we really feel strong with the first quarter start, and mostly it became by some of our partners, some of our important partners, investing a lot in the marketing to their customers, which led into higher conversion and more end customers joining our cyber protection service.

When we think about the relationship between ARR and revenue there and understanding that it takes some time for these deals to ramp into revenue and start to be recognized, how do you expect that to trend?

So overall, you can see that our ARR and revenue is quite correlated as we take a very conservative approach. ARR for us is only if we have high confidence of visibility to translate to revenue. and they are quite correlated well. We are not taking a non-committed agreement into our ARR KPI, and therefore this should continue to correlate quite well. Sometimes, as you mentioned, if you, during the quarter you see an increase, once by month, this increase higher, it has more effect on the ARR growth and the revenue that within the quarter might grow. But as we become bigger and stronger, eventually this is not as material, and we see that the correlation is very high.

Got it. That makes sense. And then on the other side of the revenue equation with the smart network intelligence business, you mentioned you saw strong demand there during the quarter. We had already known that that business had stabilized. Are you seeing potential for regrowth there? with some of the new offerings, and what are you seeing on that side?

So we are, first of all, staying very focused on our security as a service. This is our strategic investment. This is where we put most of our chips. This is where we put our R&D to continue to innovate. This being said, we see that our customers do create demand. We released last year the Terra3 platform, which is one of the best in the market, if not the best, with very high scalability and rich function sets that merge between the security and the network intelligence capabilities. And we see that the demand is coming mainly from larger customers, usually driving seven-figure deals. that we announced multiple of those last year and we also announced this quarter another existing customer that decided to upgrade from previous platform into this new Terra 3. This creates stable demand and as you mentioned in previous years we saw this product was shrinking so we see it as now much more stable and driving it into a multi-year revenue potential. We try to frame our deals in a multi-year in order to support our business. But most of the growth, we are counting on the security. Many people like yourself are asking us whether there could be an upside. So definitely, yes. There could be an upside in both ways. One depends on project timelines. Those are CapEx deals. So if we are able to execute faster on some of the projects, revenue can come faster, and by that it comes as an upside, as well as there are multimillion-dollar deals and winning one or two more that definitely in the pipeline could create an upside on this business and start to drive growth also from there. But looking on the long term, our focus is growing from the cybersecurity. Absolutely, yeah.

And Liat, I know I asked you this yesterday on the call, but just in case anyone had missed it, can you help us think through the strong free cash flow performance and how that related to sort of reaching the milestones on some of those smart deals and the way that that flows through the income statement?

Yeah, sure. So we had an amazing operating cash flow for the quarter, $10.6 million. And indeed, as I shared on the call, It relates to those deals that we announced a few quarters ago, the D&I deals. And basically the way that it works is once we start executing the deal and we are delivering part of the milestones, we are getting some advance payment. So as you can see in our balance sheet, this prepayment is going to our deferred revenue and it will be materialized into revenue during this year, mainly around the second half of the year. So overall, it's a very good positive sign for us that we are executing, we are being paid, and then the revenue will follow.

Yeah, it was great to see. Moving away from the quarter specifically, I think everyone's sort of seeing the impact that some of this AI scares had on software and it's a funny thing because like we don't really talk to anyone who necessarily believes this this bear case that like these open model tools are going to take over software but like it does have an impact on valuations when you start to think how that flows through but maybe just to address it head-on like what would you say to someone who's wondering what is a lot's moat against in the world of AI, I guess?

So I would start with first that we believe that it's great, much more tailwind for us than headwind. First and foremost, that we are addressing the end consumers that are mostly today unprotected. What we see and hear in the market that the awareness for the need for AI, protection from AI-based fraud and cyber attacks is increasing. So we see that most consumers today globally are not protected. And the awareness that now the AI drives that it's very easy to create fraud, you know, impersonate with a website or impersonate even with a video call and a voice call. The only way to really protect from that is to create an automated AI-based protection. We believe that our network-based security embedded in all the way you communicate is the right way to protect and that is both scalable and affordable for people to really join the service. So we see more awareness that we believe over time will increase the adoption rates of our products. On the other front, in terms of the risk, working with CSP is probably one of the most complicated technological environment it's a very conservative industry it's highly regulated you serve nationwide services including first responders and critical infrastructure we are last in line to be disrupted by AI no one is going to let AI agent manage the critical infrastructure of a CSP so while there are industries that might be disrupted and are being disrupted it's more on the lower technology stack area I think that we are trying to leverage the technology in order to create more value to increase the and close a lot of the technology gaps that we have as we want to further protect and add more capabilities, and we are trying to take the good of the AI. I believe that we are last in line in terms of the risk to being disrupted. And, you know, like any revolution, there is always a fear, but we as an industry and technology, we always manage to take and do even more with it. There were worries when the Internet started. There are worries now, and, you know, this keeps us focused, and we are trying to make sure we are keeping relevant and leveraging it to our best.

