Alarum Technologies Ltd.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Alarm Technologies fourth quarter and full year 2024 corporate update conference call. During today's presentation, all parties will be in a listen-only mode. Following management's presentation, the conference will be open to questions. If you have a question, please press the star followed by the number one on your touchtone phone. If you would like to withdraw your question, please press the star followed by the number two. If you're using a speaker, please lift the handset before making your selections. This conference is being recorded today, March 20, 2025. Before we get started, I will read a forward-looking statements disclaimer. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the safe harbor provisions of the Private Security Litigation Reform Act of 1995 and other federal security laws. Forward-looking statements include statements about plans, objectives, goals, strategies, future events of performance and underlying assumptions, and other statements that are different than historical fact. For example, when we discuss our first quarter or 2025, first quarter of 2025 guidance, our future strategy and long-term vision, our potential for continued sustainable future growth, the potential of long-term collaborations, future opportunities and success, we are using four living statements. These four looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these four looking statements. Potential risks and uncertainties include those discussed under the heading Risk Factors and Alarms Annual Report on Form 20-F, filed with the Securities and Exchange Commission, SEC, earlier today. March 20, 2025, and in subsequent filings with the SEC. All such forlicking statements, whether written or oral, made on behalf of the company are expressly qualified by these cautionary statements, and such forlicking statements are subject to risk and uncertainty, and we caution you not to place undue reliance on these. On the call, the company will also present non-IFRS key business metrics. The non-IFRS key business metrics the company uses are EBITDA and adjusted EBITDA, non-IFRS gross margin, non-IFRS net profit or loss, and non-IFRS basic earnings or loss per share or ADS. The exact definitions and reconciliation of these non-IFRS key business metrics are described in the company's fourth quarter and full year 2024 financial results press release. which is available on the Investors Lobby on our website, Alarm.io slash Alarms-Investors-Lobby slash. I'll now turn the call over to Shahar Daniel, Alarm Technologies Chief Executive Officer.

Mr. Daniel, the floor is yours. Thank you.

Good day, everyone, and welcome to Alarm Technologies' fourth quarter and full year 2024 results conference call. I'm joined today by Shai Avneet, our Chief Financial Officer. I will cover our progress, the trends we are seeing in the data collection market, our strategy, and longer-term vision. Shai will review the financials and provide our Quarter 1 2025 guidance. I will then come back for a short summary of our prepared remarks, and we will open the call for your questions. 2024 has been the most pivotal year for our company and which we believe will be one of the most transformative for the future of technology as the AI revolution is reshaping our world at an unparalleled pace. Despite market fluctuations, we continue to demonstrate financial resilience. In 2024, we fully executed the strategic vision introduced less than two years ago to focus solely on data collection while phasing out from other activities Alarong was engaged in. We launched cutting-edge products in the data collection domain and recognized initial revenues from those new products. We further solidified our financial position through operational profitability and cash flow generation. Annual revenue reached a record of high $31.8 million, of which 97% was attributed to data collection and adjusted EBITDA reach to a record of $9.4 million. 2024 marked our shift to redefine our business through data collection. But more than anything, it was the year in which we began realizing the true impact of the AI revolution and our critical role in this exchange era. In today's world, data is the new oil. It's a key driver of innovation, decision-making, and gaining a competitive advantage. As data fuels AI, the companies that will lead this transformation are those that anticipate change, build the right foundation, and position themselves for a longer-term relationship. This is exactly what we are aiming for at Alarm, step by step. With the foundation of information access being redefined, websites, data sources, and access restrictions are constantly being modified. We are witnessing a fundamental shift an intense battle between traditional websites, which have long served as the world's primary source of information, and AI-driven platforms that now threaten to replace them. In this new reality, data is increasingly becoming the most valuable asset in the competition between AI platforms and between AI and traditional web-based information sources. With that said, this evolving landscape is leading to a dynamic environment higher volatility and revenue fluctuation across the industry, allow them to be impacted by these trends and benefiting at times challenged. Our strong financial position and strategic initiatives position are well for continuous sustainable future growth. That said, we firmly believe we are at a once-in-a-generation inflection point. Looking ahead and preparing the company for its next steps, we substantially expanded coverage of our IP network in 2024. Power and critical data access for our customers worldwide. We enhanced infrastructure and capacity, building a scalable local network, which is essential to handle massive data traffic. We are reaping the fruits of our investment in our introducing high-performance innovative products. with initial model sales already recorded and growing interest underway. We continue to make inroads to data collection and labeling market. The website unblocker drives entry into the multi-billion dollar data collection market, enhancing access and efficiency. Our AI data collection ensures continuous data flow with a no-code setup and a real-time AI adaption. Exiting 2024, we saw a spike in demand from AI-driven companies for high-quality, large-scale data extraction solutions. I'm very excited to share that in Q4 2024 and Q1 2025, we started initial AI model training and analysis trial projects, including data and video by new customers, including one of the world's largest corporations, a global online marketplace. place cooperation. We believe that this initial project could pave the way for a long-term collaboration with immense potential. As I have emphasized previously, our investment over the past years in growing our IT network was designed to prepare us for this moment, and the demand from AI-driven customers validates our decisions. As we enter 2025 in prime position to serve as an enabler in today's evolving landscape. Yet, I would like to emphasize that capitalizing on massive, long-standing potential requires patience and a long-term forward-looking approach. Fortunately, our profitability and operational efficiency have enabled us to build a strong cash-generating business that allowed us to pursue relevant opportunities. At Alarm, we believe that success in a fast-moving market comes from vision, adaptability, and strategic positioning. We have flexibility to focus on bold strategic moves that drive sustainable growth. With that, I will now turn the call over to Shai for a review of the financial highlights.

