Allot Ltd (ALLT) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to our Allot's 4th quarter, 2024 results conference call.

(Operator Instructions).

As a reminder, this conference is being recorded.

You should have all received by now the company's press release.

If you have not received it, please contact Allot's Investor Relations team at EK Global Investor Relations at 1-212-378-8040 or view it in the news section of the company's website at www.allot.com.

I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations.

Mr. Green, would you like to begin, please?

I'd like to welcome all of you to a Allot's 4th quarter and full year 2024 results conference call.

I would like to thank Allot's management for hosting this conference call.

With me today on the call are Mr. Eyal Harari, CEO; and Mrs. Liat Nahum, CFO.

Following Eyal's prepared remarks, we will open the call for the question-and-answer session.

And both Eyal and Liat will be available to answer those questions.

You can all find the highlights of the quarter, including financial highlights and metrics, including those we typically discuss on the conference call in today's earnings release.

Before we start, I'd like to point out the following Safe Harbor statement.

This conference call may contain projections of other forward-looking statements regarding future events or the future performance of the company.

Those statements are early predictions, and a lot cannot guarantee that they will in fact occur.

A lot does not assume any obligation to update that information.

Actual events or results may differ materially from those projected, including as a result of changing market trends, delays in the launch of services by a lot customers, reduced demands, and the competitive nature of the securities services industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission.

Also, the financial results in this call will be presented mainly on a non-gap basis.

Alott believes that these non-gap financial measures provide more consistent and comparable measures to help investors understand a lot's operating performance in the quarter.

For all the data, please refer to the financial tables published in the results press release issued earlier today, which also include the GAAP of non-gap financial reconciliation tables.

And with that, I would now like to hand the call over to Eyal Harari, CEO.

Thank you, Kenny.

I would like to welcome all of you to our results conference call and thank you for joining us today.

We are very pleased to report strong 4th quarter in full year 2024 results, demonstrating that a lot is at a key inflection point in its turnaround.

Our 4th quarter revenues increase both year over year and sequentially, representing a return to revenue growth.

For the full year of 2024, we reported revenues at a similar level to those of last year.

A strong contributor to revenues was our growth engine, the security as a service solution seek us, consistently growing sequentially year over year.

For the full year, SICA contributed revenues of $16.5 million, up 56% over the previous year, and the ARB rent was $18.2 million, up 43% year over year.

We brought the gross margins back to the lot's long-term range of around 70%, a significant recovery from around 57% in 2023.

Our results showed the return to profitability with a non-gap net income of $5.6 million for the year versus a loss of $53 million last year.

Importantly, we reported positive cash flow generation for the first time in several years, generating 4.8 million in 2024.

As a result, our year-end cash position increased to $59 million, a positive trend that we expect to continue going forward.

I would very much like to thank the fantastic team a lot for their hard work through the past year supporting and bringing about the successful turnaround.

I admired their determination and dedication, which was key in achieving the strong results of 2024.

I'm incredibly proud of what we have accomplished together, and I look forward to building on this momentum in the years ahead.

Our security first strategy and renewed go to market focus are gaining strong traction and momentum.

A recent highlight was securing significant new contracts, which included major telecom operators in key markets.

I'm especially excited with our recent win with Verizon, which I will elaborate on in a few minutes.

A lot continues to gain strong traction among telcos and CSPs as we work closely with them to market our cybersecurity solution and help their end consumers adopt our solutions.

The continued success of CIA demonstrates that consumers and small businesses appreciate the importance of being seamlessly and fully protected by their service provider.

As we move through 2025 and continue to successfully advance our security first strategy, allot is well positioned and very much at an inflection point of a new long-term trend of growth and profitability.

Today, our smart product line is sold as part of our unified Security first business structure.

It is a solid product built on a lot's excellent technology and years of innovation, and it continues to provide significant revenue to a lot.

Looking ahead, we expect a stable level of revenue from our smart product line during the coming year.

While this product line, long term visibility is less predictable than our product line, we have a solid pipeline in 2025, and we believe there is a potential for upside.