Yeah, so maybe lead in there. How are you leveraging it internally? And I know that was a big discussion yesterday too about using for innovation.

So we initiated AI tracks in the company looking into three main area. First and foremost is, as mentioned, what kind of AI attack surface is created now that we need to protect our customers from. So what products we need to introduce to the market to help our end customers be better prepared to this environment. Obviously, this is what we discussed. AI agents now have access to your personal data. You allow Cloud Cloud now work on your PC. It can access to your bank account, to your personal data, to your pictures. You don't want all of this to leak. And this is one. Second, you are allowing interaction with incoming agents that will allow you to automatically book your dream vacation. So if you want to get the leverage and the benefit of the AI, you need to let it go. When you let go, it's a great opportunity for attackers to grab your credentials, to grab your identity, to grab your money. And this is what we are trying to see, how we can provide more value there. And I think this is the most important part. Second is obviously R&D. Our R&Ds, we have multiple programs to see how we take the very senior R&D guys that we have and make them like 10 times more powerful leveraging the automation. I was meeting one of our R&D sites a few weeks ago and I met some people that told me look, we don't write anymore any code we just speak to, you know, Claude and all code is now being generated and we talked about different tasks and, you know, things that were taking months are taking weeks now, today it's still in the anecdote phase so we have some tasks that are being like that but we are investing that over time we could build with the same force much more innovation and as a company that is still relatively small in the space and the technical depth there is a lot more we want to do we really want to see how we can you know multiple X innovation with R&D force and last is we are trying to see how we can automate the organization we are very technology focused organization We want to make sure that all of our operational processes from, you know, customer ticketing to financial reports through contract reviews are embedded with AI processes that will allow us to do a much more efficient operational model. So, again, those three tracks are progressing. Still early days. Still, you know, we trial and error. We are afraid to let it go because you don't want AI to start to do things. We all heard about mythos and how dangerous it is. But I believe in any management, in any company, these are the discussion needs to happen. And we believe as a very innovative company, we are in a great position to leverage this faster than others and hopefully get an advantage due to that.

Yeah, it's amazing. it almost feels like there's an arms race going on between bad actors.

Definitely.

And so it's great to hear, not only should it drum up demand, but also the efficiencies you can drive internally, too. And I'm sure this evolving threat landscape is top of mind for customers, too, but what are you hearing from them and where recent conversations is kind of centered?

So the customers are more worried today on the CSP level. They are worried about their own infrastructure. As I said, like we are, they are even more worried of letting go. So they understand the potential, but they are very conservative and very risk-averse. You don't want your mobile network to be down. When we talk to their customers, to the end customers, we see a lot of naive approach. People are not yet aware of the dangers things could do, but they are starting to get worried because it hit the news. And you hear about those frauds and about people that their AI agents took control and did some bad things. So I think there is still a lot of naive approach in the market, but over time people will get more aware. We are very, very early, so it's more about, you know, it's a fun, cool technology. Let's try as individuals. I think organizations start to be really worried. We were in RSA at San Francisco a couple of months ago. This was the main thing. Our enterprise organization do the balance between the need for innovation and the concerns and the policy to make sure it doesn't create you a catastrophe in the company.

Yeah, a lot of concern about governance and guardrails. When we think about some of the new products you guys have launched and are looking at, when you're talking with customers, are they more interested in individual capabilities? Is it more about the breadth of the platform and the coverage layer you can provide?