Thank you, Shachar. Hello, everyone. I begin with a summary of our key financial results for the fourth quarter and full year of 2024, comparing them to the corresponding periods in 2023, unless stated otherwise. After that, I will share our guidance for the first quarter of 2025 year. As noted at the beginning, the exact definition and conciliation of non-IFRS key business metrics are described in the company's fourth quarter and full year 2024 financial results press release. And the last housekeeping item before we dive in, the figures I will be presenting are rounded for simplicity. Now, let's go to the results. Revenues in the fourth quarter of 2024 reached $7.4 million, up 3.7% from $7.1 million in the fourth quarter of 2023. The data collection portion increased to $7.2 million in the fourth quarter of 2024, 6.8% higher than the $6.7 million recorded in the fourth quarter of 2023. Full-year 2024 revenues increased to a record of $31.8 million, 20% up from 2023. The data collection portion reached a record of $30.9 million in 2024, up 45.2% from $21.3 million in 2023. The data collection portion was 97% of the total revenues, both on quarterly and annual basis, up from 80% in 2023 and about 45% only in 2022, clearly representing our business shift in a short period of time since announcing our strategic shift to focusing on data collection. Nona FRS gross margin for the fourth quarter of 2024 was 74.3%, compared to 77.2% in the fourth quarter of 2023. Non-IFRS growth margin for the full year 2024 grew to 77% from 74.3% in 2023. The change in these growth margin metrics is related to our strategic decision to enhance our IP network so we can address our customers' demand for stability, responsiveness, Operating expenses in the fourth quarter of 2024 were $5 million compared to $3.6 million in the fourth quarter of 2023. The quarterly change was driven mainly by the increase in operations, primarily employee salary-related costs. On an annual basis, 2024 operating expenses were down to $17.2 million from $24.3 million in 2023. This was mainly due to last year's impairment costs of goodwill and intangible assets, and the strategic decision to scale down of the company's consumer internet access business operations. In the fourth quarter of 2024, we recorded financial income of $200,000 compared to an expense of $100,000 in the fourth quarter of 2023. For the full year 2024, we recorded financial income of $300,000 compared to a financial expense of $300,000 last year. The shift to financial income in the fourth quarter and full year 2024 was mainly driven by the higher interest income from cash deposits and lower financial expenses related to short and long-term loans. IFRS net profit was $400,000 for the fourth quarter of 2024, compared to a net profit of $1.7 million in the fourth quarter of 2023, mainly correlated to the increase in operating expenses. 2024 IFRS net profit increased to a record of $5.8 million from a net loss of $5.6 million in 2023, mainly the result of revenue growth and last year's impairment costs of goodwill and intangible assets, partially offset by the increase in operating expenses. Adjusted EBITDA in the fourth quarter of 2024 was $1.5 million compared to $2.2 million in the corresponding quarter last year, 2024 annual adjusted EBITDA was a record $9.4 million, up from $5.2 million in 2023. Our current share count is 69.3 million ordinary shares or 6.9 million ADSs. On a fully diluted basis, the count is 18 million ordinary shares or 8 million ADSs. The fourth quarter of 2024 basic earnings per share were 20 cents per ADS on non-IFRS basis, compared to 38 cents in the fourth quarter of 2023. On an annual basis, the 2024 basic earnings per ADS rose to $1.26 on non-IFRS basis, up from a loss of $1.14 in 2023. As of December 31, 2024, the company's shareholder's equity doubled to a record of $26.4 million from $13.2 million on December 31, 2023. The annual net profit, together with warrants and options exercises, contributed to this $13.2 million increase. The company's cash Cash equivalence and cash investments balance, including accrued interest at the end of December 2024, were up to $25 million from $10.9 million on December 31, 2023. Our solid cash position allows us to sustain strategic investments and drive responsible business growth. Now to our guidance for the first quarter of 2025. As we look ahead, our revenue guidance reflects the ongoing shifts in our market. We anticipate that the first quarter of 2025 revenue to range at $7.3 million plus minus 3%. The first quarter of 2025 adjusted EBITDA is expected to range from $0.8 million to $1.2 million. We are navigating a period of adjustment as the industry evolves, and while short-term revenue growth may be lower than in previous quarters, we remain focused on the bigger picture and on generating long-term and sustainable value for the company's stakeholders.

