Executive Summary / Key Takeaways

• Allot Ltd. is demonstrating a successful strategic pivot to a "security-first" model, driving significant financial and operational improvements.
• The Security as a Service (SECaaS) segment is the primary growth engine, with Annual Recurring Revenue (ARR) surging 73% year-over-year in Q2 2025, fueled by major partnerships like Verizon (VZ)'s My Biz Plan.
• The company has achieved a notable financial turnaround, returning to profitability and significantly strengthening its balance sheet with over $72 million in net cash and no debt as of June 30, 2025.
• Allot's differentiated technology, including the high-capacity SG-Tera III platform and the innovative OffNetSecure solution, enhances its competitive moat and expands its addressable market.
• Strong guidance for 2025 projects overall revenues between $98 million and $102 million, with SECaaS ARR growth expected in the range of 55% to 60% year-over-year.

Allot's Transformation and Market Position

Allot Ltd., established in 1996, has undergone a significant strategic transformation, evolving from a provider of network intelligence and security solutions into a "security-first" company. This pivot, gaining considerable momentum in recent years, consolidates its focus around a unified business unit. The core objective is to maximize synergies between its existing network intelligence assets and its burgeoning security offerings, thereby delivering a differentiated and fully integrated solution to its diverse customer base. Allot's multi-service platforms are globally deployed by over 500 mobile, fixed, and cloud service providers and over 1,000 enterprises.

The broader telecommunications market remains stable, with ongoing advancements in 5G driving new opportunities for carriers. A significant industry trend is the accelerating demand for cybersecurity solutions, particularly for consumers and Small and Medium Businesses (SMBs). Protecting home and small office networks has transitioned from a "nice-to-have" to a "must-have" service, a shift amplified by the rise of AI introducing new dimensions of risk and necessitating advanced protection. Allot's solutions are well-positioned to capitalize on this demand, as demonstrated by the success of its SECaaS offerings.

Technological Differentiators and Innovation

Allot's core technological differentiation lies in its unified, security-first platform, which seamlessly integrates network intelligence and cybersecurity. A cornerstone of this platform is the recently launched SG-Tera III multi-service gateway. This platform is specifically designed for top-tier telco operators, offering unparalleled visibility into network traffic and the highest capacity multiservice gateway in the telecommunications market. This allows operators to manage network performance more effectively and protect against cyber threats. The integrated solution for a Tier 1 EMEA telco, for example, will offer services for converged 4G, 5G mobile, and fixed fiber networks, demonstrating the platform's versatility and power.

The tangible benefits of Allot's technology are significant for its Communication Service Provider (CSP) customers. Its solutions are designed to reduce telecom operators’ access bandwidth costs, defer capacity expansion, cut OPEX through automation, and assure high Quality of Experience (QoE) for the operator’s customers. The Allot NetworkSecure solution, adopted by Más Móvil in Panama, offers zero-touch, clientless operation, simplifying cybersecurity protection and advancing the proliferation of cutting-edge technology. This eliminates the need for application installation by subscribers, making adoption frictionless.

Allot's R&D initiatives are focused on broadening its security offering to provide 360-degree cybersecurity protection, both on and off-net. The OffNetSecure solution, launched in April 2025, exemplifies this, protecting customers even when they are connected to the internet through means other than their provider's network. This innovation is critical for CSPs to improve customer retention and satisfaction by ensuring continuous protection. The company is also exploring the potential of its products in cloud and 5G markets, including enterprise customers, specifically for traffic management and cybersecurity solutions implementable in the cloud. These technological advancements are crucial to Allot's competitive moat, enabling higher attach rates, driving recurring revenue, and solidifying its market position as a comprehensive security provider.

Competitive Landscape and Positioning

Allot operates in a competitive landscape alongside major players such as Cisco Systems (CSCO), Fortinet (FTNT), Palo Alto Networks (PANW), and Check Point Software (CHKP), as well as indirect competitors like cloud providers offering integrated security services. Compared to these larger entities, Allot holds a specialized position, focusing on intelligent network intelligence and security solutions primarily for service providers.

Allot's SG-Tera III platform offers unparalleled capacity and capabilities, appealing to large Tier 1 carriers seeking high-end scalable solutions. This technological edge, combined with its integrated traffic management and cybersecurity features, differentiates Allot from competitors who may offer broader but less specialized solutions. For instance, while Cisco boasts vast scale and integrated networking, Allot's specialized platforms can offer notably faster processing for certain analytics tasks. Fortinet excels in integrated security appliances, but Allot's emphasis on personalized, analytics-driven security for service providers provides a distinct value proposition. Palo Alto Networks leads in AI-driven cloud security, yet Allot's centralized management tools can offer significantly greater efficiency in monitoring for specific use cases.