Now moving over to our growth engine, our seeker offering.

Our seeker revenue continues to grow, contributing an increasing share of our business as each quarter passes.

Looking ahead to 2025, we expect another year of strong double digits revenue and ARL growth and improved profitability.

Growth will be driven largely by our extensive and growing list of top tier customers launching our solution as well as the increased traction of our security solution among the subscriber basis of those customers.

We have a strong pipeline of opportunities that we are working on, some of which we hope to convert to new contracts in the coming quarters.

To demonstrate our growing momentum and strong corruption, I want to highlight a few examples of recent service provider launches in our CAs business.

We were very happy to announce the signing of a new agreement between Allott and Verizon Business, in which a lot will support them with cybersecurity solutions for their mobile phone business customers.

We are part to partner with Verizon, one of the largest and most prestige wireless providers in the United States and the world.

Since late 2022, we have partnered with Verizon to provide our network-based cybersecurity protection to Verizon Business fixed wireless access customers, giving 1.5 million subscribers the option to use our service.

This service has experienced strong adoption over the past year and continues to grow among the Verizon Business customer base.

This new agreement makes our solution potentially available to the extended Verizon Business mobile customer base.

As of 2024, year end, Verizon Business reported over 30 million subscribers representing significant targeted addressable market and long-term growth opportunities for a lot.

Our network secure product will support Verizon Business, expand security capabilities, offering the customers zero touch protection from a wide range of cyber threats.

We have built a solid, strong wealthy relationship with Verizon Business, and we hope to extend our collaboration with them further over the coming years.

In November, we announced a new contract with Vodafone UK, and our relationship with them continues to grow.

Together we launched a protection service to fix broadband customers.

Complementing the cybersecurity protection they already provide to mobile customers all bills on a lot services.

Our solution enhances stress protection across both Vodafone UK mobile and broadband networks and costs all customer devices on the home network.

In only a few months since launch, our solution has gained strong traction and notably increased customer satisfaction at Vodafone UK.

Last month to Czech Republic, part of PPF Group.

Launched a cybersecurity solution for both mobile and fixed broadband customers powered by a low DNSQ. 2 is now the fifth operator of PPF Group to deploy our security solution, further strengthening our footprint within the group.

Last quarter, I discussed a lot of new organizational structure and strategy for new growth.

I will recap our strategy, especially for new investors.

A lot is becoming security first company, operating under one unified business unit.

Our foundation is deep expertise and proven capabilities, combining two key areas, cybersecurity and network intelligence.

We have been working hard to leverage synergies between our existing network intelligence assets and our security offering, including integrated cloud-based solution, focused on network visibility, traffic management, and cybersecurity for the 5G era.

The combination creates a compelling value proposition, enabling us to deliver a highly differentiated, fully integrated solution, one that only a handful of companies worldwide.

Can mention For example, we see strong value in offering CSP customers, traditionally network intelligence customers, a combined offering that enhance the ability to protect networks while maintaining the deep visibility into traffic.

Target threats are constantly expanding and finding new ways to take advantage of the consumer.

We are looking to stay ahead of those threats by broadening our security offering to offer a 360 degree cybersecurity protection both on and off net.

Today Telco customers can seamlessly provide cybersecurity to end users while connected to their networks.

Our vision is that our customers will be able to provide consumer with the protection at all times, whatever network they choose to use.

Our product and R&D teams are constantly working to broaden our security as the service offering, looking to add ever going value to our customers to ensure our solution maintain its unique valuable position.

With our strong market presence, expanding portfolio of innovative solutions, and agility in meeting customer needs, we are well positioned to win new customers, while also continue to expand within our existing customer base.

This brings me to our customer centered go to market approach.

We have structured the organization to better support evolving customer demands.

Our marketing and sales team now have a regional focus on sales and customer success, empowering them to function more effectively while enabling a more personalized approach.

We believe this new structure is already creating opportunities for us, expanding our install base, and attracting new customers.