So when we speak with our existing customers, they really like the platform, as you mentioned, approach because once they trust you, once they implement your solution, they want to do more. They get the appetite, they get the trust, and it's not easy to trust new players in the market, and once they see the numbers and how much they're able to scale this in a very profitable way, they can scale the cyber security product, they want to see more. Now, because we are serving the low market, we start with a very basic protections and we are increasing our protection stack into more sophisticated products that is evolving with awareness for the need for cyber protection. It also evolves with AI being more dangerous and we need more tools to protect from that. So definitely when we talk with our customers, there is a lot of excitement about the fact they can easily add more add-ons into the platform and today I think we have dozens of different options some of them came last year some came early this year and more to come from network firewall to DDoS protection so protecting you from the router or from mobile or your DNS as well as identity making sure your data doesn't leak to the dark web. And when you take the holistic view as a carrier, you really create a comprehensive protection. When we go to new customers, they want to start small. Typically, they want to, Telcos are being constrained with resource, and always they have something that they're already doing because it's a saturated market, the CSP. They've already been there for a while, and many of them already have something that they offer to their customers so they really want to get first step see the success and then expand so our approach is that our platform is very modular so you can start with any one of the core services that we offer we don't try to come only with a full blown solution get the trust, get the market feedback and expand after you are successful how about on I guess it would be interesting for both existing and potential new customers.

Is there anything that CSPs are missing right now that they're looking for you guys, and how's that influencing your roadmap?

So mostly what people are missing is how I protect better from AI-based fraud, How I can be taking the new cyber surface of attacks that are not only about identifying problematic domains because the AI creates domains on the fly. so you create a one dynamic very dynamic world that there is always a new content things you never heard about a week ago are becoming the new hot bad thing so you want to enable this innovation but then it's a place for bad actors to react fast as well so we see this area the industry didn't solve it and it's across all verticals both on the enterprise space it's not solved but for sure for consumers. So we are in a lot of discussions now to see what is the best way and what is the balance to keep allowing the innovation, but do it in a more protected way. So this is the area we really invest now into. That's great. And then we've also spoken on outside of just the new product opportunities, new market opportunity with some of the MVNO opportunities and the partnership with compact venture partners can you help us think through what the opportunity looks like there and and where you guys are with that relationship yeah so we announced a few months ago about this new agreement with the compacts that they are the MVNO enablers and they actually came to us as a cyber security leader and they realized that when they launch and they launch an MVNO, usually they need to differentiate with a different offering. When you build a network like T-Mobile, AT&T, Verizon, you're proud on your connectivity, you're proud on your speed, your coverage. When you launch an MVNO, it's more about the marketing and this should be really a differentiated brand. And what they realized is that you can take the cybersecurity and build the whole brand around it now they are looking into launch multiple brands the first one they already launching these days it's in an early launch into religious communities and they what they realize is there is a lot of people that choose to be more protected they don't like the wild internet that is having a lot of interesting stuff but a lot of threats that are increasing with AI both in terms of the content that there is out there as well as the risk and they really set the brand around a lot security protection and they're all unique value proposition compared to the normal basic communication package is that you are in a close protected environment and for people that choose that this is wonderful. They are relying on T-Mobile Network, as MVNO in the first brand, which is, you know, they get the benefit of tier one network in America, and they use our cybersecurity solution as the core differentiated offering, and we hope they will be successful, and, you know, their success will be our success, as we are with every one of their subscribers. You cannot join them without signing up to the Allot Cybersecurity Protection, because this is in the core of the offering. Unlike others, we mentioned other of the tier ones that we are an optional service. You don't have to get cybersecurity. It's a service you need to pay for, you need to sign for, but it's not a must. They are really making it as an integral part of the solution, and by that, it will be 100% attach rate, and if they are successful, it will be translated to our success.

That's such an interesting use case, and not that the whole opportunity revolves around that sort of closed system, but I'd imagine you're going to hear more and more about that when people feel like there's a lot of chatter about parental controls and access for young kids and stuff.

And we see also an increased concern about parents, because elderly population that needs to be navigated in this very complicated technology world are from the first to be attacked. While we are worried about our kids, usually they don't have a lot in their bank account. But our parents are addressed by charity organization, by credit card, fake credit card, still their social security credentials. So there is a lot more to lose. and many parents that are not able to track what's going on are also embarrassed from getting assistance or admitting they were being under fraud. So we see an increased demand coming also from this direction. But overall, how we protect our families, how we protect ourselves is something that is a growing concern in some communities.

