20-F: Allot Returns to Profitability in 2025 Amid SECaaS Growth

Allot Ltd. reported a net income of $3.7 million in 2025, a significant turnaround from a $5.9 million net loss in 2024, driven by increased revenues and improved gross margins.

Summary

• Net income reached $3.7 million in 2025, a substantial improvement from a net loss of $5.9 million in 2024 and $62.8 million in 2023.
• Total revenues increased by 11% to $101.993 million in 2025, up from $92.195 million in 2024 and $93.150 million in 2023.
• Service revenues grew by 14% to $70.981 million in 2025, primarily due to an increase in SECaaS solution recurring revenue.
• Product revenues saw a modest increase of 3% to $31.012 million in 2025, mainly from AllotSmart product deals.
• SECaaS revenues grew to $26.8 million in 2025, representing 26% of total revenues, compared to $16.5 million (18%) in 2024 and $10.6 million (11%) in 2023.
• Recurring revenues, including support and maintenance, increased to $62.8 million in 2025 from $53.8 million in 2024.
• SECaaS Annual Recurring Revenue (ARR) reached $30.8 million in 2025, up from $18.2 million in 2024.
• Gross profit increased to $72.552 million in 2025, with total gross margin improving to 71.1% from 69.1% in 2024, attributed to efficiency and revenue mix.
• Operating expenses decreased by 1.1% to $68.948 million in 2025, primarily due to workforce reduction and cost structure alignment in research and development.
• Cash and cash equivalents stood at $17.1 million as of December 31, 2025, with total current assets of $124.980 million and working capital of $77.8 million.
• A private placement financing in June 2025 raised $42.3 million (net of issuance costs) through the issuance of 5,000,000 ordinary shares at $8 per share.
• A $40.0 million convertible promissory note with Lynrock Lake Master Fund LP was partially repaid with $31.41 million in cash and the remaining $8.59 million converted into 1,249,995 ordinary shares in June 2025, resulting in a $1.41 million loss from extinguishment.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, primarily due to the significant return to net profitability and strong growth in SECaaS revenues, which validates the company's strategic shift. However, the extensive list of geopolitical, competitive, and technological risks, alongside slower-than-anticipated SECaaS growth, tempers the overall sentiment.

Positives

• Achieved net income of $3.7 million in 2025, reversing a trend of net losses in prior years.
• Total revenues increased by 11% year-over-year, demonstrating business growth.
• SECaaS revenues showed strong growth, increasing to 26% of total revenues in 2025 from 18% in 2024, indicating successful execution of the strategic focus.
• Overall gross margin improved to 71.1% in 2025, reflecting efficiency and favorable revenue mix.
• Operating expenses decreased due to cost reduction and efficiency measures, contributing to improved profitability.
• Successful private placement raised $42.3 million, strengthening liquidity and capital resources.
• Conversion of convertible debt reduced long-term liabilities and simplified the capital structure.

Negatives

• SECaaS business growth has been slower than originally anticipated, requiring continued efforts to expand recurring revenue deals and end-user penetration.
• Product gross margin decreased to 59% in 2025 from 64% in 2024, mainly due to higher cost of product deals.
• The company has a history of net losses over the last ten years, with 2025 being the first profitable year in that period.
• Customer concentration remains a risk, with the ten largest customers accounting for 40.7% of total revenues in 2025.
• Sales cycles to large service providers are lengthy (12-24 months), impacting revenue timing and potentially leading to significant resource expenditure without sales.
• The complexity and scope of solutions for larger service providers are increasing, leading to greater operational risks and potential for higher costs or penalties.
• The enterprise market is not anticipated to grow further due to trends like public cloud adoption, potentially eroding value for Allot's solutions.
• Decline in revenues and profits of Communication Service Providers (CSPs) due to commoditization and rising operational expenses may impact their ability to purchase Allot's products.
• Increased network encryption challenges Allot's Deep Network Inspection (DNI) technology, requiring continuous R&D investment without guaranteed success.
• The transition to 5G networks and the merging of TDF function with UPF in 5G architecture may jeopardize Allot's ability to sell standalone TDF functions.
• The global AI industry has increased demand and prices for off-the-shelf hardware components, impacting cost of goods and timely supply.
• The company submitted a voluntary self-disclosure to the U.S. Bureau of Industry and Security (BIS) regarding possible export control violations related to Russia and Belarus, which may lead to investigations and/or penalties.
• Geopolitical risks in Israel, including ongoing security concerns and conflicts, could adversely affect business operations, supply chains, and employee safety.
• The company's commercial insurance does not cover losses from war and terrorism, and government coverage may not be sufficient or maintained.
• Government grants for R&D in Israel impose restrictions on transferring manufacturing and know-how outside of Israel, potentially limiting operational flexibility.