In summary, we are pleased with our performance in 2024.

Culminating in a strong 4th quarter with double digits revenue and ARL growth and a positive profit and cash flow.

It is clear that a lot is a key inflection point of profitable growth following our first profitable year on a longer basis in a very long time.

Our security offering continue to gain momentum.

As is demonstrated by recent new contract wins and service launchers as leading customers, our unified security for strategy integrating cybersecurity and network intelligence differentiates us in the market, delivering fully integrated solutions that widely enhance value for both existing and new customers.

Looking ahead to 2025, we remain focused on advancing our strategy and executing on another year of double-digit seekers revenue and ARR growth and improved profitability.

I'm increasingly optimistic about the expanding opportunities ahead.

And now I would like to hand it over to our CFO Liat Nahum for the financial summary.

Liat, please go ahead.

Thanks.

We reported revenue of $24.9 million in the quarter.

Up 2% year over year for 2024 we reported revenues of $92.2 million just 1% below those of 2023.

Revenue from our gas engine CIA were $4.8 million in the quarter, in line with our expectations and up 49% year over year, comprising 19% of our revenue in the quarter.

Our annual recurring revenues as of December 2024 were $18.2 million.

I will now discuss the non-gap financial measures for all our financial results, including the GAAP financial measures and the various other breakdowns of our revenue, please refer to the table in our results press release.

Our non-gap gross margin in the quarter was 69.7%, a significant improvement from 51.7% in the fourth quarter of last year.

For the full year, gross margin dramatically improved to 70.6% versus 59.6% last year.

While the non-gap gross margin depends on the specific product mix sold in the quarter, our expectation for gross margin in the coming year is in the range of 70%.

We reduced expenses considerably over the past year, with the non-gap Opex at $15.6 million 47% below those of fourth quarter of last year.

Full year 2024 OEC was $64.4 million versus $111 million in 2023.

Allotted 504 full-time employees as of December 2024.

We reported a non-gap operating income of $1.8 million which is a significant improvement compared with the non-gap operating loss of $17 million in Q4 last year.

For 2024, we reported a non-gap operating income of $0.6 million versus $55 million non-gap operating loss in 2023.

In terms of non-gap net profit, we reported $2 million in the quarter or a profit of $0.05 per diluted share as compared with a non-gap net loss of $16.5 million or a loss of $0.43 per share in the fourth quarter of last year.

For 2024 we reported a non-gap net income of $1.6 million or $0.04 per diluted share versus a non-gap net loss of $53.3 million or a loss of $1.41 per share in 2023.

We reported positive operating cash flow in the fourth quarter of $4.1 million and a positive operating cash flow of $4.8 million in 2024.

Cash, short term bank deposit, and investment as of December 31, 2024, totaled $58.8 million versus $54.8 million as of year in 2023.

That ends my summary.

Eyal and myself would now be happy to take your question.

(Operator Instructions)

The first question is from Neha Chokshi from Northland Capital Markets.

All right, thank you.

Hey, congrats on a strong free cash flow generation for the quarter.

What would you say is the driver of that?

Thank you, Neha.

We did see continuous growth on the figures, and it's mainly based on Our goals with the existing customer base as well as the new announcement on new service since launch that we mentioned with the customers like Vodafone, MO, and 02.

Obviously, some of the one of the most exciting announcements about Verizon is something that will contribute more revenue and go in the future but is not yet contributing to this quarter numbers.

So we see that the goth engine is producing the goals we expect.

As both we new accounts, we need new services within the existing accounts and expanding the adoption of the end customers within the existing services of the existing.

So all of them are working towards the additional goals, and this will yield the overall very nice goals this year.

Okay.

So I did notice that, within the revenue segmentation provided.

Support and maintenance was up almost 4 million Q to Q, that's one of the biggest amounts, I think, in a long time.

What was the driver of that increase?

Was this basically the new customers that were being onboarded?

So, support and maintenance is mainly based on our smart product line as the CCA is such model and does not support, does not provide any support and maintenance revenue.

