Allot in the First Quarter: SECaaS Is Pulling the Results, but Cash Flow Still Rests on Advance Billings

Allot opened 2026 with a quarter that moves beyond a simple recovery story: SECaaS revenue rose to $8.7 million, recurring revenue reached 67% of total revenue, and GAAP operating income turned positive. That starts to answer the question left after the 2025 annual analysis: whether the recurring security engine merely improves the mix, or is already strong enough to pull the whole company forward. The first-quarter answer leans positive, but it is not complete. Operating cash flow jumped to a record $10.6 million, yet almost the entire step-up is explained by a roughly $15.0 million increase in deferred revenue, while receivables and inventory together consumed about $5.7 million. The quarter therefore looks stronger as proof of contractual visibility and advance billing than as proof of recurring quarterly cash generation without volatility. Management sounded more confident about 2026 and now feels closer to the upper end of its revenue guidance, but for the market to read this as a deeper shift, the next few quarters need to show three things: SECaaS growth that continues beyond this strong quarter, margins that hold as the service base expands, and working capital that does not bring the customer-quality issue back into the story.

Company Setup

Allot sells network-based cybersecurity and network intelligence solutions to communications service providers, cloud-related customers, enterprises and government customers. The product the market cares about most is SECaaS, security services sold by the telecom operator to the end subscriber, with the company receiving recurring revenue through revenue share, monthly per-user fees or fixed annual fees. Alongside it, the older Network Intelligence activity still exists, covering traffic analysis and congestion management, and it accounted for 63% of 2025 revenue.

This is not a light pure-play SaaS company. Part of the solution still requires operator deployment, equipment, customer acceptance and long sales cycles. The economic machine is therefore a mix of growth and working capital: recurring revenue pulls margins higher, but growth passes through large telecom operators, long deployments and collection timing.

The first quarter shows the shift in the center of gravity. SECaaS already accounted for 33% of revenue, almost the same as products and professional services, while support and maintenance added another 34%. Together, SECaaS and support and maintenance brought recurring revenue to 67% of total revenue. That is not just a convenient accounting split. It changes what investors need to test: less "how much product was sold this quarter" and more "how much deployment turns into recurring revenue, advance billing and margin."

SECaaS Starts Answering the Conversion Question

The important figure in the quarter is not only 14% revenue growth, but where it came from. SECaaS revenue rose to $8.7 million, compared with $5.1 million in the prior-year quarter and $8.1 million in the fourth quarter of 2025. The activity did not only grow year over year. It kept rising after a strong exit from 2025.

This is an important update to the ARR question raised in the SECaaS follow-up analysis. At the end of 2025, SECaaS ARR was $30.8 million. In the first quarter of 2026 it rose to $33.7 million. That increase is not signed revenue for the next twelve months, because ARR is calculated from the final month exit rate multiplied by 12. Still, when it comes together with $8.7 million of recognized quarterly revenue, it looks less like a marketing metric and more like an activity run-rate that is beginning to show up in the income statement.

The guidance makes the test sharper. Management reaffirmed 2026 revenue guidance of $113 million to $117 million, said it feels increasingly confident toward the upper end of that range, and now expects 40% or more SECaaS revenue growth in 2026. Against $26.8 million of SECaaS revenue in 2025, that implies at least about $37.5 million in 2026. Annualizing the first quarter gives $34.8 million, still below that threshold, so the rest of the year needs further sequential improvement, not merely a repeat of the first-quarter level.

The skeptical side is also clear. The strategy of fewer transactions and larger strategic accounts is meant to improve revenue quality and minimum revenue floors, but it also increases the weight of large customers. The top 10 customers accounted for 46% of quarterly revenue, compared with 41% for all of 2025. That is not extreme for a company selling to telecom operators, but it is a reminder that SECaaS acceleration does not come from hundreds of small customers. It comes from better conversion inside operators and large accounts.

Profitability Has Moved Up, but Dilution Still Matters

The first-quarter profit improvement is more convincing than last year's because it is not built only on non-GAAP adjustments. GAAP gross profit was $18.7 million and gross margin rose to 70.9%, compared with 69.3% in the prior-year quarter. GAAP operating income was $1.5 million, compared with a GAAP operating loss of $0.7 million in the prior-year quarter. Non-GAAP operating income also rose to $2.6 million, but the gap between GAAP and non-GAAP is mainly about $1.1 million of share-based compensation, not an adjustment hiding an operating loss.

The service engine is starting to produce operating leverage. Revenue increased by $3.3 million versus the prior-year quarter, and gross profit rose by $2.7 million. Operating expenses increased by only $0.5 million, so most of the gross-profit improvement flowed through to operating income. That is a better-quality change than in 2025, when part of the improvement was still read through efficiency measures, cost reduction and mix.

One layer remains: the dilution cost from 2025. GAAP net income was $1.9 million, or $0.04 per diluted share. The weighted average diluted share count was 49.9 million, compared with 39.6 million in the prior-year quarter. The company is now showing net profit, but shareholders still need to see profit per share and cash per share catch up with the wider share base created after the Lynrock debt cleanup and equity raise.

Cash Flow Is Strong, but It Needs the Right Reading

Operating cash flow was $10.6 million, compared with only $1.7 million in the prior-year quarter. That is a strong figure, and it also helps explain why liquid assets rose to about $98 million at the end of March 2026 from about $88 million at the end of 2025. But the all-in cash picture this quarter is different from normalized cash generation.

The largest cash-flow driver was a $15.0 million increase in deferred revenue. That is positive for visibility: customers paid before full revenue recognition, and the company enters the rest of the year with larger service obligations. But it is not the same as recurring profit every quarter. Over the same period, trade receivables increased by $3.1 million and inventory rose by $2.6 million, so the activity still requires working-capital funding.

This distinction matters especially after the 2025 story. The previous concern was that a company that cleaned up its balance sheet through equity issuance and dilution would need to show that operating cash flow can support growth. The first quarter gave a better answer, because there was no equity financing, capex was only $0.4 million, and liquid assets increased. But it is still a quarterly answer built on advance billings. To read it as durable proof, deferred revenue needs to convert into revenue and profit without a parallel rise in receivables, inventory or credit-loss allowances.

2026 Has Become a Real Proof Year

The first quarter puts the company in a better position than it had at the end of 2025. SECaaS is growing faster than total revenue, operating profitability is already positive, and the balance sheet benefited from higher liquid assets without a new equity raise. The market is likely to focus less now on whether the debt risk is gone, and more on whether SECaaS acceleration remains strong enough to support 40% or more growth for the full year.

The next few quarters will be decided by conversion quality. If SECaaS revenue keeps rising above the first-quarter run-rate, if deferred revenue begins to become recognized revenue without margin erosion, and if receivables and inventory do not grow faster than revenue, 2026 will look like a real proof year for the recurring model. If the pace remains around the first-quarter level, or if cash flow proves to be more about billing timing than operating power, the read will be more cautious: the company is progressing, but it still needs to prove that the new engine is large enough to carry both the older core and the wider share base.