With that, I'll hand the call back over to Shachar. Thank you, Shachar.

A rare opportunity is unfolding, and we are strategically positioning Alarm to be at the heart of this new world. As demand for data in scale increases, and as AI continues to evolve, those who choose the right paths, those who look beyond the immediate horizon, will emerge the industry's true leaders, and we are determined to be among them. Success will require bold, long-term strategic decisions, and we are channeling our resources toward the development of cutting-edge solutions as we aim to analyze and anticipate the industry's needs. With a clear vision, stamina, solid execution, and a talented driving team, we are building a company poised for long-term success. We will now open the call for the Q&A session. Operator.

Thank you.

We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please, while we pull for questions. Our first question comes from the line of Brian King-Stingler with Alliance Global Partners.

Please proceed with your question.

Hi, good morning. Thanks for taking my questions. You mentioned you are navigating a period of adjustment as the industry evolves and so revenue growth may be slower. Can you describe what you're referring to? And I guess I'm trying to reconcile that with comments such as once-in-a-generation opportunity and a spike in demand that was seen in the fourth quarter for large-scale data extraction.

Okay. Hi, Brian. So I will divide my answer for two parts.

The first, and by the way, both are connected. As I said, we're now seeing or starting now at the stage where companies or huge companies that are getting into the AI game approaching us in order to cooperate because, as you know, our solution is is basically can be a data enabler and can solve these challenges. Now, as I mentioned also, I talked a lot about it in the past, in the last few quarters, it becomes, we see a kind of huge, let's call it competition, between the AI platforms and the websites. Why? Because basically the AI platform can replace the traffic that is coming into the website instead of it to stay in the AI to get all the customer needs. So for this reason, there is a kind of a technology wall, let's call it a wall just as a metaphor, between the websites and the AI platforms and For this reason, we see spikes and we feel volatility due to the fact that, you know, websites are implementing a kind of product that's supposed to stop or to halt AI engines from coming in. Websites are increasingly changing their structure in order to make the life of the AI platforms more challenging. And for this, now companies and the AI platforms and websites are basically now restructuring their paths in this new world. And this is the reason why the market and also us as part of it for the short term experiencing volatility and fluctuation in the demand. And the main reason is that we see that for the long term when when i talked about data in scale these huge players needs data in huge scale in order to train their ai models in order to stay up to date so we we see that for the short term it might be spike by the way here and there as i mentioned sometimes it can come in favor of revenues sometimes it can take the revenues a little bit down but For the long term, we see that this trend basically is something that is in the favor of us because we are the data enabler and our purpose and our target and the usage of our product is exactly for this need.