Yeah, that is a scary overlap where these fraud schemes getting hyper-realistic, wow, like maybe still not so tech-savvy. I want to make sure I'm not taking up all the time here too. Do you have any questions from the audience? Keep going then. Where are, so increase awareness of cybersecurity, we talked about the AI opportunity. Where are customers finding budget for cybersecurity where, like you said, a lot of them are unprotected and this hasn't been something they've been paying for in the past?

So we don't feel that budget is, in our case, the concern, as we are a very incremental cost. So if you are paying for your mobile subscription $50 a day, or by average, for $1 or $2, you get the cyber protection. It's not a budget issue. It's cheaper than a cup of coffee. and it's more about the ability to convey very quickly the value so in some cases we are being bundled with a package so we are used to be a reason for them to use a premium package as opposed to the basic and in some cases we are in additional extra cost I believe communication packages today are super cheap, even if you pay $50, $100, it's not a lot of money compared to the criticality of those in our lives. And most people will not see this as concern in their budget. Sometimes it's more important than bread. We are not so much relied on the CSP budget because we are a monetization service and our ROI is great. So it's not that they need to spend infrastructure, capex costs or like enterprises that we are fighting on the internal budgets. Our security is actually revenue generating and a very profitable revenue generating because you can sell it to millions of your rent customers and therefore we see that this is not really the decision making. What we see sometimes the constraint as mentioned is that they don't always have the people in the organization to run new programs because they are cutting their OPEX, they are cutting their CAPEX in the organization, and they become less capable to run new initiatives. And they need to choose where do they focus. And we had a customer that we met a few months back that really wanted to work with us, but they had the launch of the iPhone 17. And so we fight on the attention of the organization. And because the organization becomes leaner, there is not so much that they can do. But again, it's not a directly budget concern, but the ability of the organization, that they have a lot on their plate and they need to choose where to focus.

And a lot of that driving that awareness falls on the CSP, but I know you guys work with them. What are you finding has been most successful in gaining awareness, and how has that changed across maybe geographies?

So we see that in the developed countries, the awareness is there, and increasing mainly by the news. We cannot really influence a lot. even the CSP their ability to influence is limited but we're really working with them to crystallize and crisp the message to the customer what we believe is if you cannot convince in one minute your end customer that they need to onboard to the service we're already losing money together it should be super quick so we have very simple synthesized message and what's driving the demand is what happened in the world So if they see in Fox News or CNN some story about fraud, and we all see that now, this is what's causing the demand. So it's really supporting us in this way. When we go to developing area, the awareness is in a different place because the attacks are usually going after the deep pocket population, and this is in the richer countries. But we do see, surprisingly, I must admit to our research, that the higher tier population in developing countries are starting to be worried as well. And attackers are also going into those countries as it becomes simpler to attack. If in the past you need to invest a lot in order to plant the seeds and create the command and control channels and sit and wait, you do it now with AI and the techs, as we said, they're always smarter and faster. And we are starting to see, like the customers in Panama that we mentioned that we launched a few months ago, and when we look on our pipeline, we surprisingly start to see more demand also from developing countries, which shows that the maturity of the market is starting to evolve. And what makes us optimistic, we can further expand in this space.

That's great. Maybe just one more here to close us out, but what do you think is most misunderstood about the a lot story right now? And what would you like investors to walk away from our conversation here?

So I think what many people remember a lot is the networking company that was a few years back, and not everyone understands the transformation of the cybersecurity. We do have two product lines, and what really makes us unique is where the synergy between the networking and the cybersecurity meet the customer. So changing our traditional customer, the CSPs, to our partners and leveraging that in order to reach to their customer and becoming a monetization opportunity is something that really excites us. And not everyone understands the story because some remember us as the network infrastructure company. We are very well known in the market in this space. It's still the majority of our revenue coming from there. But not only those that follow the story see how in very high pace we grow in the cybersecurity, and if all goes well in a couple of years, this should be the majority of our business. So we are in the midst of a transformation. It shows on the numbers. Our top line grows. Our profitability expands. But this should only accelerate as we become more and more a cybersecurity-focused company.

It really has been an amazing transition and very complimentary, too, when you think about moving from network to securing. But with that, we're out of time. But Eyal, Liat, thank you so much for being here and for doing this. And for anyone who's interested in the story, we'd be more than happy to connect you with these guys. And, yeah, thanks for attending. Thank you very much.