Allot Ltd. (ALLT) Earnings

Management highlights

### Strategic Transformation and Overall Performance * The company has achieved three consecutive quarters of double-digit year-over-year revenue growth, with accelerating growth in Q1 2026. It has successfully transformed into a profitable growth company aligned with its cybersecurity-first strategy. * The company generated a record quarterly operating cash flow of $10.6 million, driven by profitability improvements, milestone advance payments on large recent Smart project wins, and growing contribution from the SECaaS business. It ended the quarter with $98 million in total cash and no debt, creating a strong balance sheet and significant flexibility for long-term growth investment. * Capital allocation priorities are: 1) investment in organic growth, 2) pursuing strategic attractive acquisitions, 3) returning capital to shareholders, all to maximize long-term shareholder value. ### Product and Pipeline Highlights * The Smart product line remains a critical complementary component of the unified cybersecurity-first platform, delivering industry-leading network intelligence. The company secured a significant multimillion-dollar Tera III upgrade win with an existing Tier 1 operator customer in the quarter, and the Smart pipeline remains healthy with strong demand from existing customers upgrading capacity and new customer engagements. Multiyear Smart projects provide stable revenue visibility through 2026, 2027 and beyond. * R&D and sales and marketing investment has been increased to expand SECaaS capabilities, develop new AI-enhanced security features to address evolving threats, and expand market reach to existing and new customers. This investment has translated into a growing sales pipeline across all regions. * The company attended two major industry conferences in Q1 (Mobile World Congress and RSA Conference), which generated strong positive customer feedback on its converged cybersecurity and network intelligence offerings and AI-enabled security road map, and helped expand the sales pipeline for the remainder of the year. ### Market and Competitive Positioning * The rapidly evolving cyber threat landscape, amplified by AI tools, has significantly expanded the attack surface for consumers, SMBs, and enterprises, creating strong demand for Allot's differentiated network-native, always-on cybersecurity solution. Allot's SECaaS platform requires no end-user configuration, delivers real-time seamless protection that scales with operator subscriber bases, and fills an unmet need in underserved consumer and SMB segments.

Guidance

- Full-year 2026 total revenue guidance is maintained at $113 million to $117 million, and management now expresses increased confidence in achieving results toward the upper end of this range following the strong Q1 performance. - Full-year 2026 gross margin guidance is maintained at 70%, with management expecting gross margin to trend higher over time as SECaaS (which carries higher margins) grows as a percentage of total revenue. - Management updated its SECaaS growth outlook, now projecting 40% or higher year-over-year SECaaS revenue growth for 2026, up from prior commentary calling for robust double-digit growth, driven by stronger than expected Q1 growth that improved visibility. - Full-year 2026 profitability improvement is still expected, driven by inherent operating leverage in Allot's business model.

Segment performance

Total Q1 2026 revenue was $26.4 million, up 14% year-over-year. The Security-as-a-Service (SECaaS) segment generated $8.7 million in revenue, an increase of 71% year-over-year, contributing 33% of total revenue. SECaaS annual recurring revenue (ARR) as of March 31, 2026 was $33.7 million, up 59% year-over-year. The Smart product segment is the firm's other core segment, which is complementary to the cybersecurity platform; it includes the Tera III next-generation network gateway product line, with large multimillion-dollar multiyear projects that deliver stable long-term revenue. Recurring revenue in total (driven primarily by SECaaS) represented 67% of total Q1 revenue.

Risks & headwinds

- Forward-looking statements are not guarantees of actual results; actual outcomes may differ materially due to changing market trends, delays in service launches by Allot's communication service provider (CSP) customers, reduced customer demand, and the competitive nature of the security services industry, in addition to other risks outlined in Allot's SEC filings. - SECaaS growth depends on CSP customers' go-to-market activities, launch timelines for new services, marketing execution, and end-user adoption rates, which are outside of Allot's direct control, creating uncertainty for near-term growth projections. - Allot has operating expenses denominated in Israeli shekels, and currency exchange rate fluctuations could impact profitability, though the company has fully hedged its currency exposure for 2026.

Analyst Q&A

• Q: How is the company's sales and R&D investment allocated, and how does the firm balance this investment with maintaining operating leverage? /

  A: The primary R&D focus is adding new cybersecurity engines (including network firewall, DDoS protection, AI-powered threat protection, and identity monitoring) to enable upselling/cross-selling to the existing customer base. Geographically, investment prioritizes demand in developed markets while also building capability for growing demand in developing markets. Operating leverage is improved by using the existing global sales team (already supporting hundreds of Smart customers) to upsell security solutions, increasing operational efficiency as revenue grows, strengthening gross margins and expanding profitability.

• Q: Is the strong Q1 operating cash flow driven by outsized bookings, and what is the current status of backlog relative to prior periods? /

  A: Strong cash flow reflects a multi-quarter trend of expanding profitability, plus one-time milestone advance payments from large Smart projects won in 2025 that reached execution milestones in Q1 2026. Allot does not disclose quarterly backlog levels, but strong current demand is reflected in management's increased confidence in hitting the upper end of full-year guidance and raising the SECaaS growth projection.

• Q: What is the expected linearity of 2026 incremental SECaaS ARR growth, and what drivers are behind this growth? /

  A: SECaaS revenue is expected to grow roughly linearly over 2026, with stable sequential growth. The majority of 2026 growth comes from organic expansion of existing launched services, through higher end-user attach rates and traction. New customer wins will mostly support growth in 2027, due to the lag between winning a contract, implementation, and end-user service ramp-up, alongside smaller contributions from upselling new capabilities to existing customers.

• Q: Why does Allot not provide formal standalone SECaaS ARR guidance, given it is the company's core strategic growth driver? /

  A: SECaaS growth is heavily dependent on Allot's CSP customers' decisions around launch timing for new services, their marketing activities, and end-user adoption, all factors outside of Allot's direct control. Current Q1 performance gives enough visibility to confirm 40%+ full-year revenue growth, and the company will update its outlook as visibility improves over the course of the year, while SECaaS remains the company's top strategic growth priority.