Risks

• General economic and business conditions, including fluctuations of interest and inflation rates and the impact of tariffs, may affect demand for technology and solutions.
• Fluctuations in currency exchange rates, particularly the U.S. dollar against the Israeli shekel and Euro, can negatively impact results of operations.
• Inability to achieve and maintain profitability, despite recent net income, due to ongoing investment needs and competitive pressures.
• Impact of telco operators' Go-To-Market strategy and implementation efforts on the success of Security-as-a-Service (SECaaS) and other 'as a Service' deals.
• Reliance on network intelligence solutions for a significant portion of revenues (63% in 2025).
• Impacts to revenues and operational risk from making sales to large service providers, including lengthy sales cycles and increased project complexity.
• Technological risks, including increased network encryption, live network failures, and software or hardware errors.
• Inability to retain and recruit key personnel and maintain satisfactory labor relations.
• Dependence on third parties for products and solutions that comprise a material portion of the business.
• Ability of suppliers to provide, or refusal of customers to implement, single or limited sources for certain hardware and software components.
• Sales disruptions or costs arising from a loss of rights to use third-party solutions integrated with products.
• Ability to execute the 'Cyber Security-first' strategy and increase sales of Allot security products.
• Impacts of new market and technology trends on the enterprise market, such as public cloud adoption and 5G transition.
• Inability to comply with international regulatory regimes, including governmental requirements and initiatives related to telecommunication industry and data privacy.
• Potential misuse of products by Communication Service Providers, governmental or law enforcement customers, leading to reputational harm.
• Risks related to proprietary rights and information, including protecting intellectual property, defending against third-party infringement claims, and protecting IT systems from disruptions.
• Volatile share prices and tax consequences for U.S. shareholders.
• Status as a foreign private issuer and related exemptions from certain Nasdaq corporate governance requirements.
• Exposure to unexpected or uncertain tax liabilities or consequences as a result of changes to fiscal and tax policies.
• Conditions and requirements as a result of being incorporated in Israel, including economic volatility and obligations to perform military service.
• Costs and business impacts of complying with requirements of Israeli and foreign country governments and international organizations providing R&D grants.
• Costs and business impacts of litigation and other legal and regulatory proceedings.
• Costs and business impacts of increasing prices of third-party Commercial Off-The-Shelf (COTS) hardware.
• Competition from new entrants and startup companies relying deeply on AI technologies.
• Ability to successfully identify, manage, and integrate acquisitions.
• Commoditization of consumer security services provided through CSPs and potential market pricing declines.
• Expansion of large enterprise security providers into the consumer and SMB segments.
• Issues in the use of artificial intelligence (AI) in products, potentially resulting in reputational harm, liability, or impact on financial results due to flaws, bias, or evolving regulations.
• Disruption to IT systems due to cyber-attacks or cyber-related incidents, affecting reputation and business operations.
• Claims of intellectual property infringement by third parties, leading to litigation and adverse effects on business.

Future Outlook

The company forecasts significant future expansion of its SECaaS business, despite slower-than-anticipated growth to date. It plans to continue investing in research and development and sales and marketing to drive future growth. The new sales strategy emphasizes targeting large, strategic accounts with minimum revenue thresholds to achieve profitability sooner, though this may decrease market share. The company is investing resources in developing new products for public cloud environments and adapting existing products for 5G networks. It expects to fund anticipated cash needs for working capital and capital expenditures for at least the next twelve months with existing cash balances.

Management Comments

• Management views realization of revenue from signed contracts as a primary challenge for the current business model.
• The company is becoming a cyber security-first company, operating under a single, unified business unit, leveraging synergies between existing network intelligence assets and security offerings.
• The emphasis on larger customers with minimum guaranteed revenues is expected to help achieve profitability sooner, despite a likely drop in the number of SECaaS deals.
• The company is focused on instituting new technologies and solutions to assist in the prevention of potential and attempted cyber-attacks, as well as protective measures and contingency plans.

Industry Context

StockSavvy.ai notes that Allot's strategic shift towards a 'cyber security-first' approach aligns with the escalating global cyber threat landscape, particularly the rise of AI-powered attacks. The focus on network-based SECaaS for CSPs positions Allot to capitalize on the 'anxiety-action gap' identified in consumer cybersecurity, where high concern meets low protection adoption. The increasing demand for off-the-shelf hardware components due to the global AI industry, however, presents supply chain and cost challenges. The transition to 5G networks also poses a significant architectural challenge, as Allot's traditional Traffic Detection Function (TDF) is set to merge with the User Plane Function (UPF) provided by major Network Equipment Provider (NEP) competitors, potentially impacting its standalone TDF sales. The anticipated lack of growth in the enterprise market due to public cloud adoption reflects a broader industry trend of enterprises shifting infrastructure and security to cloud providers.