Allot's zero-touch, clientless operation for solutions like NetworkSecure simplifies deployment and enhances user adoption, a key competitive advantage. The company's strategy of working closely with CSPs to market and drive adoption of its cybersecurity solutions, sharing best practices, further strengthens its competitive standing. This customer-centric approach, coupled with its innovative OffNetSecure solution, allows Allot to expand its addressable market and reinforce its competitive edge in both cybersecurity and network intelligence. The competitive environment is currently favorable for Allot, and the company is not engaging in low-margin deals or price wars, instead focusing on high-tier customers.

The SECaaS Growth Engine: Fueling Expansion

Allot's Security as a Service (SECaaS) segment is the company's primary growth engine, demonstrating exceptional momentum. In the second quarter of 2025, SECaaS Annual Recurring Revenue (ARR) surged by an impressive 73% year-over-year, reaching $25.2 million. This marked a significant milestone, as SECaaS contributed over a quarter of Allot's total revenues for the first time, aligning with the company's strategic objective for this segment to become an increasingly dominant portion of its revenue mix.

Key wins are driving this acceleration. In February 2025, Allot signed its largest SECaaS deal to date with Verizon Business, a division of one of the world's largest wireless providers. This partnership expanded significantly in April 2025 with the launch of Verizon's new "My Biz Plan," a customizable wireless offering for small and midsized businesses. Crucially, this plan includes Allot's mobile Internet security as a default, opt-in option, leading to exceptionally high attach rates, close to 100%, for new subscribers. Verizon became the largest contributor to Allot's SECaaS revenues in Q1 2025, and this momentum continued into Q2 2025, with the full quarter of My Biz Plan promotion being a primary driver of ARR growth.

Further expanding its global footprint, Allot announced in July 2025 that Play, a leading converged operator in Poland, selected its DNS Secure solution to provide cybersecurity protection to its fixed broadband customers, building on an existing mobile solution. In August 2025, Más Móvil, a telecom operator in Panama, chose Allot NetworkSecure to provide network-native cybersecurity protection to its mobile and fixed customers, marking Más Móvil as the first network operator in Panama to adopt this solution. These wins underscore the growing traction and strategic importance of Allot's SECaaS offerings.

Allot's SECaaS strategy is underpinned by four key growth drivers: increasing the number of CSP partnerships, expanding services to new end-user segments (e.g., from mobile to broadband), increasing penetration of cybersecurity protection among end-users, and upsell/cross-sell new applications like OffNetSecure. The company leverages best practices from successful deployments with carriers like Vodafone (VOD) and Verizon to drive adoption across its customer base. Given the strong performance and improved visibility, Allot has increased its SECaaS growth outlook. The company now expects 2025 year-end SECaaS ARR to achieve an exceptionally strong year-over-year growth in the range of 55% to 60%. Management anticipates that the Verizon My Biz Plan alone will contribute to sustained growth for the next two to three years as customer migration progresses.

Smart Solutions: Integrated Intelligence

The Smart product line, encompassing network intelligence solutions, remains an important component of Allot's overall business and is now strategically integrated into its unified, security-first platform. This integration leverages decades of Allot's experience in traffic management, policy and charging control, network visibility, and analytics. By combining these capabilities with cybersecurity, Allot offers a differentiated solution that enhances network protection while maintaining critical visibility and control.

The Smart product line has seen renewed demand, contributing significantly to Allot's future growth. In Q2 2025, Allot secured a landmark deal valued in the range of tens of millions of dollars with a Tier 1 telco operator in EMEA. This represents Allot's largest win in five years and validates its ability to expand its security and network intelligence footprint. The project, primarily a CapEx deal, is slated for execution over 2026 and 2027, and includes a long-term recurring revenue tail from maintenance and support. This integrated solution will cover the telco's converged 4G, 5G mobile, and fixed fiber networks, utilizing the high-capacity SG-Tera III platform.

Allot has also signed several other multimillion-dollar agreements with new customers for its Smart products. The company reports a higher backlog and improved visibility for 2025, driven by increased demand for its new integrated solutions and the SG-Tera III platform. While revenue from the Smart product line is less predictable quarter-to-quarter due to long sales cycles (12-24 months or more) and the lumpiness of CapEx deals, Allot expects 2025 revenues for this segment to be at a similar level to the previous year, with potential for upside given a solid pipeline that includes "multimillion-dollar opportunities, some of them even 8-digit opportunities."

