Allot (ALLT) Q2 2025: CCaaS ARR Jumps 73% as Verizon MyBiz Drives Security Revenue Mix Shift
Allot’s Q2 marked a decisive acceleration in cloud-based security, with CCaaS annual recurring revenue (ARR) surging as Verizon’s MyBiz plan rollout and new European telco wins reshaped the revenue base. The company’s improved margin profile, strong cash position, and a pipeline of multi-year deals signal a strategic pivot toward recurring, higher-margin cybersecurity services. Management raised full-year guidance, projecting sustained momentum as CCaaS and network intelligence platforms gain adoption across major carriers.
Summary
- Security Revenue Mix Shift: Cloud cybersecurity (CCaaS) now drives over a quarter of total revenue, up sharply on new carrier launches.
- Margin Expansion: Higher software mix and recurring ARR from flagship telco partnerships lifted margins and operating profit.
- Backlog and Pipeline Visibility: Landmark multi-year telco deals and robust CCaaS adoption underpin raised growth guidance.
Performance Analysis
Allot delivered a pivotal quarter, with total revenue rising and a pronounced shift in business mix toward higher-margin, recurring security services. CCaaS, or cybersecurity as a service, ARR reached $25.2 million, up 73% year-over-year, and now represents 27% of company revenue, driven by the Verizon MyBiz plan launch and Vodafone expansion. This shift is material: not only is CCaaS outpacing legacy product growth, but its recurring model anchors future visibility and margin stability.
Gross margin improved to 73.4%, up from 70.6% a year ago, reflecting the growing contribution from software and ARR-based deals. Operating income swung positive, backed by disciplined expense management and a richer revenue mix. Allot’s cash position strengthened post-equity offering and debt repayment, with $72 million in cash and no debt, providing ample flexibility for continued investment and salesforce expansion.
- Security ARR Inflection: CCaaS revenue acceleration is linked to flagship carrier launches, notably Verizon MyBiz, which bundles Allot security by default for SMBs.
- Multi-Year Deal Flow: A landmark European telco contract, valued in the tens of millions, extends backlog and signals growing Tier 1 operator adoption.
- Profitability Leverage: Scale in recurring security services and software-based product extensions are driving sustained margin expansion and positive cash flow.
With strong sequential ARR adds and a robust pipeline, Allot is executing on its pivot to a security-first, SaaS-centric model, setting up for durable growth into 2026 and beyond.
Executive Commentary
"Most notable was the accelerated and very strong performance of our CCaaS Gold Extension. CCaaS ARR was up 73% year-over-year. We ended the quarter at $25.2 million ARR. CCaaS contributed over a quarter of our revenues for the first time and in line with our strategy is becoming a sizable and increasing portion of our overall revenue with each passing quarter."
Eyal Harari, CEO
"Our non-GAAP gross margin in the quarter was 73.4%, compared with 70.6% in the second quarter of last year. The revenue mix in Q2 was in favor of more software extension deals, which contributed to a higher gross margin. Going forward, we do expect to remain in the range of 71% to 73% gross margin."
Liat Mahoum, CFO
Strategic Positioning
1. Security-First Business Model Pivot
Allot’s transformation to a security-first, ARR-driven business is accelerating. With CCaaS now contributing over 25% of revenue and management raising full-year growth targets, the company is shifting away from legacy hardware toward scalable, cloud-native security offerings for communications service providers (CSPs), or telcos. The Verizon MyBiz plan launch, which bundles Allot security for SMBs by default, exemplifies the company’s ability to land and expand within major carriers and drive high attach rates.
2. Multi-Year, Multi-Segment Telco Wins
The recently announced Tier 1 European telco deal, valued in the tens of millions, underscores Allot’s ability to secure large-scale, multi-year contracts for its unified network intelligence and security platforms. This win validates the Terra 3 platform’s appeal for converged 4G/5G and fixed fiber networks, and sets a precedent for additional long-tail maintenance and support revenues.