Reason is that due to Q4 catch up on support and maintenance agreement.

Typically end of the year we have a strong.

Strong results there and this is similar level to what we had last year.

I see.

Okay, as for renewals of agreement that we managed to do, leveraging the end of the year to win that.

I see, so in in in terms of like this catch up, it was actually a positive cash flow contributor though, it's, it wasn't just simply an accounting reflection.

No, it's orders that we received that increased our business on support and maintenance.

Both cash and revenue.

Got it.

Okay, and then product revenue that was down 55% year to year, why is that?

Oh, can you repeat the question?

Product revenue was $4.8 million for the December quarter.

I believe that was down 55% year to year.

Why is it down so much?

You ask him to take it.

Yeah, sure.

So, as we stated also in previous quarters, our products revenue, which is mainly the, BTI base, is, can fluctuate between quarters and it really depends on specific deals in each quarter.

In general, we can say that of course, as you can see, each quarter the CCA revenue, percentage out of the total is increasing, and therefore.

Or it impacts the rest of the percentages but overall, it really depends on the specific quarter, the seasonality.

And if we have specific CPI, large fields.

Okay, all right, and so.

Should we be thinking looking at the December quarter, year trajectory as an indicator of how things are going to go for calendar 25 in terms of the product revenue, or is that more a reflection of the lumpiness and how would you suggest thinking about product revenue starting in calendar 25 then?

So I believe that as I mentioned in my previous 230 months, the small product line, as it's harder to predict and it can fluctuate between quarters.

I think that the current quarter is a good baseline.

What we see is where we are more consistent and growing is around the CIA, so this should continue to grow in high double-digit rates, and we expect similar level of smart business to continue with less visibility, which means that there could be an upside due to some.

From pipelines we have, but on a quarterly level, this would still fluctuate.

This is no recurring revenue.

Yes, understood.

And then when you say CCATs continue to grow in high double-digit rates.

I mean, does high double digit mean 11%, or do you mean like more like, 30% like what you have been doing?

This year we were doing 40%-50%, and we, our goal is to maintain this success.

It's a lot depends on the adoption of the service around those new wins we had and continue to execute well and win new accounts.

If we look on the recent announcement we made around Verizon earlier.

This would be an amazing opportunity for us to really scale our security service offering to millions of customers.

The pace is very hard to predict.

It always depends not only on us, but on the service provider in the channel, but definitely we have all the with all the recent winds, we are very well positioned to keep similar growth rates, and we are targeting to continue to work and execute well to maintain it in the next years to come.

Got it.

And then when you talk about this, Verizon business mobile internet security offering and that this, base of 30 million customers, is that base their growing and then do you have a sense as to what are the growth ads for that portion of Verizon business versus their fixed wireless access that I believe has been feeding largely your $1 million per quarter incremental Aarar and CCAS.

Yeah, so the mobile industry as a whole doesn't grow much as opposed to the FWA, which is a niche service that is growing.

I believe we can look at this as a stable install base, but a 10 of 330 million customers is now have the option to join our cyber protection services, and I think this is definitely a very significant opportunity for us.

We just announced.

On this new service, we don't have yet statistics on the tax rates and of course it's a lot depends on how Verizon would market it to their customers.

They are working on different go to market strategies, but wireless access today is only 1.5 million lines, and then we are talking about 30 million devices, and I think it's not only about this new service, it's also very important that it cement our relationship with Verizon and shows their satisfaction from the solution that they want to expand our cyber protection to all of their customers and we are going to work closely with them.

To ensure they are delighted from our solution and hopefully we have More services we can potentially tap and protect more of their customers and more of their services.

So this is really exciting opportunity for us.

Okay, do you have a sense as far as what is the rate of gross ads for that, 30 million base?

I mean, there's a churn rate and so if it's a stable base there's usually some churns.

I think it's good for the sake of exercise you can assume 30 million is a fair estimate and you share information on their financials that you can view, but it's quite stable base.

