Alarum Technologies Ltd.

Greetings and welcome to Alarm Technology's fourth quarter and full year 2022 earnings results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the former presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shakrav Daniel, co-founder and CEO. Thank you, sir. You may begin.

Thank you very much, and welcome, everyone, to Alarm Technology's 2022 Post-Quarter Earnings Results Conference Call. As its customer, with me is Shai Avnit, our Chief Financial Officer. I would like to provide a brief review of our business operations, summarize our accomplishments, and then turn the call over to Shai, who will briefly discuss the financial results of the post-quarter and full year of 2022, Before, we will open the call to questions. Before going into more detail about 2022, I would like to emphasize the first quarter of 2023 continues and even furthers the revenues growth and drastic reduction in bearing rate trends, which we have achieved to date. With respect to the period ending December 31, 2022, we are excited to present eight consecutive quarters of revenue growth. Alarm today is a much different company than it was two years ago and right where we planned it to be. Our main goal in the past two years was to increase revenues with high growth rates, and I'm happy to present the results reflect success in doing so. Moving forward to 2023, our main goal is to further reduce our burn rate and pave our path to profitability while maintaining revenue growth, expanding our customer base, and further improving our products and brand awareness. Alarm finished 2022 with record revenues of $18.8 million, an impressive increase of 82% in revenues compared to 2021. We witnessed the growth in both our business arm, in NetNut, our counterpart internet access arm, and in CyberKick, our consumer internet access arm. We increased our revenue from $1.4 million in 2018 to $18.8 million in 2022. representing an impressive compound annual growth rate of 91%. Our adjusted EBITDA loss dropped by 55% in the first quarter of 2022. We are working hard to continue this trend and accelerate the reduction in the coming quarters. Reduction in our burn rate, together with our current financial resources, including available cash, the credit line from a commercial bank, and an ongoing strategic investment to support our consumer solutions, keep us very optimistic regarding our ability to achieve our goal for 2022 and even after. We believe that our ability to successfully manage our resources while maintaining growth poses us on the right path to begin our journey to profitability. We recognize that reaching profitability is a critical milestone for our company and remain focused on achieving this goal while continuing to invest in our products and services. From a business perspective, I would like to provide a short summary about our enterprise privacy arm. NetNut operates in the fast-growing market of data access. It has achieved an ambitious milestone this year by turning profitable on a cash flow basis. This has become possible due to the increase in our customer base and our customer spending. I am proud to say that NetNut today is one of the stronger and well-familiar brands in this field. with each year experience higher demand for stable, wide solutions. During 2022, we significantly scaled up our infrastructure and network, allowing us to support an enormous number of requests from our customers in billions. In addition, we improved our products and reinforced our sales and marketing team. These actions resulted in improved retention of existing customers and increased onboarding of new customers. Our ability to identify and pursue leadership in the new market segments that can benefit from our products, such as advertising, e-commerce, cybersecurity, and more, added to our ongoing growth. While NetNet revenue is related mainly to marketing and products, the business model of our solution for consumer is different and flexible. Our consumer Internet access business offers privacy and cybersecurity solutions to end users. These solutions are designed to allow users to take charge of their online privacy with powerful, secure, and encrypted connections. These solutions are installed in the consumer computers or mobile phones and are available through various browser and mobile application stores. By investing in acquiring new users, the consumer Internet access business model allows us to build revenue-generating assets, which are expected to build future revenue streams. This business model enables us to create a real asset for the company while maintaining flexibility of spending. In addition, we managed to secure external financing to support and fund our user acquisition program. We believe that our efforts to optimize our resources have contributed to our financial position and will facilitate our sustainable growth in the future. We are committed to delivering exceptional value to our customers while balancing our worth with financial stability. 2022 was a very challenging year in the financial market. I am happy that we have successfully managed our cash position for this year and without compromising our growth and goals. We recognize that this period has been difficult for many businesses, and we are grateful for the dedication and hard work of our team that has enabled us to navigate through these times. Before going further, I would like to turn the call over to Shai to discuss the financials for the quarter in more detail. Shai?

