20-F: Allot Ltd. Reports FY2024 Results: Focus Shifts to Security Solutions Amidst Revenue Dip

Allot Ltd. reports a slight revenue decrease in 2024, pivoting towards security-first strategy with unified business unit.

Summary

• Allot Ltd., a provider of security and network intelligence solutions, reported its FY2024 financial results.
• The company is shifting its strategic focus to become a security-first company with a unified business unit.
• Total revenues for 2024 were $92.2 million, a 1% decrease compared to $93.2 million in 2023.
• Security solutions accounted for 36% of the total revenue in 2024, while network intelligence solutions contributed 64%.
• The company had a net loss of $6 million in 2024, compared to a net loss of $63 million in 2023.
• Approximately 43% of the company's revenues were derived from channel partners in 2024.
• As of December 31, 2024, the company had $16.1 million in cash and cash equivalents, $26.5 million in available-for-sale marketable securities, and $15.3 million in short-term deposits.
• The company believes its existing cash balances will be sufficient to meet anticipated cash needs for at least the next twelve months.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there's a decrease in revenue, there's also a significant reduction in net loss and a strategic shift towards a higher-growth area. The company also believes its existing cash balances will be sufficient to meet anticipated cash needs for at least the next twelve months.

Positives

• The company is strategically shifting towards a higher-growth security-first model.
• The net loss significantly decreased from $63 million in 2023 to $6 million in 2024.
• Service revenues increased by 12% in 2024, driven by the SECaaS solution.
• Gross margin increased from 56.6% in 2023 to 69.1% in 2024 due to cost reduction efforts.
• Research and development expenses decreased by 34.4% due to workforce reduction and cost structure alignment.
• General and administrative expenses decreased by 63.4% due to higher credit losses in 2023 and workforce reduction.
• The company believes its existing cash balances will be sufficient to meet anticipated cash needs for at least the next twelve months.

Negatives

• Total revenues decreased slightly by 1% to $92.2 million in 2024.
• Product revenues decreased by 20% in 2024.
• The company still reported a net loss of $6 million in 2024.

