Allot Ltd. Q2 FY2026 earnings call

• Overall Financial & Growth Performance

  • The company achieved its fourth consecutive quarter of double-digit year-over-year revenue growth, with accelerating growth momentum relative to recent quarters
  • Non-GAAP operating income hit $2.7 million (9.9% operating margin), up from $1.2 million (5% margin) in Q2 2025; non-GAAP net profit was $4.6 million ($0.09 per diluted share), up from $1.5 million ($0.03 per diluted share) year-over-year
  • GAAP net income was $2.6 million ($0.05 per diluted share) in Q2 2026, compared to a GAAP net loss of $1.7 million ($0.04 per diluted share) in Q2 2025
  • Operating cash flow reached $8.5 million, more than doubling from $4 million year-over-year, driven by strong profitability and collections
  • The company holds $107 million in total cash/liquid investments with zero debt, creating a strong balance sheet

• Regional Performance

  • North America delivered standout performance, growing to represent 31% of total Q2 2026 revenue, up from 17% in Q2 2025 and 14% in Q1 2026. The region is a core strategic priority for the company, with strong growth in both sales and backlog.
  • Sequential revenue declines in EMEA and APAC were attributed to normal timing fluctuations related to large non-recurring product deal revenue recognition, and are within expectations.

• Product & Business Development

  • The SECaaS business executed a 'land and expand' growth strategy, securing 4 new EMEA-region deals in the quarter including new customer wins, upsells of new services to existing customers, and geographic expansion with existing partners. New offerings such as identity monitoring for SMB customers expand the company's cybersecurity suite beyond core network security.
  • The Tera III smart platform received strong customer feedback for its carrier-grade reliability, cost-efficient scaling for 5G and fiber traffic growth, and smooth upgrade path from older Allot gateway generations that protects customer investment. A recent case study for the platform's new zero rating fraud detection service found the solution reduced fraudulent traffic by 87%, helping operators recover lost revenue.
  • The company participated in multiple global industry conferences during the quarter, with positive customer feedback confirming that its unified 'cybersecurity first' strategy resonates with operators globally.
  • The Board of Directors approved a $40 million share repurchase program after completing the required waiting period with no creditor objections; repurchases will be executed at management discretion based on market conditions.

Total company revenue for Q2 2026 was $27.7 million, representing a 15% year-over-year increase.

• Cybersecurity as a Service (SECaaS): Q2 revenue of $9.4 million, growing 47% year-over-year. This segment contributed 34% of total company revenue. SECaaS Annual Recurring Revenue (ARR) as of June 30, 2026 was $36.1 million, up 44% year-over-year. Recurring revenue overall (including SECaaS and maintenance/support) represented 67% of total revenue in the quarter.
• Smart Product Line: This complementary segment delivered strong performance, particularly in the North America region this quarter. The segment includes the next-generation Tera III high-capacity multiservice gateway platform, with several large 7-figure deals translating into revenue during the quarter, supporting overall top-line growth.

• Full-year 2026 revenue guidance has been raised and narrowed to a range of $115 million to $118 million, from the prior range of $130 million to $170 million, driven by accelerating order momentum from North American customers, strong backlog, and continued high growth of the SECaaS segment.
• Full-year SECaaS revenue growth is expected to hit 40% or higher year-over-year.
• Full-year gross margin is expected to remain around 70%, with quarterly variation depending on product mix, consistent with prior expectations.
• Operating expense run rate is expected to remain similar to Q2 2026, excluding the one-time office lease modification cost recorded in the quarter.
• The company expects continued profitability improvement through the remaining quarters of 2026.

• Forward-looking statements included in the call are inherently uncertain, and actual results may differ materially from projections due to factors including changing market trends, delays in service launches by Allot's customers, reduced end customer demand, and the high competitive nature of the security service industry. Additional risk factors are disclosed in the company's SEC filings.
• Non-recurring large product deals create quarterly revenue fluctuations across regions, which can lead to sequential revenue volatility that does not reflect underlying long-term growth trends.
• SECaaS ARR growth quarter-to-quarter is dependent on the marketing execution and end customer onboarding activities of Allot's carrier partners, which can create variability in short-term growth outcomes.

Q: With operating cash flow more than doubling year-over-year but slightly down quarter-over-quarter, are there any unusual items in Q2 that investors should note? Also, can management give qualitative commentary on whether backlog is at an all-time high, given you do not disclose quarterly backlog metrics?

A: The elevated Q1 operating cash flow was driven by a one-time collection from a large deal signed the prior year. Q2 operating cash flow of $8.5 million had no unusual items, and reflects the ongoing strong cash generation from the SECaaS business model. Management confirmed annual RPO/backlog metrics are at very high levels following strong bookings over the past 12 months, and it is fair to assume backlog remains at historically high levels, with full annual metrics to be released in the yearly report.

Q: What is driving the strong recent performance in North America, is the strength sustainable, and what caused the large increase in top 10 customer revenue share this quarter?

A: Strength in North America came from both the recurring SECaaS business and non-recurring smart product sales. The extra outperformance this quarter was driven by large Tera III platform deals, which are 7-figure opportunities typically purchased by large Tier 1 carriers that push these accounts into the top 10 on a quarterly basis. The company remains strategically invested in North America for long-term growth, and the core recurring SECaaS business provides sustained, predictable growth, while product sales will continue to vary quarter to quarter as expected. The company maintains low customer concentration, with no customer representing more than 10% of revenue as of the last annual reporting.

Q: What is the market opportunity for the new identity monitoring service and zero rating fraud detection offering, and how does the company view these new offerings?

A: Identity monitoring is not expected to be a standalone game-changer, but it complements the company's core network security offerings to create a more comprehensive 360-degree cybersecurity portfolio, which helps attract new customers and drives upsell growth with existing customers. Zero rating fraud detection is similarly a new use case for the Tera III platform that helps operators justify platform investment by stopping revenue leakage, particularly in high-fraud developing markets, rather than being a standalone market opportunity. Both offerings strengthen the company's overall value proposition by expanding the functionality of its unified platform.

Q: What is driving demand for the Tera III platform, and how does SECaaS integration improve its competitiveness?

A: Demand comes from both new customer RFPs and refresh cycles from existing Allot customers growing their network capacity to support 5G and fiber. Tera III is a high-end platform for large 7-figure opportunities, with strong customer feedback for its cloud-native architecture, future-proof capacity, and ability to run both network intelligence and cybersecurity workloads on a single platform. Integrated SECaaS capabilities make the platform far more competitive than standalone network infrastructure offerings, particularly in a tight CapEx environment, because it allows multiple carrier teams (CTO, operations, CISO, product) to share a single infrastructure investment, and helps carriers monetize the platform through new security services to boost ARPU.