And the question is now how to market this new add-on service to their customer and there are not necessarily just on assuming growth within this space or a replacement within this space.

Okay, all right, and then, your incremental ARR for the December quarter was $1 million versus the September quarter being $2.6 million.

So, and I realized that the September quarter was a record quarter, unusual quarter, but can you just go over the drivers of that, tick down in the incremental AR?

So, as I mentioned, incremental comes by winning new accounts and launching new services and adoption within the services.

Some of the, it's not linear growth because once we introduce new service that creates some higher growth and for example last quarter we announced on Vodafone, and this creates some time accelerated growth for the quarter.

Yeah.

So Nothing specific that more that I can share.

We don't expect to see, steady growth.

We still work with loud channels.

The telco is a channel, and opportunities are relatively big.

So, in some quarter we could see accelerated growth and in some more modest, but overall, we are looking to keep strong double digit growth rate.

And just to be clear, that means then that the December quarter did not have any material new customer launches or segments launched within those customers?

Some launches happen and they will contribute only in one, for example, there is always the timing as when you launch the service there are no customers, then you need to add the customers.

Now it all depends on campaigns.

If the customer is offering different campaigns to increase the tax rate, it increases uptake.

So there are a lot of moving fast and because we are working with loud channels.

Sometimes, if you have a promotion with a significant customer, it creates, faster, increase in the quarter and, if you are, and it's not that you can expect it to be the gross quarter over quarter.

Okay, all right, I realize I've asked a lot of questions here.

I do have more questions, but I want to give others a chance to ask questions, so I'll just get back in the queue here.

Thank you.

Thank you, Neha.

The next question is a follow-up question from Neha Chokshi from Northland Capital Markets.

All right guys, thanks, so just a few more cleanups here.

So gross margin did tick down 200 basis points QQ to 69.7%, I presume that that's product revenue driven, is that correct?

Yes, correct, our gross margin is, dependent on the product mix and even from the, product they sell in the quarter.

Okay, and what gives you confidence that it was product mix as opposed to potentially some new elements of pricing pressure on the product?

No, I think that you saw the improvement year over year, we had a tremendous turnaround, and we got to the 70% range.

It can still change slightly between the quarters, but this is on the yearly level the numbers that we are expecting to be in the 70s, and long term, we expect this to further improve with scale and with more customer, more revenue portion coming from the figures that in general it's higher gross margin by nature because this is the service as opposed to the.

Small product line that is sometimes has higher cost components.

I would say that on a yearly level we expect to see similar gross margin with some improvement over time with growth and move of revenue between the product revenues into the CCA revenue.

Okay, so are you seeing Sandvine coming back into the market.

What, what's, what are you seeing on the competitive front, from the smart product line then?

We don't refer to any comment on competition.

Obviously, we are, we believe we have good product, and we have strong pipeline for our products.

We continue to work with multiple existing and new customers and potential expansions.

We are not trying to go into low margin deals or price wars as we are focusing on the IT customers and.

Customers that can be assertive to our business.

Ian as a good solution, and I wish them the best, and we are continuing to make our most focused on the security first strategy, which is anyhow we are facing new competitors and new markets, and this is where most of our efforts are.

Okay, great, and then OpEx for the quarter $15.6 million on a non-gap basis, flat Q, does it make sense for a lot to start to now invest in OpEx as the securities and service is driving the growth here?

Actually, this is an important question is I believe that what we did this year is mainly focused on the internal transformation.

I believe now we have the good fundamental model to allow us to be well positioned for the next year growth.

We change, we focus on some area, and we are looking to further grow over time.

The growth is going to be mainly in driving more investment towards our growth engines, both on the go to market side and R&D.

On the coming few quarters, I believe you can still see some of the saving in parallel to some of the new investments, so.

I would say that overall, on the numbers it should be flattish with some increase towards the last part of the year.

I think that's everything I learn.

Oh, actually, one other thing, you mentioned that you're, looking to broaden your security offering.

Can you detail a little bit more on, how you're going to do that?