Risks

• Unfavorable economic conditions in the markets in which the company operates could have a material adverse effect on its business.
• The company's international operations expose it to the risk of fluctuations in currency exchange rates.
• The invasion of Ukraine by Russia, and related disruptions to the global economy and financial markets, could adversely affect the company's operations.
• The company may not be able to achieve or maintain profitability in the future.
• The company's future growth and prospects depend significantly on its ability to grow revenues from recurring revenue deals such as Security-as-a-service (SECaaS) and other as a Service offerings.
• The company's revenues and business may be adversely affected if it does not effectively compete in the markets in which it operates, or expand into new markets.
• The company's revenues and business will be harmed if it does not keep pace with changes in broadband applications, network security threats and with advances in technology, or if it does not achieve widespread market acceptance, including through significant investments.
• The company's revenues and business from the enterprise market may be adversely affected by new market and technology trends, including public cloud adoption and the transition to 5G networks.
• The company's revenues and business may be adversely affected due to decline in revenues and profits of CSPs.
• The growth of aging receivables and a deterioration in the collectability of these accounts could materially and adversely affect the company's results of operations.
• The company depends on its network intelligence solutions for the substantial majority of its revenues.
• The company depends on one or more significant customers and the loss of any such significant customer or a significant decrease in business from any such customer could harm its results of operations.
• Sales of the company's products to large service providers can involve a lengthy sales cycle, which may impact the timing of its revenues and result in it expending significant resources without making any sales.
• The complexity and scope of the solutions the company provides to larger service providers are increasing, and such larger projects entail greater operational risk and an increased chance of failure.
• Continued salary increases of research and development personnel could adversely affect the company's ability to recruit such employees and could have an adverse effect on its business and revenues.
• The company's technology faces challenges due to increased network encryption.
• The company needs to continue to increase the functionality of its products and offer additional features and products to maintain or increase its profitability.
• A failure of the company's products may adversely affect the operation of its customers' live networks or the quality and scope of service to its customers and their end users, including, specifically with regard to security protection which could materially harm its reputation, brand position, and financial condition.
• The company's products are highly technical and any undetected software or hardware errors in its products could have a material adverse effect on its operating results.
• Demand for the company's DNI technology enabled products depends, in part, on the rate of adoption of bandwidth-intensive broadband applications, and the impact multiple applications may have on network speed.
• Demand for the company's security products depends, in part, on continued evolution of on-line threats as well as on operators' interest in providing security services to their end customers.
• The company depends on third parties to market, sell, and install its products and to provide initial technical support for its products for a material portion of its business.
• The company integrates into or bundles various third-party solutions with its products and may integrate or offer additional third-party solutions in the future. If it loses the right to use such solutions, its sales could be disrupted, and it would have to spend additional capital to replace such components.
• The company currently depends on a limited number of subcontractors to integrate, assemble, store and service, as well as provide hardware and warranty support for, its Service Gateway platform and Network Management System. If any one of these subcontractors experiences delays, disruptions, quality control problems or a loss in capacity, its operating results could be adversely affected.
• Certain hardware and software components for the company's products come from single or limited sources and it could lose sales if these sources fail to satisfy its supply requirements or if its customers refuse to implement components from certain sources.
• The company is subject to certain regulatory regimes that may affect the way that it conducts business internationally, and its failure to comply with applicable laws and regulations could materially adversely affect its reputation and result in penalties and increased costs.
• As with many DNI products, some of the company's products may be used by governmental or law enforcement customers in a manner that is, or that is perceived to be, incompatible with human rights.
• Demand for the company's products may be impacted by government regulation of the internet and telecommunications industry.
• The company's failure to comply with data privacy laws may expose it to reputational harm and potential regulatory actions and fines.
• If the company is unable to successfully protect the intellectual property embodied in its technology, its business could be materially adversely affected.
• The company uses certain open source software tools that may be subject to intellectual property infringement claims, the assertion of which could impair its product development plans, interfere with its ability to support its clients or require it to pay licensing fees.
• Disruption to the company's IT systems could adversely affect its reputation and have a material adverse effect on its business and results of operations.
• The company may be subject to claims of intellectual property infringement by third parties that, regardless of merit, could result in litigation and its business, operating results or financial condition could be materially adversely affected.
• The share price of the company's ordinary shares has been and may continue to be volatile.
• The company's shareholders do not have the same protections afforded to shareholders of a U.S. company because it has elected to use certain exemptions available to foreign private issuers from certain corporate governance requirements of the Nasdaq Stock Market (Nasdaq).
• As a foreign private issuer, the company is not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
• Certain U.S. holders of the company's ordinary shares may suffer adverse tax consequences if it or any of its non-US subsidiaries are characterized as a controlled foreign corporation, or a CFC, under Section 957(a) of the Internal Revenue Code of 1986, as amended (the Code).
• Your percentage ownership in the Company may be diluted in the future because of equity awards that have been, or may be, granted to our directors, officers and employees.
• The company may fail to meet its publicly announced guidance or other expectations about its business, which could cause its share price to decline.
• The issuance of ordinary shares upon conversion of the Note (as defined below) could substantially dilute your investment and could impede our ability to obtain additional financing.
• The company's indebtedness and liabilities could limit the cash flow available for its operations, expose it to risks that could adversely affect its business, financial condition and results of operations, restrict its ability to incur additional indebtedness and impair its ability to satisfy its obligations under the Note.
• Provisions in the Note could delay or prevent an otherwise beneficial takeover of the company.
• Conditions in Israel could adversely affect the company's business.
• The company's operations may be disrupted by the obligations of personnel to perform military service.
• The tax benefits that are available to the company require it to meet several conditions and may be terminated or reduced in the future, which would increase its costs and taxes.
• The government grants the company has received for research and development expenditures require it to satisfy specified conditions and restrict its ability to manufacture products and transfer technologies outside of Israel. If it fails to comply with these conditions or such restrictions, it may be required to refund grants previously received together with interest and penalties and may be subject to criminal charges.
• It may be difficult to enforce a U.S. judgment against the company, its officers and directors, or its auditors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on its officers and directors or its auditors.
• Provisions of Israeli law and the company's articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of its shares or assets.
• The company's financial results may differ materially from any guidance it may publish from time to time.
• The company's financial condition and results of operations may be harmed by political events and regulatory developments that could have a material adverse effect on global economic condition.
• The company may expand its business or enhance its technology through acquisitions that could result in diversion of resources and extra expenses. This could disrupt its business and adversely affect its financial condition.
• The company's business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect its results of operations and share price.
• London Interbank Offered Rate (LIBOR) and other interest rates that are indices deemed to be benchmarks are the subject of recent and ongoing national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective, while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or to disappear entirely as in the case of LIBOR, or have other consequences that cannot be predicted. Any such consequence could have a material adverse effect on our future debt linked to such a benchmark and our ability to service debt that bears interest at floating rates of interest.
• If the price of the company's ordinary shares declines, it may be more vulnerable to an unsolicited or hostile acquisition bid.
• Adverse resolution of litigation may harm the company's operating results or financial condition.

Future Outlook

The company forecasts significant future expansion of its SECaaS business and aims to increase the number of recurring security revenue deals.

Industry Context

The company operates in the competitive networking technology and security markets, facing competition from larger companies and evolving industry standards.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or competitors.
• It mentions competition from router and switch infrastructure companies, established security companies, and companies offering cloud security products.
• It also notes that some competitors have greater financial resources and established relationships with operators and distribution channels.

Legal Proceedings

• The company is involved in a civil claim filed by two founders and six employees of Netonomy Ltd., alleging breach of the share acquisition agreement.
• The company signed a settlement agreement with the two founders in which the company will be pay both founders an amount of $ 260 and the founders will waive their claim.
• There are ongoing legal proceedings against the rest.

Related Party Transactions

• The company acquired services from Galil Software, a related party, amounting to $325 in 2023.
• The company has an outstanding senior unsecured promissory note with Lynrock Lake Master Fund LP, a major shareholder.

Stakeholder Impact

• Shareholders may experience dilution due to potential conversion of the senior unsecured promissory note.
• Employees may be affected by workforce reductions and changes in compensation structures.
• Customers may benefit from the company's focus on security solutions and improved service offerings.
• Suppliers and subcontractors may be impacted by changes in the company's business strategy and cost reduction efforts.

Next Steps

• The company will need to expand the number of recurring security revenue deals and the end user penetration within existing customers to achieve the goals that it has set for its business.
• The company will need to persuade Communication Service Providers (CSPs) as to the benefits that Allot Secure can offer them in terms of driving additional revenue.
• Those CSPs, with the company's support, will then need to persuade their customers, consumers and small and medium-sized businesses, to subscribe for security services.
• The company expects that it will need to demonstrate the value that its services offer and add new features to both (i) retain customers in the face of competition and (ii) to capitalize on opportunities where CSPs currently using its competitors products are considering a change.

Key Dates

Keywords

Allot Ltd, financial results, security solutions, network intelligence, SECaaS, revenue, profitability, Israel, cybersecurity, financials