3. Margin Expansion Through Software and Recurring Revenue
The expanding share of software and ARR-based deals is structurally lifting gross margins and operating leverage. Management expects margin stability in the low 70% range, aided by the recurring nature of CCaaS and the reduced cost of delivering cloud-based security at scale. The company’s cash position and lack of debt further enhance its ability to invest in growth without compromising profitability.
4. Sales Execution and Go-to-Market Leverage
Allot’s approach leverages best practices across global carriers, supporting telco partners with marketing, customer success, and rapid onboarding of new services. The company is expanding its salesforce to target new CSPs and deepen penetration within existing accounts, aiming to capitalize on the rising demand for network-native security and intelligence solutions.
Key Considerations
This quarter revealed a decisive shift in Allot’s business model, with strong signals for future ARR growth and margin resilience. Investors should weigh the following:
Key Considerations:
- Carrier-Led ARR Growth: The Verizon MyBiz plan and Vodafone migration are driving rapid ARR expansion, with high attach rates and multi-year adoption curves.
- Pipeline Strength: Despite closing a landmark Tier 1 deal, management cites a robust pipeline of additional multi-million and even eight-digit opportunities, both with new and existing customers.
- Capital Structure Reset: The recent equity raise and debt repayment leave Allot debt-free, with ample cash to fund growth and salesforce expansion.
- Sales Cycle Duration: Large telco deals remain lengthy (12-24 months), introducing lumpiness in bookings and revenue recognition, but also building multi-year visibility.
- Margin Mix Sensitivity: Gross margin will continue to fluctuate with the software/hardware mix, but ARR scale is expected to anchor margins above 70%.
Risks
Allot’s dependence on large telco partners introduces risk from elongated sales cycles, unpredictable carrier marketing cadence, and concentration of ARR in a handful of major launches. While macro conditions remain stable, competition in telco security is intense, and any delay in carrier migrations or attach rates could dampen near-term ARR growth. Execution on multi-year deals and maintaining pipeline velocity will be critical to sustaining momentum.
Forward Outlook
For Q3 2025, Allot expects continued sequential growth in CCaaS ARR and margin stability, with backlog supporting visibility into the second half.
- Q3 CCaaS ARR expected to build on current $25.2 million base.
- Gross margin to remain in the 71% to 73% range, reflecting ongoing software mix shift.
For full-year 2025, management raised guidance:
- Revenue of $98 million to $102 million.
- CCaaS ARR year-end growth of 55% to 60%.
Management highlighted:
- Improved visibility and strong backlog from recent multi-year telco wins.
- Ongoing salesforce expansion to capture new CSP opportunities and drive further ARR penetration.
Takeaways
Allot’s Q2 marked a strategic inflection, with security-first ARR scaling rapidly and multi-year telco deals anchoring future visibility.
- Recurring Revenue Momentum: The Verizon MyBiz launch and Vodafone migrations are driving CCaaS scale, with high attach rates and multi-year ramp potential.
- Margin and Cash Strength: Software mix and recurring revenue are structurally lifting margins, while the balance sheet reset enables further investment in sales and product.
- Pipeline Execution Key: Sustained ARR growth will depend on continued telco wins, timely carrier launches, and successful expansion into new CSPs and geographies.
Conclusion
Allot’s Q2 results confirm a successful pivot to a security-first, ARR-driven model, underpinned by flagship carrier partnerships and a robust deal pipeline. With margin expansion, a strong cash position, and rising multi-year backlog, the company is positioned for durable, profitable growth as telcos accelerate adoption of network-native security solutions.
Industry Read-Through
Allot’s quarter signals intensifying demand for integrated, cloud-based security solutions among global telcos, as carriers bundle cybersecurity for SMBs and consumers alike. The high attach rates in flagship carrier launches and multi-year deal constructs suggest that ARR-based, software-centric models are becoming the industry norm. Competitors in network intelligence and telecom security should expect heightened requirements for unified platforms and recurring revenue models, while investors should monitor the pace of carrier migrations and the stickiness of bundled security offerings across the broader communications sector.