Financial Performance and Strengthening Foundation

Allot has demonstrated a significant financial turnaround, moving from a period of stabilization in 2024 to renewed profitable growth in 2025. In Q2 2025, overall revenue increased by 9% year-over-year to $24.1 million. This growth was accompanied by improved margins and profitability. The non-GAAP gross margin for Q2 2025 stood at 73.4%, an increase from 70.6% in Q2 2024. This improvement is largely attributed to the increasing contribution of SECaaS revenue, which generally carries higher gross margins, and a favorable mix of software expansion deals within product sales.

Operating expenses were managed effectively, with non-GAAP operating expenses in Q2 2025 at $16.4 million, a 2% reduction from the prior year. This operational efficiency translated into a non-GAAP operating income of $1.2 million in Q2 2025, a substantial improvement from an operating loss of $1 million in Q2 2024. The company reported a non-GAAP net profit of $1.5 million, or $0.03 per diluted share, in Q2 2025, reversing a net loss of $0.8 million in the same period last year. For the full year 2024, Allot achieved a non-GAAP net income of $5.6 million, a dramatic turnaround from a $53 million loss in 2023.

Allot has significantly strengthened its financial foundation. By the end of June 2025, the company reported over $72 million in net cash and equivalents and no debt.

This robust position was achieved through a successful $46 million follow-on share offering completed in Q2 2025, which saw strong support from capital markets and its largest shareholder, Lynrock Lake. Proceeds from the offering were used to repay $31.4 million in convertible notes, with the remaining $8.6 million of debt converted into 1.25 million Allot shares.

The company generated positive operating cash flow of $4.4 million in Q2 2025, contributing to the increased cash reserves. This follows a positive operating cash flow of $1.7 million in Q1 2025 and $4.8 million for the full year 2024, marking the first time in several years Allot achieved positive cash flow generation. Management expects to continue generating positive operating cash flow, further enhancing its liquidity.

Risks and Challenges

Despite the positive momentum, Allot faces inherent risks common to the telecommunications and cybersecurity sectors. Sales cycles for large telco deals are notably long, often spanning 12 to 24 months or more, and carry a binary outcome (win or lose), which can introduce variability in performance. The company's SECaaS growth, while strong, is also influenced by the marketing campaigns and strategic focus of its service provider partners, introducing an element of reliance on external factors.

Furthermore, the competitive nature of the security services industry, coupled with the rapid pace of technological advancements (such as AI), necessitates continuous R&D investment to maintain its differentiated offerings. While Allot's balance sheet is strong, its smaller scale compared to industry giants like Cisco or Palo Alto Networks could lead to higher customer acquisition costs and potentially impact its ability to compete in price-sensitive markets or for broader, enterprise-wide solutions.

Outlook and Guidance

Allot's outlook for 2025 reflects confidence in its strategic direction and operational execution. The company projects overall revenues for the full year 2025 to be between $98 million and $102 million, signaling a year of profitable growth. This guidance is supported by strong performance in the first half of 2025, improved visibility, and a solid backlog.

The SECaaS segment is expected to be a primary driver, with 2025 year-end SECaaS ARR projected to achieve an exceptional year-over-year growth in the range of 55% to 60%. This increased outlook is a direct result of the successful launch of Verizon's My Biz Plan and growing traction with other key customers. Non-GAAP gross margins are anticipated to remain robust, in the range of 71% to 73%, driven by the increasing contribution of higher-margin SECaaS revenue. Operating expenses are expected to be relatively flat in the near term, with some gradual increases towards the end of the year as Allot invests in go-to-market initiatives and R&D for future innovations.

Conclusion

Allot Ltd. stands at a pivotal juncture, having successfully executed a strategic pivot towards a security-first model that is now yielding tangible financial and operational results. The rapid expansion of its SECaaS business, spearheaded by landmark partnerships like Verizon's My Biz Plan, is transforming its revenue mix and driving robust recurring growth. This, coupled with the strategic integration and renewed demand for its Smart network intelligence solutions, positions Allot as a differentiated provider in the evolving cybersecurity landscape.

The company's strengthened balance sheet, marked by significant cash reserves and zero debt, provides a solid foundation for continued investment in its innovative technology roadmap, including the high-capacity SG-Tera III platform and cutting-edge OffNetSecure solution. While competitive pressures and lengthy sales cycles remain considerations, Allot's focused strategy, technological leadership, and clear growth drivers underpin a compelling investment thesis for discerning investors seeking exposure to the accelerating demand for network-native cybersecurity solutions.