Comparison to Industry Standards

• Allot's SECaaS penetration with some service providers achieving high double-digit percentages and serving approximately 20 million subscribers globally indicates strong adoption in its niche, comparable to successful B2B2C security models.
• The company's Allot Security Management platform is noted as a unique unified security service for mobile, fixed, and 5G converged networks, differentiating it from competitors that may offer fragmented solutions.
• The reported consumer cybersecurity survey (Dynata, September 2025) highlights that 84% of consumers trust their mobile provider for cybersecurity and 67% are willing to pay monthly (around $5/5/5), suggesting Allot's operator-led SECaaS model is well-aligned with market demand, potentially outperforming direct-to-consumer app-based security providers in terms of reach and trust.
• The challenge of DNI technology facing competition from router and switch infrastructure companies that integrate functionalities is a common trend in the networking industry, where larger vendors often bundle features to reduce the need for standalone solutions.
• The emergence of new market entrants leveraging advanced AI technologies is a universal competitive pressure across the cybersecurity industry, requiring continuous innovation from established players like Allot to maintain relevance.

Management Changes

Corporate Governance

Legal Proceedings

• On November 2, 2021, two founders of Netonomy Ltd. filed a civil claim against Allot alleging breach of certain clauses of the share acquisition agreement, claiming damages of approximately $834,000. Allot refuted the claims.
• On March 6, 2023, the company signed a settlement agreement with the plaintiffs, agreeing to pay a total of $260,000, with the plaintiffs waiving all claims. The potential liability exists that remaining minority former Netonomy shareholders may file similar claims, though none are currently ongoing.

Related Party Transactions

• In February 2022, the company issued a $40.0 million senior unsecured convertible promissory note to Lynrock Lake Master Fund LP, its largest shareholder.
• In June 2025, $31.41 million of the outstanding principal amount under the Lynrock Note was repaid in cash, and the remaining $8.59 million was converted into 1,249,995 ordinary shares, resulting in a $1.41 million loss from extinguishment.

Stakeholder Impact

• **Shareholders**: Experienced dilution from the private placement and convertible debt conversion, but benefited from the company's return to profitability and increased revenues. Subject to geopolitical risks in Israel and potential volatility in share price. Lynrock Lake Master Fund LP, as the largest shareholder, maintains significant influence.
• **Employees**: Workforce reductions in 2025 as part of efficiency measures, but also continued investment in R&D and equity compensation plans. Israeli employees are subject to military reserve duty, which could disrupt operations.
• **Customers**: Benefit from innovative security and network intelligence solutions, but face potential delays in product shipments due to supply chain issues and lengthy sales cycles for large service providers. Increased network encryption and 5G transition pose challenges to existing product functionality.
• **Suppliers**: The company's dependence on a limited number of subcontractors and single/limited sources for hardware components creates risk, especially with increased demand from the global AI industry leading to shortages and price increases.
• **Creditors**: The repayment and conversion of the convertible debt reduced the company's long-term debt obligations.

Next Steps

• Continue to invest in research and development to keep pace with rapid technological changes, increased broadband network speeds, and evolving network security threats.
• Adapt product functionality to comply with 3GPP Organization design and standards for 5G networks.
• Expand the number of recurring security revenue deals and end-user penetration within existing customers to achieve SECaaS business goals.
• Demonstrate the value of services and add new features to retain customers and capitalize on opportunities with CSPs considering changes from competitors' products.
• Continue efforts to identify cheaper components of comparable performance and quality and seek improvements in engineering and manufacturing efficiency to reduce costs.
• Monitor and adapt to evolving data protection and privacy-related laws and regulations globally.
• Formalize the evaluation process for determining which inventions to protect by patents or other means.
• Continue to make cash commitments and capital expenditures to support business growth.

Key Dates

Recommendation

Allot's return to profitability in 2025, driven by strong SECaaS growth and improved gross margins, is a significant positive development. The successful capital raise also strengthens the balance sheet. However, the company faces substantial headwinds, including intense competition from AI-driven entrants, challenges from network encryption and 5G architecture changes, and geopolitical risks in Israel. The slower-than-anticipated SECaaS growth and customer concentration also warrant caution. While the strategic shift is promising, the execution risks and external factors suggest a 'hold' recommendation, allowing investors to monitor the sustained profitability and successful navigation of competitive and technological challenges before considering a stronger position.

Keywords

Cybersecurity, Network Intelligence, SECaaS, Security-as-a-Service, DNI, Deep Network Inspection, 5G, AI, Artificial Intelligence, Broadband, Telecom, Communication Service Providers, DDoS Protection, IoT Security, Traffic Management, Network Analytics, Israel Innovation Authority, Form 20-F