Thank you, Shachar. I will begin with a summary of our fourth quarter and year-end 2022 financial results, which are compared to our fourth quarter and year-end 2021 results, unless otherwise stated. Revenue for the full year of 2022 totaled $18.8 million, of which $5.1 million were earned in the fourth quarter. This represents an 83% increase compared to the revenues of $10.3 million for the full year of 2021, of which $3.7 million were earned in the fourth quarter. This sharp growth in revenues is attributed to the increase in both our enterprise and consumer access businesses' revenues. Gross profit for the full year of 2022 increased to $10.1 million, of which the fourth quarter contributed $2.8 million. This, compared to gross profit for the full year of 2021 of $5.1 million, of which the fourth quarter contributed $2.1 million, representing increases of 97% and 144%, respectively. These significant increases in the gross profit were primarily driven by the increase in revenues. Operating expenses totaled $23.6 million for the full year of 2022, an increase from $20.1 million in 2021. The increase is primarily attributed to the full consolidation of cybercrime operations, mainly in media costs in 2022, compared to partial consolidation in equivalent period in 2021. as well as increases in salary costs due to the company's increased operations. The increases were partially offset by a reduction in the operation expenses of the enterprise security segment, which was outsourced to Terrazone, a global provider in this field. As a result of the above changes in revenues and expenses, Net loss for the full year of 2022 was $13.15 million or $0.42 per share as compared to a net loss of $13.12 million or $0.48 per share in 2021. Net loss in the fourth quarter of 2022 totaled $2.9 million or $0.09 per share compared to a net loss of $4.5 million or $0.15 per share in the fourth quarter of 2021. Adjusted EBITDA loss for the full year of 2022 totaled to $9 million compared to an adjusted EBITDA loss of $11.1 million in 2021. As of December 31st, 2022, shareholders' equity totaled $13.3 million or approximately $4.08 per outstanding American depository share compared to shareholders' equity of $24.2 million on December 31st, 2021. The reduction is mainly due to the company's net loss during the year. As of December 31st, 2022, The company's cash and cash equivalents balance aggregated to $3.3 million compared to $3.8 million on December 31st, 2021. The company's cash balance does not account for up to an additional $2.7 million in funds under its recently secured credit facility and investment financing. And lastly, I wanted to touch base on our share count as it stands today. On an outstanding basis, we have around 33 million ordinary shares representing 3.3 million ADSs. On a fully diluted basis, we currently have around 50 million shares or 5 million ADS outstanding. With that, I'll turn the call back over to Shachar.

Thank you very much, Shai. In summary, allow me to date everything we aimed for in the last few years. while realizing our key growth engines and crystallizing our significant competitive advantages. Despite general and financial market conditions, 2022 was an exceptional year for us, adding four more quarters of revenue growth that resulted in eight consecutive quarters of revenue growth and $18.8 million in annual revenues, all while significantly reducing our expenditure. We remain agile and committed to paving our way to profitability and maximize our long-term business potential by growing responsibly and further reducing our burn. Reflecting our share price, we believe that there is a gap between the company's true and actual performance and how the market conceives of our business and achievements. We have set the bridging of this gap as yet another goal for 2023, and we are committed to raise awareness with respect to our sustainable growth and development in the U.S. and beyond. I would like to take this opportunity to take our trusting shareholders and convey our appreciation of their confidence, trust, and continued support. Looking ahead, we have a well-defined strategic roadmap, and it includes technology innovation, continuous growth, and achieving profitability in the near term. We are optimistic regarding the future of the company and are building our business plans to support our efforts for improved financial results. With that, I would like to open the call for any questions. Operator, please go ahead.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to ask a question at this time.

One moment while we post our first question.

Once again, ladies and gentlemen, to ask a question at this time, please press star one on your telephone keypad. There are no questions in queue. I would like to turn the call back to management for closing comments.

Thanks for joining us today. We look forward to continuing to update you on our progress.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.