So if I say it another way, your customer set is essentially in a period of determining their strategy. given these changes with websites, and so they're not necessarily purchasing your product as quickly because they have to figure out where the landscape is headed. Is that right?

Yes. It's not that they are not purchasing our kind of product. Sometimes they are going down for a limited period in order to restructure their business opportunity, to restructure the direction that they are going to. So we see that they might decrease usage, might stop. or others might increase because they find their path and direction, and without products, they can basically go over these challenges. So it goes here and there.

Got it. And so the net retention rate declined for the third straight quarter. Is that a function of your customers, like you're saying here, may have some less usage, essentially? Absolutely.

And still, by the way, I think that it's a very good NLR, but yes, you see also the volatility in the NLR, but basically it comes direct from what we discussed now. Okay.

And then in December, you highlighted a Fortune 200 company began to use your website unblocker for almost six months, maybe more. I can't remember from that announcement. Can you tell us the evolution of the volume of that? I'm curious, did it start small? Did it get bigger? Has it remained small? Just kind of want to understand how a big customer is thinking about using this.

OK. So basically, they are very satisfied. They increase usage. And, you know, small or big, it's individual. I don't know how you see it, but at this point of time, it's in, let's say, it's in six digits in U.S. dollars. And ARR, meaning the run rate, the annual run rate, it comes to more than $500,000 a year. And and the run rate of these customers of these customers. So, at this point.

I guess where do you see the opportunity 1824 months out with a large customer like this? Is this. Can you get twice that can you get 5 times that? I mean, what is the opportunity for large customer?

Okay, so also here, I will define the opportunity for 2 parts. 1 is. regular no regular it can be huge but still a regular customer that is using our product our product exactly for the needs that i just described and of course we can get much more than this and it can come to also in to expressing revenues and also in a retention and sustainability because you know these customers are long-term customers and here it's a huge opportunity for us the second part which is, I don't know if it's more interesting, but it's more strategic with the cooperation with those players or giants that are aiming to become a significant player in the AI game. And for this, they need a kind of strategic cooperation with a company, with our products, for the long term and to become basically part of their product, meaning to be the data enabler in this funnel of the AI solutions and platforms they will provide to their customers. So this can be huge. This also can be big. But both of these two opportunities are the most exciting opportunities in this stage. But of course, as I mentioned, Brian, just to add also something related to the previous question, As you know, these customers take more time than regular customers, although it goes faster than expected. And second, it's the focus. So in my eyes, and in our eyes, the management of the company, of course, we allocate most of the resources, the talent of the company, and the focus of the company in this future amazing, maybe really once in a lifetime opportunity for us.

Last question I have is if you can update us on any planned product launches as you've built up the balance sheet. How do you think about M&A versus developing your own new products?

Okay.

So the first part of your question is about – can you repeat for a second? You talked about M&A.

Yeah, I'm curious about planned new products and then – Are you going to develop your own or how do you think about that versus acquiring companies that have complementary products?

Okay. So I will new products in the space of data collection, you know, the AI scrapers, the unblockers, all these very unique products. At this point of time, the plan as we do it just in these days is internal development. We hired really talented talents from the Israeli ecosystem, tech companies and intelligence units. And we build our own products. And by the way, the react that we are getting from the market is amazing after they test our product. Here, if we see a new opportunity, you know that we can buy, acquire an asset or a small company that can take us further, we will do it. But at this point of time, it's not the main plan. The main plan in the other side is you know, to add the additional layer of the analysis, you know, the AI, the analysis, the data insights, which here we are still considering in these days what is the right direction. By the way, we met in the last one year with a lot of companies, and there are many opportunities now in the market. But we still consider if we go this or that direction. For this point of time, Nothing specific that is on the table, meaning there is not any specific company that we see as an immediate opportunity, but I still think that the preferred direction in the insights and AI is to acquire a company that basically can take us further very fast and to help us close the loop of data collection and data scraping and then data analysis all in one big solution.