So we are working and investing R&D around innovative ideas.

I mentioned in my previous comment, one of the most important part for us is to see how we can make sure that the customer is always secured as providing security from the network side, we are providing excellent protection for the customer while he's on its network.

What we identify that some of the operators are.

Looking to see how they can expand their security reach also to when the customer is off the network, and this is an area we are trying to bring new innovation.

This is an area we envision that we can provide more value, how we can still.

Connect the customer to the network for security protection while the customer is now on his Wi Fi or other network that is not the service provider wants.

This is critical for the CSPs to improve their customer retention and satisfaction, and we are working on some ideas on this direction which we'll share later in the year once we are getting closer to product launch.

Yeah, to be clear at this point in time, the telecom customers provide the off-network security protection through a third party security product, that is not necessarily as well integrated as what you're basically envisioning here.

Yes.

Got it.

Okay, very good, thank you very much.

The next question is from David Canan of Canaan Wells Management.

Please go ahead.

Hi guys, thanks for taking my questions and congratulations.

I know that in the last segment you were asked about attachment and you kind of took a pass on that, but could you address it a different way, possibly like with Verizon, based on turning on other carriers in the past, what kind of attachment did you get?

And then is this done primarily at the point of activation when somebody upgrades their phone or they subscribe for a new service and they, are turning it on or activating it, is that typically when they would uptake for security?

Thank you.

Thank you, David.

So, it really depends on the go to market of the of the of the CSP and there are many considerations.

It depends if they offer it as an opt in or opt out, obviously definitely affect the tax rates.

Different operators choose the different ways.

Some of them are trying to combine it with the selling of new service, and typically you do need a compelling event to.

To make the customer join new services, even if he's changing his plan or his device or joining the service, I would say that based on past experience with operator, we see that at peak we get close to 50% attach rates.

Typically, if the operator is doing a decent job and take it strategically, 15% to 20% are definitely our average attachments of customers and it's then.

Mainly based on how they opposition is if it's in a a paid add-on in an opt in, it's usually slower uptake.

If it's an opt out, it's much faster, if it's bundled with a package, then.

We go with the package that it is attached and so on and so on so.

Different methods to see, but some of the statistics we shared in the past is to see that peak attachments get close to 50% and average I believe is around 15% 20%, 25% very reachable goal.

Okay, thank you for explaining that.

And then if I could ask a question about your DPI legacy business with the troubles that Sandvine, has experienced as of late, and then you have some upgrades and integration with your new offering.

Do you expect for 2025 that this is a business that could actually start growing, albeit modestly, or is something that will continue to contract?

Oh, it's, in my pre in my prepared remark I mentioned we are looking to best estimate is to have similar level.

If you ask me whether there could be an upside, definitely there could be an upside.

It really depends on winning the new projects and the timing of the revenue.

We do see more opportunities in the pipeline based on our engagement with different customers.

We do invest in.

And part of the change to move into regional structure they gave us more market focus and more engagement with customers that we see that generate us some nice opportunities in the part time, but this being said, predictability of this business is is much lower, and visibility is different because we it's not recurring business and it's really depends if we win the project or not.

So currently, we estimate similar level, but there could be an upside, based on some customer success, and depends on the scale of the projects we win.

I hope this.

Yeah, that's helpful the way you answered it.

And then last question is, in your prepared remarks you said something like we have a strong pipeline that we expect to convert, and I believe you were referring to CCA.

So, are you indicating that you have a strong pipeline of CCA?

Prospective C customers similar to MO and Verizon and a large Japanese carrier recently landed, is this incremental, and could you give us a little more color on that and quantify it and maybe what the TAM is there?

So, the comment was generic, and we have a mix of opportunities both on the speakers for new services within our existing customers.

We have new speakers.

Potential customers, we have also new small potential customers and.

I think we are starting the year very well positioned.

Strong to address those opportunities and nothing more that I can add on at this point.

Okay, thank you, we wish you well and look forward to chatting next quarter.

Thank you.

Thank you, David.