Okay, thank you. Thank you very much, Brian. Thank you.

Our next question comes from the line of Kingsley Crane with Canaccord Genuity. Please proceed with your question.

Hey, thank you. A couple questions. Big picture on paper, it makes sense that data collection should become more important, lower cost model services, more models are using domain specific data. It also seems that a lot of the new growth in data collection and labeling could be indexed to data types like audio and video. So I just want to dive a bit deeper into what you're hearing from AI-driven customer conversations, how important are alternative data types to their model building strategy and how do you feel like your position there?

Okay. Hi, how are you? So basically a very good question because it's that just, you know, as I said, that we feel that we are now in the period that everybody now are restructuring and, you know, restructuring their past in this AI world. And so we see that these, especially big players that coming all into the AI and basically instead of being, for example, a huge retail or marketplace company in few years wants to call an AI company. So they need data in scale, video, audio, and other kind of data. And They cannot do it. Maybe they can do it by themselves with internal developments, but they must have solutions like our scrapers, like unblocker, and of course, like our IP proxy network in order not to be blocked, in order to get a qualified and transparent data And in order to train their models in huge scales of data, they need a huge scale of data in order to stay up to date. And we see our industry or our sector and ourselves, of course, as a significant player, as the one that's enabling them to collect the data and to focus on their business or on their technology or on their intellectual property, which is the intelligence itself, the insights and the algorithm that can analyze data and provide insights or others.

Thank you, Shahar.

That's really helpful. So, just to dive a bit deeper on that, just regarding some of the fluctuations in demand in the near term, so it seems like If websites are making it more difficult to gather data based on some of the tactics they're employing and customers need more data, it seems like that would actually, and then you're better at circumventing those tactics than your competitors. It seems like that would give you better positioning and potentially bring more customers. So I guess I'm just trying to get more clarity on what customers are saying when they're pulling back in the near term and reevaluating the strategy.

Okay, so here, when we are talking about the short term, let's defer for a second from the AI players and let's go back to the regular customers, those that are scraping and need to scrape data, to collect data for many, many purposes. So if a website investing much more these days in order to block or in order to sort those that are coming in. So for these websites, sometimes it becomes more challenging in the past, and they need to help in order to understand how they are going to do it now. Of course, with our product, for us, it's a dream. Yeah, that's what we need. We need because we are a solution that can help this, You know, you need a solution. If you don't have a problem, you don't need a solution. So if the problem is increasing, of course, for us it's great. But for the short term, we see that customers are basically getting, for example, from a website that is their popular website for scraping, come a massive or huge change. So they need to stop and now they need to redesign their product and need to redesign their business opportunity because it's also a question for their side, of course, of profitability because if they needed to now to invest that amount in IP proxy or in other solutions in order to enable them to collect the data, now they need to spend more. So they need to stop and rethink and restructure the data business plan, their prices. So we see that this period, when I'm saying a fluctuation, it can go up and down, but it's a period that companies don't know exactly what will happen tomorrow, and they are trying to pop and to find the best direction for them in order to stay a player in this huge game, because The world is going there definitely. We see it all over, and the data is really the new oil. Everybody needs the data. Without data, you're worth nothing in this world. That's the issue.

That helps. I appreciate that. And so last, I just want to confirm. So the AI-related customer engagements, that was largely conversations in Q4, right, that was not materially impacting Q4 revenue, or how much did that impact Q4?

No. Okay. So, materially impacted view for revenue, no. But it's not just discussions, meaning we are working together, and it's something that is progressing quite well. Okay? I want to keep it for this call. I want to keep it at this stage, but it's more than discussions.

Perfect. Okay. That's it for me.

Thanks for taking the questions. Thank you very much. Thank you.

We have reached the end of the question and answer session. And therefore, I will now turn the call back over to Shahar Daniel for closing comments.

Okay, so thank you for your time today. We look forward to hosting you on Allowant Technologies' first quarter of 2025 results call. Thanks.

And ladies and gentlemen, this concludes today's conference.

You may disconnect your lines at this time. Thank you for your participation.

Well, generally, thank you so much.